COMM 229 Notes – Chapter 6

Module 6: Property Insurance

A house is appraised at $250,000, and you have a down payment of $30,000/ CMHC charges the
following rates on the loan to value ratio:
Up to and including 80%, 2.40%
Up to and including 85%, 2.80%
Up to and including 90%, 3.10%
Up to and including 95%, 4.00%

What is the mortgage required, what is the loan to value ratio? What is the mortgage loan insurance
premium? What is the adjusted balance if the CMHC mortgage loan insurance is included in the
mortgage?

1. Mortgage required = 250,000 - 30,000 = 220,000

2. Loan to value ratio 30,000/250,000 = 0.12 > 1-12% = 0.88 or 220,000/250,000=0.88
 Any loan above 80% is a high ratio
3. 3.10% CMHC is 3.10% insurance premium * amount of borrowed money 3.10% * 220,000=6,820
4. 220,000 + 6820 = 226820 adjusted mortgage amount

Property insurance
 Insurance against the asset itself
 Liability / causality insurance : damage caused

Risk manage alternatives

 Avoid risk: drive safe
 Reduce risk: schedule regular maintenance
 Accept risk: risk tolerance
 Share risk: decision to obtain insurance is determined by weighing its costs and benefits

Regular wear and tear isn't covered anywhere by any insurance

Insurance company operations

 Collect premiums from clients and make investments with it
 Payouts are business expenses and paying out claims
 Higher the premium the higher probability of financial loss
 Insurance Underwriters: people who calculate risk of specific insurance policies and decide what
premiums to charge and what amount to payout
 Insurance Agents: sell and recommend packages to potential clients
o Captive (or exclusive agents work at one company)
o Independent (represents many different companies and chooses best for you)

Auto Coverage
1. Liability and causality coverage (Mandatory)
a. Payouts for injuring or causing damage to persons
 b. Third party have the right to sue for any losses
c. Two components of liability damage is bodily injuries caused to a third party and
property damage to a third party. This coverage only affects the third party, damage to
yourself comes under section 3.
2. Medical benefits coverage (Mandatory)
a. Driver or passenger get injured
b. Medical coverage for injuries
c. Uninsured motorist coverage - if you are hit by someone who doesn’t have insurance
this will cover for you since they don’t have insurance to cover for you (when you are
not at fault)
3. Insured vehicle (Property component which is optional)
a. Collision insurance insures against cost of damage towards your car whether you are at
fault or not
b. Deductible is a set dollar amount that you are responsible for paying before any
coverage is provided, a lower deductible translates to higher premiums and vise versa
c. Limited waiver of depreciation
d. Collision coverage does not apply to items damaged inside the car during an accident

Facility Association: ensures drivers are able to obtain insurance when conventional agencies do not
want to insure someone due to bad driving history or DUI's, however the price is over double typical
insurance costs.

No fault insurance system: no matter who is at fault you file with your own insurance company. In places
like Ontario only the driver who is at fault has to file with their insurance company.
 Pros:
o Quicker coverage
o Reduces number of lawsuits
 Cons
o Higher premiums
o Reduces chance to receive compensation from a lawsuit

Optional coverages
 Loss of vehicle (rental car)
 Damage to non owned car (rental car)
 Towing
 Family coverage (coverage for an accident involved with someone who is uninsured)

Factors that affect your auto insurance premiums

 Age is most important factor
 Second is driving history

Homeowners Insurance
 Homeowners insurance: provides insurance in the event of property damage, theft, or personal
and third party liability
 All perils coverage: protect the home and any other structures on the property against all events
except that are specifically excluded by the policy
 Named perils coverage: protects the home and any other structures on the property against
only events named in the policy
Cash value policy: pays you the value of the damaged property after its considering depreciation

Replacement cost policy: pays you the cost of replacing damaged property with an item of similar brand
and quality

Liability home insurance: coverage against lawsuits as result of something that occurred in your house
such as injury from slipping on sidewalk or down stairs.

Factors that affect Homeowners insurance premiums

 Higher Insured valued of item -> higher premium
 Lower deductible -> higher premium
 Location risk -> higher or lower premium based on risk probability
 Higher coverage -> higher premium

Tenants Insurance
 Insuring the ownership of own assets (laptop, tv, furniture)
Module 6 - Health and Life Insurance

Health and life insurance is used in order to maintain "income" or financial stability

Health Insurance: a group of insurance benefits provided to a living individual as a result of sickness or
injury.
 Private health care coverage (dental, vision etc) - (used for policy holder)
o Critical illness, disability, long term care
 Life Insurance (used for beneficiary)
o Term and permanent

Federal, provincial, and territorial governments assume various roles and responsibilities
 Role of federal government based on Canadian health act principles
o Public administration
o Comprehensive
o Universality - access to care
o Portability - use of your own provincial health card anywhere in Canada
o Accessibility - everything is free of charge

Flexible spending account: You can spend x amount of dollars on anything related to personal health, it
is an extension to private health care.

Group coverage - company pays half the deductible and employee pays the other half for private health
coverage
 Corporate level gets tax benefits
 Employees loyalty increased - staff retention

Creditor insurance covers mortgage loan protection, however it is advised against because as you pay
off your mortgage your principle being covered lowers over time
 Table 1: Individual Health Insurance
Critical illness vs disability
 Critical illness is covered by stroke, heart, and life threatening cancer
 Disability is covered by any type of illness or injury that prevents us from working

 Critical illness gives a large lump sum payment

 Disability gives period payments alike a salary

 Disability insurance
o Benefits may be payable in the event of total or partial disability
o Benefits may be paid over the insured lifetime
o Polices or portable (i.e you can move them from job to job)
 Critical illness
o Generally CI pays only if you are able to survive a covered life altering illness for at least
30 days
o Can use benefit money any way you like
 Long term care insurance
o Covers expenses associated with long term health conditions that cause individuals to
need help with everyday tasks
o Typically covers nursing, rehab, therapy and personal care

Table 2: Life Insurance

 Term Insurance
o Life insurance that is provided over a specific time period (typically 10-20 years) and not
build a cash value
o Cant be renewed after a certain age
o Premiums can vary significantly

 Permanent Insurance
o Does build cash value
o Higher premium
o Time is indefinite
o *Higher premium if you want to guarantee a higher cash value*

Table 3: Premiums
 Term: Longer the term, the higher the premium
 Age: the older we are, the higher the premium
 Coverage: the more protection, the higher the premium
 Gender: men live shorter so pay higher premiums
 Smoking: if you are a smoker you pay much higher premiums (up to 30-50% more)
 Medical History: different conditions and history affect premium differently

Cash Value Premiums

  Expense "cost of dying"
 Cash value "investment"
Life insurance available as long as premiums are paid
Part of the premium may be used to create a savings account (the cash value of the policy-
available prior to death)
Rest of the premium is the cost of insurance- expenses incurred to provide the actual death
benefit, sometime referred to as the pure cost of dying
Death benefit is the total amount paid tax-free to the beneficiary on the death of the policy owner

Table 4: Life Insurance

 Whole Life
o Premiums are fixed
o Investments decisions are made by insurance company
o Cash value is guaranteed because company makes investment decisions and and
premium is fixed
 Universal Life
o Premiums are flexible
o Investments decisions can be made by policy holder
o Cash value is not guaranteed because you choose how much to pay and where to invest

Term to 100 Insurance

 Works like term insurance because there is no cash value
 You are buying protection indefinitely
 Everything else is the same as permanent