 Personal finance PowerPoint presentation, property insurance. Get ready to get financially fit by practicing personal finance. Remember that when we're thinking about our insurance plans, our risk mitigation strategies, our typical process will be that resembling more of a long-term financial decision as opposed to the short-term financial decisions. When we're making those short-term decisions, we try to train our gut to trust our gut. We hone down our habits so we can depend on our habits to help make those short-term decisions in a more automatic fashion. With the long-term decisions, we need to have a more formal thought process because we don't have the same capacity of using trial and error in a tinkering type of method. The insurance generally falls into that longer-term kind of method because we're dealing with more abstract concepts and we're trying to make predictions about the future or possible future events and what kind of risk mitigation strategies and how insurance can fit into those mitigation strategies. And therefore, we want to have kind of a more formal thought process thinking about the adage of measure twice cut once. So the general thought process, when we're going through a longer-term type of decision, will be one, we want to set our insurance goals. What are the goals we're trying to meet? Number two, develop a plan to reach new goals. So we're going to put the plan together. Number three, put your plan to action. And number four, review the results and then think about if anything has changed and then update your goals and go through the process again. When we're thinking about the types of things, the personal events that we might insure against, we have disability, illness, death, retirement, property loss, liability. We now will be diving into property insurance. Most of this information can be found at Investopedia. What is property insurance? Which you can find online. Take a look at the references, resources. Continue your research from there. This is by Alexandra Twin, updated July 3rd, 2021. What is property insurance? Property insurance is a broad term for a series of policies that provides either property protection coverage or liability coverage for property owners. Property insurance provides financial reimbursement to the owner or renter of a structure and its contents in case there is damage or theft and to a person other than the owner or renter if that person is injured on the property. So when we're fitting this into basically our insurance plan, we want to think about the risks involved here. Obviously we would like to avoid things like robbery and so on and so forth if we're able to, if we lose property. Property is one of those kind of things where we're most likely to say, well, yeah, property can be replaced with something like financial with money through the insurance. But again, even if you lose property, we could lose properties that are valuable to us on a level that's not just a financial one. So we typically of course still want to not go through any kind of property damage or anything like that. But we can then have insurance of course to mitigate in the event that we do. Obviously the insurance company can't restore the property per se to its original form, but it can help us to restore it financially, financially possibly from that point, which would be the purpose. So property insurance can include a number of policies such as homeowners insurance, renters insurance, flood insurance and earthquake insurance. We could see all of these kind of things are going to be a form of property insurance, some kind of event that happens in the future that would have a negative impact on the property, which can be insured against, has some kind of possibility to be kind of calculated on the aggregate level, which makes it somewhat insurable, making insurance companies have the capacity to provide the insurance possibly. So it's a pure kind of a pure risk situation. Personal property is usually covered by homeowners or renters policy. The exception is personal property that is very high value and expensive. This is usually covered by purchasing an addition to the policy called a writer. If there's a claim, the property insurance policy will either reimburse the policyholder for the actual value of the damage or the replacement cost to fix the problem. So clearly if the event happens and there's going to be damage that is involved, then we have to think about what the value is that will be replaced. So the value of the property or we could think about, of course, the replacement cost. So if something burnt down, then we could think about what would the replacement cost kind of be in base or calculation in essence on that, how property insurance works. Perils covered by property insurance typically include select weather related afflictions, including damage caused by fire, smoke, wind, hail, the impact of snow and ice, lightning, and more. Property insurance also protects against vandalism and theft covering the structure and its contents. Property insurance also provides liability coverage in case someone other than the property owner or renter is injured while on the property and decides to sue. Property insurance policies normally include damage that results from a variety of events, including tsunamis, floods, drain and sewer backups, seeping groundwater, standing water, and a number of other sources of water. Water can cause problems of course to the homes oftentimes. Mold is usually not covered however, nor is the damage from an earthquake. In addition, most policies will not cover extreme circumstances such as nuclear events, acts of war, or terrorism. You can think from the insurance perspective of course. These things are a lot more difficult to have any kind of statistical measure of. If you're looking about natural events and so on, you can look at a certain area, and if you have a big enough sample and so on, then you might be able to calculate the likelihood on an aggregate kind of basis as opposed to on an individual basis, which is the idea or concept on which insurance is based. Something that's completely outside the box, which we don't have a whole lot of time frame to be measuring what kind of event might happen, like a nuclear war or something like that happening, just coming out of nowhere, then there's no basis on which for a calculation to be had. Earthquakes are another one which is quite difficult for them, even if you know you're in an area that has earthquakes that it's hard to determine when they will happen, where they will happen, what the damage will be. So that's another one that's difficult. You might have specific earthquake type of insurance. Understanding property insurance. There are three types of property insurance coverage. Replacement cost, actual cash value, and extended replacement costs. Replacement cost covers the cost of repairing or replacing property at the same or equal value. So when you're talking about replacement costs, obviously if something happens to a piece of property, then the first thought process would be, well, I need to restore my property to where it was at that point in time, which would be the replacement cost. Now that's, of course, difficult to do given the fact that things deteriorate over time and so on. So the coverage is based on the replacement cost values rather than the cash value of items. So then we got the actual cash value, the coverage pays the owner or renter the replacement cost minus depreciation. So now we're thinking, okay, the replacement cost, if you were to replace something, clearly you couldn't really replace something like a deck or something like that, some kind of structure with and put it to the exact place that it was before. You're going to have to buy new materials to replace it. So the replacement, you would think that the replacement then would be a higher value than it was before, even if you use the same materials because of depreciation and so on. So then the actual cash value, then you might try to figure the actual cash value in the coverage. So it covers pays the owner or renter the replacement cost minus the depreciation. So you got to figure what the replacement cost, how much it would cost to build, for example, whatever structure went down and then think about, well, how long was that structure up before? And then apply some kind of depreciation method, meaning, you know, lowering the value of it for the fact that it was in place and therefore most likely deteriorated over value, which is an estimate to try to figure out what would be an appropriate, you know, settlement value. So if the destroyed item is 10 years old, you get the value of a 10 year old item, not a new one, right? So that would be the idea and that would, of course, would be a beneficial to the insurance company. Then the amount of the payoffs, whether it be replacement costs or actual cash value will have an impact, you would think, on the amount that would the insurance policy would cost. Extended replacement costs will pay more than the coverage limit if the costs for a construction have gone up. However, this usually won't exceed 25% of the limit. When you buy insurance, the limit is the maximum amount of benefit the insurance company will pay for a given situation or occurrence. So we have these special considerations. Most homeowners purchase a hybrid policy that compensates for physical loss or damage caused by 16 perils, including fire, vandalism and theft. So the coverage known as an HO3 policy has certain conditions and exclusions. There is a predetermined limit on the coverage of certain valuables and collectibles, including gold, wedding wings and other jewelry, furs, cash, firearms and other items. So some of these items clearly can be those big ticket type of items that can have an outsourced impact and be difficult to, you know, on the insurance company to predict and so on. No coverage is usually provided in an HO3 for accidental breakage, damage and mysterious disappearance lost misplaced. So if you just lost something, that's not the same kind of thing as if it burnt down in the fire or something like that. So misplacement of valuables, including fine art and antiques. So we have the HO5 homeowners coverage includes everything in an HO3 policy, but is geared towards the structure itself and the property within the home, including furniture, appliances, clothing and other personal items. And HO5 doesn't cover the earthquakes or floods. HO5 insurance policies are available to homes that were either built in the last 30 years or renovated in the last 40 years and they typically cover any damage at replacement cost. So we have an HO4 property insurance is usually known as renters insurance. It covers tenants from loss of personal property and liability coverage. It does not cover the actual house or apartment being rented, which should be covered by the landlord's insurance policy. So clearly when you're a renter, you're paying for renters insurance, you don't own the actual property. So when the property goes down, that's not what you're concerned with in the renter. You're concerned with the stuff that's inside because that's your stuff. Obviously the building itself then isn't insured under the renters insurance. You would think that the landlord, the owner of the actual property might have some policy that would cover property policy that would cover that. Note that none of these coverage levels reimburse the homeowner for the property that breaks down or is damaged in more normal wear and tear situations such as a roof that begins to leak without damage from wind or hail. So the normal wear and tear of a home is up to you typically. So the roof's got a hole in it. I'm going to call the insurance company and the insurance company is going to be like, well, was there a tornado? Was there a fire? No, it's just it's been 15 years or something like that. That's normal wear and tear. So that's basically that's, you know, kind of depreciation. That's kind of the normal cycle of things and not an event that's on the add normal, which would have to be defined in the insurance insurance policy for the coverage to be covering it. So that's where home warranties, another way to protect your property can be helpful. So you might say, well, it's still a pretty big expenditure if there was a wear and tear type of thing that happened on these big ticket items that are expensive to replace. And warranties then would be the place to look into in more detail, which is similar kind of to an insurance situation. I think we've talked about warranties in a prior presentation. If you want to dive into that more detail.