Principles of Risk Management and Insurance - Essay Example

What factors are considered in homeowner’s premiums? In the problem, the insured has HO-3 coverage for the premium that the insured pays which covers the dwelling and other structures on a risk-of-direct-physical loss basis. All direct physical losses are covered except those losses specifically excluded. Personal property is covered on a named perils basis. The insured however runs the danger of not being covered it being sued for neglect by its neighbor which is an exclusion from coverage (powerpoint chapter 21, slide 4) In the problem under HO-3 coverage, the insured have $150,000 coverage for a $200,000 replacement cost of their house.

For the shed in the backyard, it is covered up to $15,000 (10% of Coverage A which is $150,000). Personal property can only be covered up to $75,000(50% of Coverage A which is $150,000). Additional living expense for living in a rented apartment until their home is rebuilt is covered up to $45,000 which is 30% of coverage A. The home office computer can only be covered up to $1,500 which is stated in the special limits of liability clause. Should the Grangers will lose the case against their neighbors (being sued for not controlling their son), their personal liability coverage is only up to $100,000.

Before coverage, the Grangers are also required to pay for the deductible of $250 as stated in their policy. 2. Why is it important for an insurer to consider each factor? a) The credit score or credit worthiness of the insured is important for an insurer or underwriter in considering the homeowner’s premium for insurance companies Approximates the probability of an insurer making its claim against their possibility based on their credit score or history of borrowing and repayment. Credit score also is a good determinant for insurance companies to determine the individual’s capacity to pay their insurance premiums. b) The older the home the that will be insured, the more expensive the premium will be for older homes are thought by insurers to be more vulnerable against destruction and calamity.

Such, the age of the home is one of the important factors that insurers consider in determining the premium of the insured. c) The type of policy or coverage is also a factor in considering the individual’s premium. Depending on the scope or price of the coverage, the higher the premium will be as the scope of the coverage will be more extensive and claim will be higher in the event that the house is destroyed or damaged. d) The deductible also is a factor how much would the premium of a homeowner if it seeks active insurance coverage.

The higher the individual’s deductible or amount it has to pay before actual coverage, the lower the premium will be it will cost less to the underwriter in the event that it will pay for claims. This is important for insurer as higher deductibles meant lower pay-outs for them in case of claims. REFERENCES: Chapter 21 Powerpoint lecture, slide 4