Personal Finance Concepts - Essay Example

Running Head: PERSONAL FINANCE CONCEPTS PERSONAL FINANCE CONCEPTS Personal FinanceConcepts Automobile Owners Policy: Liability is one of the salient features of an automobile insurance policy. There are two kinds of liability: (a) single liability limit and (b) split liability limit. My insurance policy specifies a split liability limit of 100/300/50. The difference in the two kinds of liability lies in the amounts that will be paid by the insurance company in the event of a claim generated by an accident. When a policy specifies a split liability, this means that the Company pays for three different kinds of coverage (a) maximum amount payable per person for bodily injuries (b) limit on total payment for bodily injuries and (c) amount payable for property damages [Stephenson, 1995]. Therefore in my case, the split amount liability indicates that up to $100,000 will be paid towards injuries per person, while total amounts that can be claimed for bodily damage is $300,000 and total that can be claimed for property damage is $50,000. If the damages caused are in excess of these amounts, then the insured will have to pay them out of his own pocket. A single liability limit on the other hand would not subdivide the coverage that may be claimed in this manner. It will merely specify a total amount that may be claimed towards all the various categories of damages that may occur, including both bodily damage and property damage[Stephenson, 1995]. The insured amount can be applied towards any category of expense, however the insurer will not pay for a total amount more than that specified. The amount of personal liability coverage on my policy is not adequate to protect all assets and future income. This is only a token amount that has been allotted since PIP is no longer considered mandatory in most states. It will cover only a few of the incidental expenses that are liable to arise out of an accident. Also, my car is seven years old, yet collision or property damage coverage is required, although the insurance companies pay for damages according to the book value of the car.[Stephenson, 1995]. The amount of deductible will determine the premium and every time a claim is made, the premium increases, so it is worth considering a higher deductible in order to avoid claims. In the case of an older car, it may be less worthwhile paying higher premiums that are good to protect against damages to a brand new car but not in the case of a car that is over seven years old, as in this case. But in spite of this consideration, property damage is a good thing to have on the insurance policy because it protects even old cars and the driver from damages and injuries caused due to collision. My car is not so old, nor the value so low that I can assume the loss myself. Uninsured motorists coverage is mandatory in most states that require auto liability insurance, in order to allow for expenses that an auto owner may incur through the fault of an uninsured motorist. Although these motorists are not legally allowed to drive without insurance, the unfortunate reality is that they do drive and an auto owner needs to protect himself from hit and run accidents caused by such motorists. Home owner’s Policy: My home owner’s policy indicates that I will be reimbursed for losses at 75% of the replacement value. This is a fair settlement amount to reimburse for losses that may occur due to fire, hurricanes or other disasters, since it is based on replacement value rather than cost value, however, it does not reach the recommended amount of 80%. The policy does include an inflation guard endorsement and this means that the provision exists for payment of claims by taking into account, the rise in costs due to inflation. The insurance policy specifies that that this amount will be paid to the mortgagee. The amount that is specified in the deductible clause is $10,000, which means that in the event of a loss for any reason, which places the liability for claim settlement on the insurance Company, I will be responsible for paying for the first $10,000 of the expenses that I incur, before the Insurance Company settles the claim for the rest of the amount according to the coverage that I have. My policy also required me to pay an additional amount of $1000 as jewellery coverage, in order to insure against loss, theft or damage to the jewels I own. However, no additional coverage was purchased for personal property of children who are away at school. The personal property coverage that is specified in my insurance policy is somewhat less than what I would need to adequately compensate for damages that could occur to my personal property and my homeowner’s policy does not mention flood damage coverage. Evaluation: Based on the above, it appears to me that I must specifically take steps to step my coverage to 80% of replacement value and acquire additional flood coverage, since my home is in a flood prone area. This insurance can be purchased only from the Federal national Flood Insurance program. In addition, I would also need to consider additional coverage for damages due to fire and the incidental expenses that I would incur such as fire department service charges, which are not covered in my policy. Further, I could also consider increasing my coverage to specifically protect against theft and damages resulting to my property from my business, since this is another area that is not currently covered in my homeowner’s policy. References Cited: * About Home Insurance. Retrieved July 15, 2005 from URL: http://www.metlife.com/Applications/Corporate/WPS/CDA/PageGenerator/0,1674,P382,00.html * Stephenson, Mary J. (1995). Risk management: Auto Insurance. Retrieved July 15, 2005 from URL: www.agnr.umd.edu/MCE/Publications/ Publication.cfm?ID=375&cat=A . Read More