Insurance Knowledge Center
Auto Insurance Topics
THE BASICS OF AUTO INSURANCE
What is auto insurance?
Owning a car involves several risks. When a car accident occurs, people may be injured and vehicles (or other property) may be damaged. Damage can also occur through theft, vandalism, or natural disasters. Auto insurance can protect you against the financial loss associated with these risks. Insurance companies provide auto insurance through personal auto policies (PAPs). A PAP is a contract between you and your insurer, specifying each party’s rights and obligations. Essentially, your insurer promises to provide specific coverage for you. In return, you pay a premium.
Why do you need it?
State law (and/or your car’s lender) often requires you to purchase at least a minimum amount of auto insurance. You may find it sensible to purchase greater coverage, however, in order to protect your auto investment, pay for necessary medical expenses, cover your legal liability, and cover any additional losses related to driving. Consider the following: if you cause an accident and the other driver suffers damages over and above your insurance policy’s limits, your personal assets and future earnings may be put at risk.
What do you need to know?
First of all, it’s important for you to know how to read and understand an auto insurance policy. Next, you’ll want to carefully balance cost against desired coverage. Finally, you should allow us the opportunity to evaluate and compare the various car insurance products you want or have, to ensure that you get the best value for your insurance dollar.
- Understanding your personal auto policy (PAP)
- What is a deductible?
Regarding damage to your own auto, collision and comprehensive coverages may each include a deductible. A deductible is basically a risk that is self-insured. It’s an amount of money that you are required to pay before your insurance kicks in. Deductibles can come in any dollar amount, but are generally $100, $250, $500, or $1000.
- Coverage vs. cost
You will always want to balance coverage against cost. Choosing the appropriate level of coverage depends on a number of factors, including the value of your vehicle, the value of assets you must protect, the amount of money you can afford to pay out-of-pocket, and your tolerance for risk. If a claim against you exceeds your coverage limits, you will be personally responsible for the amount that exceeds the coverage. As a licensed independent agency we can tailor the policy to fit your needs. To arrive at the cost of your premium, the insurer will consider the coverage levels you select and will use statistical information about you, the area you live in, and your car.
- Evaluating and comparing policies
Compare policies in terms of coverage, exclusions, the reputation of insurer and then price. If you ever find yourself shopping for different quotes, make sure you are comparing extremely similar policies. Also, weigh the policy cost against both coverage and the quality of service provided.
Your policy is broken into simplistic and logical sections. It discusses types of coverage, rights, and obligations under the policy, as well as exclusions or limitations. Types of coverage include liability coverage (injuries/damage you cause to other people and other property), medical payments coverage (medical expenses that will be paid–up to a specified limit–regardless of fault), uninsured/underinsured motorist coverage (losses caused by a driver who is uninsured or has inadequate insurance), and coverage for damage to your auto (accident damage and other damage or loss).
When to get it
You may need to purchase auto insurance whenever you buy a new or used car. You may also need to reconsider your present policy if your family situation changes. Because marital status, number of children, and asset levels may change over time, you should try to review your existing policies from time to time to ensure adequate coverage is always maintained.
The following information briefly explains the components of the personal auto policy (PAP), as well as the persons and events typically covered under such a policy.
Anatomy of the personal automobile policy (PAP)
Declarations page: Your PAP is a written contract between you and your insurance company. The policy’s declarations page contains accurate information concerning you (as the owner of the policy), the vehicles covered by the policy, and other identifying features.
Part A–liability coverage: Liability coverage insures you against injuries you cause to other people and damage you cause to other people’s property in an automobile accident. Liability claims for pain and suffering can be virtually limitless, so this is one area in which you definitely do not want to be underinsured. The PAP separates liability coverage into two parts: bodily injury coverage and property damage coverage.
Part B–medical payments coverage: Medical payments coverage (med pay) pays medical expenses resulting from an automobile accident up to a specified dollar limit. The purpose of “med pay” is to provide payment for immediate medical treatment for passengers of your car who are injured in an auto accident. Because of this, there’s no need to wait and find out who is at fault and ultimately liable.
Part C–uninsured/underinsured motorist coverage: This coverage insures you against losses caused by someone who is completely uninsured or who has less than adequate insurance to cover the loss (underinsured).
Part D–coverage for damage to your auto: Part D coverage actually consists of two separate parts: collision coverage and comprehensive coverage. You can purchase either one or both of these coverages for each vehicle you own. In general, collision coverage insures you against damage to your vehicle caused in an accident. Comprehensive coverage insures you against all other physical damage to your car caused by such events as fire, theft, flood, and vandalism. These coverages can be written with or without a deductible (generally, anywhere from $100 to $1,000). The higher the deductible, the lower the premium, and vice-versa.
Part E–duties after an accident or loss: This part of the PAP deals with the specific procedures that must be follow in order to have your claim covered by the insurer. It contains a list of general and specific duties that must be complied with. It’s essential to follow these procedures carefully, since timely payment of your claim may depend on your doing so.
Part F–personal auto policy provision: Part F of the PAP contains various provisions that limit and qualify the coverage provided in other sections of the PAP. Such provisions are commonly referred to as disclaimers. If the conditions set forth in this section are not met, the insurer may be able to deny coverage of a claim.
In addition to these basic parts included in every policy, there are certain optional coverages which can be purchased at an additional cost.
What’s not covered
Exclusions: Your PAP identifies a number of events and situations that are specifically omitted or excepted from coverage. These are called exclusions. An example would be property damage and personal injury that you intentionally caused, or damage to a vehicle from normal wear and tear or mechanical breakdown.
Limitations: Your PAP also specifies certain caps on the dollar amounts of coverage you are entitled to receive under the policy. These are called limitations. Separate limits are generally set for liability, medical payments, uninsured motorists, collision, and comprehensive coverages.
It’s important to read your PAP so that you’re aware of all the applicable exclusions and limitations.
Individuals typically covered under a PAP
Named insured: One section of the declarations page identifies you as the named insured, meaning you are the individual who is primarily insured under the policy. As the named insured, you and your vehicles receive the most extensive coverage under your policy.
Spouses: Your spouse is generally entitled to receive the same coverage as you (the named insured) under your policy if he or she lives with you, even if he or she is not identified as a named insured on the declarations page of your policy.
Family members: Family members (as defined in your policy) are insured by your PAP as long as they own, use, or maintain the vehicle covered by the policy. In fact, family members generally receive almost the same extensive coverage that you do.
Other people: If your covered auto is involved in an accident, other people are insured under certain sections of the policy if:
- they were using the covered auto (liability coverage),
- they were occupying the covered auto (uninsured motorists and medical payments coverages),
- they are legally responsible for the actions of any other person insured under the policy (liability coverage), or
- they are entitled to recover due to any bodily injury suffered by you, your resident spouse, family member, or anyone using the covered auto (uninsured motorists coverage).
If a vehicle other than a covered auto is involved, other people are insured under your policy as long as:
- they are not the vehicle’s owner and they are legally responsible for the actions of any other person insured under the policy (liability coverage), or
- they are entitled to recover due to any bodily injury suffered by you, your resident spouse, or relative (uninsured motorists coverage).
The coverage that your personal auto policy (PAP) provides can be tailored to meet your specific needs. Aside from any required minimum coverages that may apply (and subject to financial concerns), you can select the coverages and amounts you’d like. In addition to the various coverage options, there are also general policy options. Within certain parameters, you can make decisions here as well.
Choosing the policy period
Your PAP is only in effect during the policy period. This period of time is determined when you enter into the contract with the insurer. Typically, auto policies are in effect for one year. You may also be able to purchase auto insurance for longer or shorter periods of time.
Generally speaking, your premiums should be slightly lower when you purchase a policy with a longer period. With longer policies, the insurer can spread out the administrative costs of writing the policy over a longer period of time.
Canceling the policy
Although you can cancel your PAP at any time before the expiration date of the policy, insurers have procedures that must be followed in order to do so. If you ever cancel before the end of the policy agreement there may also be a cancellation fee or penalty. Therefore, it’s advisable to check first if you ever find yourself considering early cancellation.
Paying your premium
Insurers typically give you three general options for paying your insurance premium:
- Pay the entire annual premium up front,
- Make a down payment on the premium and then divide the remainder into monthly installments, or
- Pay an equal monthly amount for 10 or 12 months.
Each method has pros and cons. Paying the entire amount up front might be financially impossible for you, but if you can afford it, you can expect to receive some savings. A payment plan, for most, is the preferred approach, but you can expect to pay an additional small service fee in order to enjoy this convenience.
Towing and labor coverage
Optional towing and labor insurance provides coverage for emergency road service and towing. Under this coverage, the insurer will pay towing and labor costs incurred each time your “covered auto” or any “non-owned auto” is disabled, up to the policy limit. This coverage is available any time your vehicle breaks down and is not limited to accidents covered under your physical damage coverage.
The insurer will typically only pay for labor (such as changing a tire or jump-starting your car) performed at the place where your vehicle is disabled, not the repair work done at a service station.
- Covered auto: This term includes all vehicles listed on the Declarations page of your policy. It also includes any passenger vehicles that you purchase during the policy period, assuming you give notice to your insurer typically within 30 days after you become the owner.
- Non-owned auto: A non-owned auto is a vehicle that either you borrow or use as a substitute for your “covered auto.” A borrowed vehicle is covered as long as it is not furnished or available for your regular use. (If a vehicle is furnished for your regular use, you should be listed on that owner’s policy.) Substitute vehicles are covered when your “covered auto” is out of normal use because of breakdown, repair, servicing, loss, or destruction.
Transportation expense (rental car) coverage
This optional coverage pays a set amount per day for transportation expenses (including a rental car) if your car is being repaired because of an accident. This coverage is often limited, and does have a maximum amount of coverage stated in the policy. For an additional premium, the per-day and maximum limits can usually be increased.
Typically, the coverage applies only if your vehicle is unusable for more than 24 hours. The payment is further limited to the period of time reasonably required to repair your vehicle.
In order for the rental benefit to take effect, the theft or accident has to be one that is covered under the physical damage section of your policy. Depending on your policies specific details, this coverage may or may not apply to stolen vehicles.
Let’s be honest: reading an auto insurance policy is not a popular pastime. After all, an insurance policy is really a legal contract. It contains a lot of dry, technical legal language as well as jargon specific to the auto insurance industry–not exactly Saturday afternoon leisure reading. Nonetheless, it’s probably a good idea to sit down and thoroughly read your policy.
Ideally, you did this when you bought the policy. It only makes sense to read a contract before entering into it so that you’re fully aware of your rights and obligations, among other things. If you didn’t, you really should read your policy at some point, and then contact us with any questions or concerns.
Like other insurance contracts, your policy begins with a declarations page. This page identifies the policy number and provides important information including the policy term, coverage limits, and information about the insured. If you bought the policy for your car, you are probably the named insured. If so, the declarations page will contain your full name, and may also contain the names of family members and other drivers in your household. Also included here is your complete legal address, which may differ from the address where the covered auto is principally kept. The address where the car is kept helps determine your premium, but it is your legal address to which all correspondence about the policy will be sent.
If you got a loan to purchase your car and there is still an outstanding balance, the lender will be listed as “loss payee” on the declarations page. Because your lender has a financial interest in your car, they are entitled to receive payment under your auto policy if the car is damaged or destroyed. Consequently, information about your lender must be listed in the “loss payee” section of the declarations page.
The declarations page also contains a description of the vehicle(s) covered under the policy. This description includes each vehicle’s year, make, model, serial number, address where garaged, etc. The declarations page also indicates how each vehicle is used (i.e., for pleasure, business purposes, commuting to work, etc.). Your premium will be partly based on this information about your car.
If you elected to purchase one or more “endorsements” to expand and/or restrict the coverage your policy offers, these will be identified on the declarations page by name, form number, and date. The endorsements must be listed here in order for your insurer to provide that particular coverage. Finally, the declarations page shows the annual policy premium–the amount you’re paying your insurer for the insurance coverage. The total premium is a figure that results from adding up the separate premiums charged for each specific type of coverage.
Your policy contains a general insuring agreement, which is basically a broad statement listing the perils and risks covered under the contract. The insuring agreement also identifies exclusions, which are specific events and circumstances the policy will not cover. These noncovered situations are spelled out explicitly so as to minimize the policyholder’s confusion about what’s covered and what’s not. Definitions of terms commonly used throughout the policy are included in the insuring agreement, as are certain special provisions. The purpose of these special provisions is to prevent policyholders from taking unfair advantage of their auto insurance. For example, one special provision requires you to notify the insurance company if you want to add new vehicles to your policy. Otherwise, you could insure multiple vehicles under the same policy without informing your insurer, and obtain coverage for all of them with no premium increase.
The ISO Policy Form
The auto policy is completed with the attachment of the ISO Personal Auto Policy Form to the declarations page. This form spells out in detail the six main auto insurance coverages provided under the policy.
Part A–Liability Coverage: This provides protection against losses to an insured, caused by bodily injury or property damage to someone else that arises out of the use of an insured vehicle.
Part B–Medical Payments Coverage: This provides coverage for various medical expenses incurred by the insured and others as a result of an accident, regardless of negligence or liability on the part of the insured.
Part C–Uninsured/Underinsured Motorists Coverage: This provides coverage for losses the insured and others sustain when injured through the negligence of an uninsured, underinsured, or unidentified “hit-and-run” motorist.
Part D–Coverage for Damage to Your Auto: This provides coverage for losses the insured suffers as a result of damage to his or her covered vehicle (and/or its contents). This coverage consists of two parts: collision (for collision-related damage) and comprehensive (for damage not caused by a collision).
Part E–Duties after an Accident or Loss: This section imposes various requirements on the insured in the event of an accident or other loss. If you do not comply with the duties spelled out in this section, you may forfeit your contractual rights under the policy.
Part F–General Provisions: This section specifies certain conditions that apply to the entire policy or insuring arrangement. These include provisions for fraud, bankruptcy of the insured, and cancellation of the policy, among other things.
Before purchasing auto insurance, you are encouraged to always evaluate and compare the various products offered to ensure you get the coverage you need at an acceptable level of value. Additionally, because your personal and financial obligations change over time, you will occasionally need to review your personal auto policy (PAP) to confirm that it adequately meets your current needs. If it doesn’t, you may choose to increase or replace your policy.
Evaluate the coverage you already have
Before buying new or additional coverage, first review and understand the coverage you already have. It’s a good idea to discuss with us, or your financial advisor, your auto policy when reviewing or updating coverage levels. Talk about your current and future insurance needs. You may be able to increase your liability coverage or make limited changes to an existing policy if you find that the coverage you have is inadequate. On the other hand, there may be occasions when you need to purchase an entirely new policy.
The following is a list of some common events that should trigger a review of your personal auto policy:
- Your annual policy is up for renewal: review it and make necessary changes. Usually a month or so before renewal is an ideal time to consider modifications.
- Your family status changes (married, divorced, kids): You may become more concerned about protecting assets after you get married, or you may wish to purchase more liability or collision coverage after your son or daughter gets a driver’s license.
- Your property increases in value: Your home is one of your most valuable assets. Without adequate auto liability protection, your home could be lost to pay a judgment against you.
- Your net worth increases: As your net worth increases, you will have more assets (and more valuable assets) to protect.
- You buy a new (or additional) car: When you buy a car, you’ll need to change your automobile policy to insure it. Take a few minutes to review your liability coverage under that policy, and make sure that your liability limits are still adequate.
Comparing policy terms and conditions
Although automobile insurance policies are standardized to a certain extent, it’s still important to compare specific policies in terms of coverage, exclusions, the reputation of the insurance company and value. Some points to consider:
- When comparing policies, always make sure you are comparing very similar policies. You can’t fairly weigh one policy against another unless you are comparing similar provisions and exclusions. Think about deductibles and limits of liability, as well as price. To do this means you will want to spend time carefully reviewing each policy’s general language and details.
- Weigh the policy cost against coverage and the service you’ll receive.
- Evaluate the strength and reputation of the insurance company. It’s important to buy auto insurance from a financially sound, reputable insurance company. You can check the ratings published by one of several companies, such as A.M. Best, Moody’s, Standard & Poor’s, or Duff & Phelps.
Saving Money On Auto Insurance
If you own a car and drive it, going without insurance is generally not an option. In most states, you may be required by law to purchase a minimum amount of liability coverage. And you should probably have more than just the bare minimum if you want to provide yourself with adequate protection. There are steps you can take, however, to reduce your auto insurance costs without having to go to extremes. Some or all of these steps may be appropriate for you, depending on your circumstances.
Specific ways to save money on auto insurance
Increase your deductible: For many people, raising the deductible on their auto insurance is a good way to cut the cost of the policy. Sometimes you can reduce your annual premium by 10 percent or more if you increase your deductible from, say, $250 to $500. If you do this, however, make sure you have the financial resources to handle the larger deductible if and when, the time comes.
Narrow the scope of your coverage: If you drive an older car worth less than $1,000, it may be cost-effective to drop collision and comprehensive coverage. The rationale is that even if the vehicle were severely damaged in an accident, the amount the insurer would pay for its repair or replacement would be relatively small.
You might also consider dropping any options you may have added to your policy (special provisions for items like towing and labor, car rental, and loss of income). Removal of these items may reduce your premium somewhat, but will also expose you to the costs in question.
Lower coverage amounts: You can also reduce the amounts of certain coverages. Again, be careful. You don’t want to be inadequately insured, especially in the area of liability. You should almost always keep your liability coverage at as high a level as possible because this is where you can have the greatest losses. You may be able to lower your coverage amounts in other areas (such as collision and comprehensive), but don’t rush into such a decision just to save a few bucks. Talk it over with us first.
Drive less: If you drive less than a certain number of miles in a year, you may qualify for a low-mileage discount. If the insurer offers this discount, try to limit your driving as much as possible. If you commute to work, use public transportation instead of driving. When you go away on vacation, fly, rent a car, or take a train.
Don’t use car for business purposes: Since work-related driving generally subjects you to a higher premium than pleasure driving, it may be in your best interest to stop using your car for business purposes if saving money is one of your goals.
Drive more safely: You may be eligible for a price break on your policy if you maintain a clean driving record for a specified period of time. A clean driving record generally means no accidents, moving violations, driving convictions, etc., during that period. The best way to qualify for the applicable discount is to drive carefully and defensively at all times.
Buy a low-profile car: Cars are rated on a risk scale for auto insurance purposes. In general, sports cars and other high-performance, flashy vehicles are classified as higher risks because they are common targets for thieves and vandals, and because statistically, the people who own them tend to drive more aggressively. If you own such a vehicle, you will likely pay a higher premium than if you owned a 4-door sedan, minivan, station wagon, or other low-risk vehicle.
Move: If you live in a rural community with little crime and traffic congestion, your premium will generally be lower than if you live in an urban area where your car is more likely to be stolen, vandalized, or involved in an accident. Granted, you shouldn’t move just to cut your auto insurance costs. However, this may be one of many factors in your decision if you’re thinking about relocating from the country or suburbs to the city.
Keep your car in a garage: Cars parked in garages are less likely to be stolen, vandalized, or struck by other vehicles.
Have safety/antitheft devices installed: You may receive discounts on your insurance if your car is equipped with one or more of the following options: anti-lock brakes, automatic seat belts, and airbags. Similarly, antitheft devices such as car alarms and tracking systems (e.g., Lojack) may also get you a discount because they reduce the chances of your car being stolen or vandalized.
Inquire about multipolicy discounts: You may be eligible to receive a discount from the insurer if you buy more than one type of policy through that same company (e.g., auto and homeowner’s). A discount may also apply to your auto insurance if you insure multiple cars under the same policy or with the same company.
Other discounts: Other discounts may be available if you meet certain criteria, so be sure to ask us about this very important topic when reviewing your policy with us.
REVIEWING OPTIONS & COST FACTORS
Auto Insurance Coverage Options
Auto insurance isn’t a “should I or shouldn’t I?” proposition. Most states have laws requiring you to purchase at least some minimum level of auto insurance, and lenders require it.
In reality, though, there is often a large gap between the insurance you’re required to carry and what you should consider carrying. As you review your auto insurance needs it is advisable:
- that you have a broader scope of coverage (i.e., more types) than the state or lender mandates, and
- that your coverage limits in most areas of coverage exceed the required minimums. The point is that you should ideally have an appropriate amount of auto insurance based on your unique needs and tolerance for risk and the possibility for financial loss.
Aside from finances, other personal considerations will enter the picture as well. Such factors as your location, how much driving you do, the way you drive (i.e., aggressively or defensively), and the size of your assets should all play a part in determining the range and amount of coverage you need. You should try to tailor your coverage to your unique situation, but there are some general guidelines you can work with as well.
Since auto insurance coverage is typically broken down into component parts, each of which provides a different type of protection, it’s best to look at each part individually.
Liability coverage consists of two separate parts:
- bodily injury liability, which covers you for losses that result when you or certain other people injure or kill someone with your car; and
- property damage liability, which covers you for losses that result when you or certain other people damage someone else’s property with your car.
The bodily injury portion of this coverage is the most crucial aspect of your auto insurance. The reason: liability claims against you for medical bills, lost income, and pain and suffering if you should ever seriously injure someone in an accident can easily mount to hundreds of thousands of dollars. This is one area where you definitely don’t want to be underinsured. Property damage claims can also be huge, especially if you were to ever cause severe damage to someone else’s expensive, brand-new car. Among other things, you could also strike and damage a power pole, resulting in losses to the companies (phone, electric, etc.) serviced by that pole.
In most states, the required minimum liability coverage doesn’t come close to covering the costs associated with a serious accident. That means if you took to the road with the minimums, you could expect to pay the majority of the claim out of your own pocket if you’re sued. This is particularly dangerous if you have a home and other large assets worth protecting. Consequently, it may be advisable to carry both bodily injury and property damage liability coverages well beyond state minimums.
Medical payments coverage
If you or your family members are involved in an accident, whether in your insured car or in someone else’s insured car, medical payments coverage will pay medical expenses incurred as a result of the accident. Your non-family passengers may also qualify for this coverage if they’re injured in your car.
Since the other driver’s insurance should cover these costs if he or she is at fault (and has proper levels of insurance themselves), medical payments coverage comes into play when the accident is your fault.
If you have extensive health insurance coverage for yourself and your family, you might think that medical payments coverage is redundant and unnecessary. Be aware, though, that your health insurance won’t cover passengers who aren’t related to you if they’re hurt in an accident in your car. Medical payments coverage often will.
Uninsured/underinsured motorist coverage
This provides coverage for losses you and others suffer as a result of an accident that is the fault of another driver who either doesn’t have adequate auto insurance, or has no insurance at all.
In no-fault states, this type of coverage may not be essential because your auto insurance will have to cover your losses even if the other driver was at fault. In other states, however, this coverage is very important. If you were in an accident caused by a driver who had no insurance and no assets to compensate you, you might have no recourse. Uninsured/underinsured motorist coverage ensures that your insurance company will cover whatever expenses the driver can’t meet through insurance and other resources. It may also cover your losses if you’re hurt by an unidentified hit-and-run driver.
The number of uninsured, underinsured, and hit-and-run motorists on the road makes this coverage extremely important. Although the cost of this coverage is generally low, it often pays only for losses arising from bodily injuries, and not for property damage.
Collision and comprehensive are actually two separate types of coverage. Collision covers you for losses you suffer when your vehicle is damaged in an at-fault collision with another vehicle or other object. Comprehensive covers you for losses suffered when your vehicle is damaged by fire, vandalism, flood, and a variety of other events.
In virtually every state, both are optional coverages that you can purchase for an additional premium. So should you buy them or not? In general, the answer is yes. If you don’t buy them and your vehicle is damaged, you will have to pay for the vehicle’s repair or replacement out of your own pocket (unless the accident was caused by another driver). Keep in mind, however, both types of coverage are subject to deductibles. They also generally only cover you up to the actual cash value of your vehicle. For this reason, it is generally not cost effective to have collision and comprehensive on much older, virtually valueless vehicles. With more expensive vehicles, the need for these coverages is much greater. You will have to weigh the cost against the potential benefits. Bottom line: if you drop your damage protection coverage, you could be responsible for the entire cost of repairing or replacing your vehicle and for this reason we do not recommend it.
Endorsements are optional provisions you can add to your auto insurance policy for an extra premium, to expand your coverage. Typical endorsements include coverage for items such as towing and labor, car rental costs, extraordinary medical expenses, and certain recreational vehicles. The number and type of endorsements will determine the size of your premium increase. Endorsements are not necessary in most cases, but may be highly advantageous if your situation, needs and lifestyle necessitate them.
Do I Have Enough Auto Insurance?
Here’s a piece of advice to consider when you buy auto insurance: Ask a lot of questions. Auto insurance often seems fraught with weighty terminology. If you’re unclear about the difference between comprehensive and collision, don’t fret; you’re not alone. It’s smart to ask us to explain the differences, much as you might ask your doctor to demystify medical terms.
Auto insurance blends several types of coverage into one policy. Typically, your policy will include some combination of comprehensive, collision, medical, liability and uninsured motorist coverage. Throw in the deductible amount, the vehicle’s value and personal data such as your age to arrive at the policy’s cost. Reduce the coverage amounts or raise the deductible and the cost of the policy goes down.
So what do you need? It depends on, well, your needs.
- Pays for the damage you cause to others if your car is involved in an accident. It also protects you from being cleaned out if you are sued following an accident.
- The greater your assets, the more you stand to lose.
- If you have substantial financial resources, you may need liability coverage that exceeds the coverage that you’ll get from an auto insurance policy.
- In that case, our personal umbrella policies can provide the extra liability protection you need.
- Covers damage to your car in an accident, should reflect the value of your vehicle.
- We can help you find the balance between the cost of collision insurance and the value of your car.
- It might not be worth paying $200 a year for collision insurance on a car that’s worth only $1,000.
- But if the car is worth a bit more, you probably want this coverage.
- Comprehensive coverage pays for your car if it is stolen, vandalized or damaged in some way other than in a collision.
- Provides for medical expenses to you and your passengers that are the result of an accident.
- The way you use your car may make a difference in the amount of medical coverage you need.
- For example, we might suggest more coverage for a parent who regularly takes a carload of kids to soccer practice than for a driver who expects to drive mostly solo.
- Pays when you’re in a wreck with someone who has no insurance. This last type of coverage is essential.
- A type of insurance coverage that covers the difference between the payoff of a leased vehicle and the amount covered by other insurance coverage, when a vehicle is damaged or stolen during the term of the lease. Most gap coverage requires that the lessee not be in default under the terms of the lease.
True protection comes from understanding your unique situation, and applying coverage accordingly. Consider these factors as you speak with us. Once you understand the language, you’ll be able to apply the best policy for your needs, and maybe even impress your friends with your mastery of the lingo.
How Much Should Auto Insurance Cost?
It’s a question we hear almost every day. How much you pay for car insurance depends on many factors: where you live, your age, what sort of car you drive, your driving record. But you can reduce the cost of insuring your car in several ways.
First, take into account the price of insurance when choosing a vehicle.
- More expensive cars cost more to repair, maintain and insure.
- Performance cars cost more to insure than family sedans-a lot more.
- Safer cars may also insure for less.
- We offer discounts for vehicles with anti-lock brakes on all four wheels.
- Insure all your cars with one company-multi-car discounts can be substantial.
- Consider increasing your deductible. By raising the amount you pay out-of-pocket for losses, you can save 20 percent or more on your auto policy.
- Also consider reducing collision insurance if you’re driving a vehicle that’s more than eight years old.
Try to weed out overlapping insurance. For example, if you have an excellent medical and disability plan at work, you might wish to reduce medical or personal injury coverage on your auto policy, and save the difference. Ask us to explain the trade-offs.
And drive safely. A clean driving record can help lower your insurance rates through safe-driver discounts.
- We also offer discounts for low-mileage drivers,
- Good students and
- Seniors who take drivers’ refresher courses.
The price you pay is also influenced by how you pay. Ask us about your various payment options!
OTHER CONSIDERATIONS & NEEDS
Insurance For Motorcycles
Buying motorcycle insurance is very similar to buying automobile insurance. Typically, you will need the following coverage:
- Liability insurance to cover you for bodily injury or property damage resulting from an accident with your motorcycle. Be sure to ask us whether your policy covers injuries to your passengers. Some states require it, while others don’t. Also ask us about the amount of coverage you think you’ll need. Some states have a minimum required level of coverage, but you may need more to protect you and your assets from the risk of financial loss.
- Collision insurance to cover you for the value of damage to your bike, after deductibles, that results from an accident. If you are making monthly payments for your motorcycle, your lender will require collision coverage.
- Comprehensive insurance to cover you for loss due to fire, theft, vandalism, and other events not resulting from an accident. Comprehensive coverage also carries a deductible.
- Uninsured motorist coverage to pay your medical bills and other damages if a driver without insurance hits you. It may also cover damage to your bike. Be sure check with us to see if property damage is included in your uninsured motorist coverage. If it doesn’t, you can purchase it separately.
- Underinsured motorist coverage to pay your medical bills and other damages, if you are hit by a driver with minimal insurance coverage and your damages exceed the value of that driver’s coverage. The underinsured motorist coverage will pick up any excess not covered by the underinsured driver’s policy.
How to minimize motorcycle insurance costs
Perhaps the best way to minimize motorcycle insurance costs is to maintain a safe driving record and try to attend a certified motorcycle safety class or if you have multiple vehicles covered under one policy you may be eligible for a multi-policy discount.
Eliminating collision and comprehensive coverage or increasing your deductibles will also lower your premiums (however, if there is a lien on the bike, you may not be permitted to do so). Special safety or antitheft equipment may also be a way to reduce your premiums. The number of miles you drive, the place where you store the bike, the size and style of the bike, the horsepower and age of the bike, may all affect your policy premiums as well.
If you are having difficulty with the price of motorcycle insurance, we invite you to discuss these issues with us. You may be able to make some changes to lower your premiums without taking on unacceptable additional risk.
Consider motorcycle insurance as a cost of ownership
If you are in the process of purchasing a motorcycle, it is always advisable to have looked into the availability and price of motorcycle insurance before you buy. It could be a factor in your decision making process.
Insuring Your Rental Car
The best way to protect yourself when using a rental car is to purchase a regular automobile insurance policy that explicitly extends collision and comprehensive coverage to rental cars in any state or country. If you don’t own a car and you rent on a regular basis, you might want to purchase a “nonowner” policy that will give you the same type of coverage. Unless you have an individual policy that explicitly extends coverage to rental cars, you should be cautious if you wish to avoid exposure to liability when renting a car.
Doesn’t my credit card issuer automatically insure me when I rent a car?
Many major credit card companies commonly claim to provide you with insurance coverage when you use their card to rent an automobile. However, you should read the fine print or get written verification from the company, because the coverage provided by your credit card is not always full coverage.
Some cards only offer coverage if you rent your car from a particular agency. Some limit the days for which coverage is available. Some will only provide coverage for certain types and/or classes of cars. With some cards, the coverage is not automatic and you must enroll in a program to get coverage. Some cards that advertise automatic rental insurance really only reimburse you for the deductible that you would have to pay under your regular insurance policy. Still others may provide only collision and comprehensive coverage, leaving you exposed for personal injury or property damage to others.
This is not to say that all credit cards fail to provide the coverage you need when you rent a car. It merely illustrates that you shouldn’t unknowingly rely on your credit card issuer to protect you. Carefully examine the terms of your credit card agreement, then act accordingly.
What about coverage offered by the rental agency?
The insurance packages that you purchase from a rental car agency (typically called “loss damage waivers”) may or may not provide the protection you need. In your rush to get out of the airport, you may not realize that the loss damage waiver you purchased insures the rental car against theft, but not the contents. That could be a big surprise if your laptop computer and expensive camera are stolen from the rental car along with your luggage, and the rental agency rejects your claim. (Check your homeowners insurance policy in this case–you may be covered.) Similarly, you may discover that the loss damage waiver you purchased for liability only provides limited coverage. Further, many loss damage waivers exclude certain items and/or situations from coverage.
Again, this is not to say that rental car agencies are unable to provide you with the protection you need. It is merely to illustrate that you should read the fine print, or get verification from a rental agent in writing if you have any doubts.
What if I have a regular policy, but it isn’t full coverage?
It is possible that you have insurance on your personal car, but you don’t carry collision and comprehensive, or sufficient liability coverage. It may not be necessary to call your agent and add all that additional coverage just so that you will be protected when you rent a car during your upcoming vacation. You can probably close the gaps in your coverage using loss damage waivers and coverage offered by your credit card insurer or rental car company. However, as discussed above, you need to be cautious. You want to be sure you are getting the coverage you need or expected to receive.
Other sources of coverage
If you have suffered a loss that isn’t covered under your auto policy, don’t forget to check your other insurance policies. For example, if personal property has been stolen from your rental car, it may be covered under your homeowners or renters policy. Similarly, certain medical policies may cover costs of injuries not covered under your regular automobile plan.
Towing and Labor coverage provides a large measure of additional security. If you add this option to your auto’s policy. When you have this coverage the insurer will pay reasonable expenses incurred for:
- towing your car to the nearest place where necessary repairs can be made during regular business hours
- towing your car out if it is stuck on or next to a public street or highway
- mechanical labor up to one hour at the place of its breakdown
- change of a tire
- delivery of gasoline, oil or loaned battery, but typically not the cost of these items
Safety & Important Tips
What To Do In Case Of An Auto Accident
If you’ve ever been involved in an accident, you know how stressful it can be. Most people are flooded with a mix of emotions and worries. You’ll be concerned about everyone’s safety and anxious about your vehicle. You might be angry at the other driver. Then there’s the fear about what impact the accident will have on your driving record and your insurance. All those things can make it hard to think clearly and respond properly. And if there are injuries, the stress can be amplified. But that’s when a clear head and quick action are really crucial.
Here are some tips for getting through an accident with a minimum of hassle and headaches.
- After an accident, getting help for the injured is always the first priority.
- Regardless of the circumstances, report the accident to the police.
- Record the name, address and phone number of the other driver. Write down the make and license number of all vehicles involved. You’ll want to get as much information as you can about the other driver’s insurance agent, policy and insurance company.
- Don’t forget to collect the names, addresses and phone numbers of passengers and witnesses. Since many cases end up with the parties blaming each other, third-party witnesses can be important. Don’t hesitate to approach anyone who may have seen the crash.
- Be careful of what you say. Don’t talk about fault; even casual remarks can be used in court.
- Notify your insurance agent immediately. The faster we get information, the faster we can act. Discuss the accident only with your agent and, of course, with the police.
- Examine the damage carefully. Take photos if possible, particularly if the accident occurred on private property, such as a parking lot.
- Without being overly suspicious, observe the other driver’s actions. If the other driver later claims to have a serious injury, what you notice could be important.
- Stay calm.
Remember, these incidents are the reason you have insurance in the first place. We realize no auto accident is ever minor when you’re involved. We’re here so you can relax a little, doing everything possible to ease your stress and provide you with peace of mind.
Safe Driving Tips
Paying Attention Will Save Your Life
- If someone else is in the car you should refrain from talking with your hands, and realize that you are doing something that could, in one instant, become life threatening. When speaking with someone else in your car don’t feel as if you need to look at them when carrying on a conversation. Keep your eyes on the road, and save those social graces for the dinner table. ALWAYS PAY ATTENTION TO THE ROADWAY.
- Remember that cell phones and all other distractions increase your chances of having an accident. If you must use your cell phone while driving on a regular basis consider reducing your risk by purchasing a miniature headset or hands-free device at your local electronics store.
- The left lane of any interstate highway is for passing. By staying out of the left lane (and in one of the right lanes) when not passing, greatly reduces social stress on the highways which makes it safer for everyone.
- Always remember to buckle your seatbelt. Even if the ride is just around the corner.
- Keep your children in proper restraint seats, or properly adjusted safety belts if they are older. (Using the phrase “OK everybody… buckle up!” works well before starting the car.)
- Keep your rear view, and side mirrors adjusted for maximum visibility.
- If you wish to be seen more easily in daily traffic consider using your headlights during the daytime as well as at night, and always remember to use your headlights when traveling on 2-Lane highways regardless of the time of day.
Driving Around Trucks & Busses: (Sharing the road with confidence)
- When passing trucks and busses, always do so quickly. When you are approaching these vehicles from the rear always judge your passing speed and don’t begin the passing process only to find yourself stuck behind another vehicle… trapped beside the truck or bus. Always wait to let the vehicle in front of you complete their pass before beginning yours.
- Be aware that most large commercial vehicles these days have 500 horsepower or more, and are equipped with cruise control. Yet their companies have limited their top speed through their engines computer system to ensure safe driving & better insurance rates. If you notice one of these vehicles seems to keep creeping up on you then make a decision to speed up and pull away, or slow down and let them pass. (Chances are your just driving across town, and they are most likely nearing the end of a 600 mile drive… realizing this, will change your perspective and help you to make better decisions about what to do.)
- Trucks & Busses try to maintain a safe distance between themselves and the vehicle in front of them. Yet many automobile drivers commonly invade this “Safety Zone” to increase their position on the road. When passing a truck or bus always leave at least 50 feet (or 5 car lengths) of space between you & them before merging back into the lane in front of them.
- Never zoom around a truck or bus only to pull directly in front of them. Drivers that do this have no control over what might happen in front of them… placing their lives at risk, as well as the lives of others. The larger vehicle will never be able to stop in time should the car need to hit its’ breaks.
- Remember that: If you can’t see a truck or bus’ rear view mirrors, then they cannot see you. Let this simple fact be a gauge as to how close behind them you should be. Always stay back far enough so that you can see their mirrors.
- Always be aware that busses carry lots of people, and at any given moment these people could be standing up or moving about the cabin. No one wants to do something that could possibly injure 10 to 50 people. Give busses, and their passengers, the courtesy they require.
On Ice or Snow
- It’s always a good idea to head over to a large empty parking lot in your neighborhood (i.e. mall or superstore parking lot) when the seasons first snowfall hits. The reason for this is to give you a little time to re-acquaint yourself with your winter driving abilities in an empty parking lot, and the feel of your car on the slippery road.
- Bridges and overpasses freeze first. Slow down and avoid sudden changes in speed or direction.
- Keep windows clear of snow and ice.
- Keep your speed steady and slow — but not too slow. In deeper snow, it’s often necessary to use the car’s momentum to keep moving.
- Use brakes very cautiously. Abrupt braking can cause brake lock-up, which causes you to lose steering control.
- Antilock brakes are designed to overcome a loss of steering control on wet or slippery roads. Yet they have little or no effect on ice. To make antilock brakes work correctly, or work at all, you should apply constant, firm pressure to the pedal. During an emergency stop, try to push the brake pedal all the way to the floor.There is an old saying… “If the roads are wet, then drive like it’s snowing. If the roads have snow, then drive like they’re icy. If the roads are icy, then don’t drive.”
- If you get stuck in snow, straighten the wheels and accelerate slowly. Avoid spinning the tires, because the heat friction caused by spinning tires melts the snow and creates a thin layer of ice. Use sand or cinders under the drive wheels to increase traction if you get a little stuck. Never stand in traffic to push a car that’s stuck. Someone else could loose control and seriously injure or even kill you.
In High Winds
- Use extra care and consider if a trailer, van or other “high-profile” vehicle should be operated at all.
When it Rains
- The road becomes slippery as water mixes with road oils, grease and dirt. Also, your car’s tires tend to ride on the surface water, reducing traction… Slow down.
- Visibility is often impaired. Turn on your head lights at the first sign of rain. Use the defroster or air conditioner to keep windows and mirrors clear.
When It’s Foggy
- Stay to the right of the roadway.
- Turn on your headlights — day or night — to low beam.
- If fog thickens — run your hazard flashers to aid others coming up from behind you, increasing the ability for others to see you better.
- If your having difficulty seeing the road’s edge, pull off at the next exit — well out of the traffic lane — turn on the emergency flashers and leave your headlights on, and vehicle running.
In Severe Weather
- High Winds–use extra care and consider if a trailer, van or other “high-profile” vehicle should be operated at all
- Hailstorms–find shelter by driving under an overpass or bridge.
- Severe thunderstorms–listen to your car radio and be alert. If you spot a tornado, don’t try to outrun it. Get out of the car, find shelter in a ditch or low-lying area and lie face down to protect yourself from flying debris.
- Hurricanes–avoid low areas and move inland while there’s still plenty of time.
This information highlights examples of safety precautions you can consider to help protect yourself, others, and your personal property. This list is not meant to be all encompassing. Moreover, a particular precaution may not be effective in all circumstances.
Understanding Windshield Repair
Should You Repair It or Replace It?
WHACK! A rock just bounced off your windshield, leaving a dime-sized chip right in front of your nose. Not only does it obstruct your view, but if it’s like other rock chips you’ve received, it’ll soon sprout cracks that spread like wildfire.
There was a time when a chip or crack in your windshield meant certain replacement. That’s no longer the case. Modern technology makes it possible to repair windshields that would have previously been scrapped. Not only does this save your windshield, it also saves you money.
But be aware that even the most advanced glass repair techniques have their limits. So if your windshield is severely damaged, new glass may still be in your future.
Do I have to replace my windshield or can it be repaired?
Windshield repair or replacement depends on the size, location and severity of the damage. The majority of windshield repair shops can repair quarter-sized rock chips and cracks up to three inches long. Anything bigger and most places will recommend replacement.
However, some facilities use a special technique that allows them to repair cracks up to 12 inches long. So it pays to check around before committing to a new windshield.
Location of the damage also plays an important role in determining your windshield’s fate. Cracks at the edge of the windshield tend to spread very quickly and can compromise the structural integrity of the glass. If they’re caught in time, they can be repaired. But in most cases, it’s usually advisable to replace the windshield.
Also be aware that some facilities may not repair a chip that appears directly in the driver’s line of vision. Because the repair process leaves minor distortions in the glass, some shops prefer to replace the windshield rather than compromise the driver’s vision.
Regardless of the size and location of a chip or crack, it’s always advisable to have it repaired quickly. If you wait some time to repair it, dirt can work its way into the damaged area, affecting the effectiveness and clarity of the repair.
Finally, bear in mind that if your windshield took a big enough hit, it may simply be beyond saving. Major impacts (BIG objects) or accident damage go beyond what any repair facility can fix. In these severe cases, replacement is a must.
How much will this cost?
The cost to repair a windshield is pretty standard across the country. A recent survey of windshield repair facilities across the country found that costs are fairly consistent. Repairing a single rock chip costs around $40-$50 for the first chip, then usually $10 extra for each additional chip.
The cost to repair most cracks is about the same. However, if the crack is longer than three inches, it may require special treatment. Long-crack specialists typically charges about $70 to repair a six- to twelve-inch windshield crack.
Windshield replacement costs considerably more and varies greatly depending on the vehicle. In addition to the cost of the windshield itself, a windshield molding kit and installation labor must be factored into the overall replacement cost.
The difference in cost between a dealer price and an independent glass shop is usually due to the actual glass used. Dealers often charge more because they’re using an Original Equipment Manufacturer (OEM) windshield, which is exactly the same as the one that originally came with the car.
Meanwhile, local automotive glass shops typically use windshields from non-OEM suppliers. This glass is usually less expensive, but offers quality, safety and clarity similar to the more-expensive OEM windshield. Non-OEM glass is required to meet or exceed the same safety standards as OEM glass.
However, all the glass shops surveyed strongly advised that only OEM-recommended sealers and adhesives be used during windshield replacement. Use of inferior quality urethane could result in the windshield leaking or even becoming dislodged in an accident.
Where do I get the work done?
When it comes to repairing or replacing your windshield, you have a number of possible options. It all depends on your specific needs.
- Automotive glass specialist. These facilities specialize in the repair and replacement of automotive glass. This includes not only windshields, but also side and rear windows. Most usually attempt to repair a windshield before recommending replacement.
- Windshield repair facility. These independent and nationally franchised shops usually specialize in windshield repairs only. They fix chips and cracks, but do not install new windshields.
- New car dealer. Your local dealer can replace your windshield with an original equipment manufacturer (OEM) windshield. Many dealers sub-contract to mobile glass services, who come to the dealership and replace windshields on-site. Sometimes non-OEM windshields are also available through dealers.
- Mobile glass repair and replacement service. Rather than go somewhere to have work performed on your car, these services come to you and repair or replace your windshield wherever your car is located-at home, or even at work.
- General glass service. In addition to replacing automotive glass, these facilities also handle sales and installation of commercial and residential glass.
The windshield services listed above can be found in your Yellow Pages under Glass-Auto or Windshield Repair.
Is this covered by my insurance?
Windshields are covered by all of our automotive insurance companies. But because the cost to replace a windshield is so much higher than repairing it (four to ten times higher), coverage is handled differently for replacement vs. repair.
If you’re replacing a windshield, your insurance company will ask you to pay your deductible and they’ll pay for the complete replacement.
However, if you’re repairing the windshield, the deal is a little sweeter. Having recognized that it’s more economical to repair a windshield than replace it, our insurance companies may waive your deductible and pay for the entire repair.
This arrangement encourages customers to repair their windshields rather than replace them every time they’re chipped. It also represents a substantial savings to both you and your insurance company over the lifetime of your policy.
On the other hand, if your windshield is in genuine need of replacement we don’t skimp, and replace it. A heavily damaged windshield is not only difficult to look through, it’s also unsafe. The structural integrity may have been compromised and could weaken further if it isn’t replaced quickly.
Have a qualified glass specialist carefully examine your windshield to determine whether a repair will suffice or if it should indeed be replaced. Also remember to check with us to confirm the terms of your coverage before committing to any windshield work.
How does windshield repair work?
Windshield repair involves injection of a special resin into the damaged area using a tool that attaches directly to the glass. Once injected, this resin is then cured and polished to restore the clarity and strength to the glass.
When a chip or crack occurs, it often spreads into the windshield’s inner layer of plastic, which is sandwiched between two layers of glass. In some instances, a drill is used to make a clean passageway to the plastic, where the resin is injected to repair the damage.
Think of a windshield repair as first-aid that prevents the damage from getting worse. In some cases, it may look nearly perfect, while in others, it could still appear slightly blemished. But in either case, a proper repair prevents the damage from spreading.
And since every chip is unique, some will respond more effectively to repair than others.
Child Seat Safety
Parents may feel that by buying a child seat and putting it in a car that their child is safe, but in reality there’s a lot more to it than that.
A federal government study reported 80 percent of child safety seats are not used properly. National Safe Kids, which checked more than 17,000 child safety seats at nationwide checkups, said it found the figure to be closer to 85 percent.
Common child seat mistakes
A government study found the biggest problem with child seats was improper use of locking clips. Follow instructions that come with the child seat, as well as those that come with your vehicle, to see if you need to use the clips and that you’re using them correctly.
NHTSA (National Highway Traffic & Safety Administration) also found that more than half of child seats had harness retainer clips that weren’t used correctly. Again, follow instructions that accompany the child seat. In general, harness retainer clips should be placed at the level of your child’s armpits, according to National Safe Kids.
Ranking third in the NHTSA study of problems was use of harness straps. They should not be loose. According to National Safe Kids, you shouldn’t be able to fit more than one of your fingers between a harness strap and your child’s collarbone.
In addition, the harness straps should not be twisted. And make sure they’re routed correctly through the proper slots on the seat.
Another problem cited by NHTSA was use of the vehicle safety belts. The owner’s manual for your vehicle details proper seat belt use. Be sure the belt used with the child seat is firmly locked in its connection, routed correctly with the child seat and holds the seat firmly in place. You should not be able to wiggle the child seat from side to side or pull it forward.
Further down in the list of problems, but still accounting for ten percent of the child seat mistakes reported by NHTSA is positioning of a child seat in the wrong direction inside the car. Rear-facing child seats should only be positioned to face rearward; forward-facing seats should only face forward.
In addition, National Safe Kids notes you should be sure to keep a rear-facing child seat reclined at a 45-degree angle, so it cradles the baby’s head.
Consequences of improper child seat use
Some child seat mistakes clearly are dangerous-for example, positioning a child seat the wrong way inside a car or putting a child seat of any sort in front of an active frontal airbag.
But studies haven’t yet pinpointed how dangerous some of the other child seat misuses are, things like not using a locking clip correctly or not having the child seat secured as tightly as it could be with the vehicle safety belt. Because we don’t know, as a society, which of these problems will be life-threatening, it’s important that we make an effort to learn proper child seat use.
Lots to learn
It’s not that parents and caregivers aren’t paying attention or don’t care. They’re dealing with more complicated child seats today. Many child seats have recalls, too, that often can go unnoticed by child seat owners. One source for recall and other child seat information is the Internet; many private organizations as well as government agencies have Web pages to help parents wade through the daunting amount of data in circulation.
Below are a few of the important Internet sites dedicated to promoting child safety in automobiles via child seats. Packed with press releases, recalls, safety news and more, these sites are great places to begin gathering information about providing the children in your charge with the safest ride possible.
This site includes links to the new Federal Motor Vehicle Safety Standards for child seats, a form for reporting problems with a safety seat, a list of safety training programs, and even a state-by state list of individuals who have attended the programs and may be of help.
The National SAFE KIDS Campaign is the first and only national organization dedicated to the prevention of unintentional childhood injury-the number-one killer of children ages 14 and under. The site is the home of the SAFE KIDS BUCKLE UP, a national campaign to increase awareness about child seat safety. This site is updated frequently and includes a calendar of Car Seat Check Up events around the U.S.
This site contains a wealth of information on child seats, child safety, and safety in general.
The online site of SafetyBeltSafe U.S.A., a nonprofit organization dedicated to child safety. The site includes recalls (including ways to identify your seat, with photos), classes, technical information on seats, frequently asked questions, and links to other sites.
The vehicles in which the seats are installed aren’t standardized, either. Some have flat seat cushions, for example, that help make a child seat stable while others have contoured bucket seats that make child seat stability more difficult. Where the seat belt connectors are in a vehicle can help or hinder proper child seat positioning.
Safety falls off as children age
Efforts by child safety advocates seem to be working to get the nation’s youngest children into child seats. But statistics show that use of proper restraints declines as a child ages. And you’d be surprised to learn how few laws govern auto safety for children once they leave child safety seats-or how much the laws vary from state to state.
According to a NHTSA phone survey of U.S. parents, 96 percent of newborns travel in child seats all the time, but by age 3, the figure is down to 75 percent. By age 5, just 17 percent of children are in child seats all the time, the survey indicated.
Still, child seats-be they for newborns, toddlers or older children-continue to be the most effective way to protect a child in a vehicle crash. And it almost goes without saying that once a youngster is out of child seats, he or she should always wear seat belts and sit in the back seat, where it is much safer. One of the main problems is keeping kids buckled up as they get older.
- Be aware of recalls
- Register your child seat: Note that manufacturers of child seats provide a registration form with their child seats built as of March 1993. By completing and returning the form, typically soon after purchase, a buyer provides contact information for the manufacturer to use in the event of a recall. Manufacturers also have agreed to maintain names and addresses of child seat purchasers that they had in their files from before March 1993.
Other ways to stay in touch
In case you missed out on those registration opportunities, NHTSA’s Web site also provides a child seat safety registration form you can fill out and submit to NHTSA that allows the agency to provide your contact information to the seat manufacturer.
NHTSA maintains a toll-free number for further questions. 1-800-424-9393.
And don’t hesitate to inform NHTSA if you have noticed a problem with your child seats. The Web site includes a child seat questionnaire form where you can report defects.
How To Help Both You & Your Teen Driver
Choose any topic from the following menu, or scroll down the page:
- Creating Guidelines for Your Teen Driver
- Insuring a New Driver
- Tips For Driving with Your Teen
- Set a Good Example
- Safe Driving Contract
Creating Guidelines for Your Teen Driver
Many teens pass their driving test around their sixteenth birthday. Although it’s the legal age to receive a driver’s license in many states, it is not a magic number which means teens are experienced behind the wheel. Only you can decide when your teen is ready to drive without adult supervision.
After they have a license, teens are still gaining experience as new drivers. While they’re learning, you can help keep them safe by setting rules about when, where, how and with whom they may drive.
- Put a limit on the number of passengers in the car.
Teens are likely to have more trouble focusing on the road with laughter, music, food and other distractions, all of which increase with the number of passengers.
- Establish and enforce a house curfew.
Check with your local police department to see if your town has a curfew for minors. If not, set your own.
- Insist that your teen and his or her passengers always use safety belts.
Teens tend to use their safety belts less often than other drivers. Remind teens that the presence of air bags does not mean they can ignore safety belts. These two safety devices are meant to work together to reduce injuries and fatalities.
- Limit or supervise your teen’s driving during times of high risk.
The highest number of driving crashes occur on Friday and Saturday night and early Saturday and Sunday morning.
- Set driving area limits.
If your teen wants to travel outside your geographic area, require that he or she request special permission.
- Prohibit driving or riding with others under the influence of drugs or alcohol.
Driving while under the influence of drugs and alcohol are life threatening issues as well as being illegal. In addition to the possibility of legal punishment, tell your teen you will revoke driving privileges for a given amount of time if found to be driving or riding with others under the influence. We recommend discussing and signing a Safe Driving Contract with your teen as a way to create a mutual understanding between both you and them.
Insuring a New Driver
When your new driver is named on an existing auto insurance policy or obtains his or her own insurance, the company providing the coverage is assuming an additional risk. In order to cover that new risk, there is an additional cost for insuring the young driver.
To determine the appropriate cost of providing coverage to each insured, insurance industry professionals use something called rating factors. Because inexperienced drivers drive differently than experienced drivers, being new to the road is a rating factor. Examples of other rating factors include:
- Make/Model/Year of car
- Miles driven
- Driving record (tickets and accidents)
- Driving experience
Don’t worry – teens will naturally gain the confidence and judgment they need as drivers as they gain experience over time. Until they reach that level, though, there are things you and your teen can do to help maintain their auto insurance rates.
Help keep auto insurance rates as low as possible:
- Keep a clean driving record.
- Drive safe cars that are affordable to insure.
- Consider raising deductible limits.
- If appropriate to your situation, drop coverages such as collision coverage for older cars with relatively low cash values.
Parents: Tips For Driving with Your Teen
Supervised practice over an extended period of time makes teens better, safer drivers. That’s why it’s important for you to spend time in the car with your teen behind the wheel. Give your teen opportunities to practice what he or she may have learned in Driver Education, and encourage him or her to develop safe habits and skills. Patient practice, as well as following the same rules when you’re behind the wheel, will help your teen learn the do’s and don’ts of the road. Rule #1 for parents: set a good example.
While your teen is driving:
- Give simple and clear directions, such as “brake,” “slow,” and “cover” (lightly cover the brake with your foot, in preparation to stop).
- Use a calm tone of voice.
- Watch your teen’s arms – if they are not relaxed, the situation may be too hard for your teen to handle, or he or she may be experiencing levels of anxiety or fatigue.
If your teen does something incorrectly:
- Ask him or her to safely move the car off the road and then discuss the mistake calmly.
- Plan routes that allow your teen to practice different skills. Driving to and from the same grocery store every week will not adequately prepare your teen to be a skilled, licensed driver.
- Take your teen out for driving practice under as many different conditions as possible. Safe drivers are experienced in responding to changing weather, visibility, traffic volume and speed.
- Encourage your teen to talk aloud about what he or she sees and plans to do while driving. This makes it much easier for you to know if your teen is observing and thinking ahead like a good driver.
After the practice session:
- Evaluate the session together. Give your teen a chance to point out his or her mistakes before you do.
- Praise your teen for what he or she did correctly and also mention how your teen can improve.
- Record your session in a self imposed Driving Log.
Parents: Set a Good Example
Set a good example when you drive.
Your teen is much more likely to be a calm and courteous driver, use a safety belt, and obey the speed limit, if you do it first.
Provide a safe motor vehicle for practice sessions.
If your car needs a tune-up, take your teen along for a lesson in car maintenance. Now is the time to talk about the costs of maintaining and insuring a car, and if your teen needs to contribute.
Work with your teen’s Driver Education Instructor.
Ask for a copy of the Driver Education curriculum. Find out how your teen is performing in class and which skills he or she needs to work on.
Take your teen to get a license only when YOU feel the time is right.
You must take responsibility for making this decision – – your teen’s life depends on it.
Share your insurance costs.
Research shows that teens who pay for a portion of the maintenance and insurance of the family car as they learn how to drive are more likely to be safe drivers.
Safe Driving Contract
I promise not to drive under the influence of alcohol or drugs, nor will I get in a car where the driver has had alcohol to drink or has used drugs. If I am ever in a situation where I need a ride home for my safety, I will call a cab, ask a designated driver to drive me, or call you or another family member to come and get me.
Signature of Teen Driver
I promise to pick you up if you ever call me for a ride. If I do not have a car, I will pay for a cab to bring you home. I further promise not to start a conversation about the incident at that time. I also agree to use safe driving practices, not to drive under the influence of drugs or alcohol myself, and find an alternate means home if I am ever in a situation where the driver is under the influence of alcohol or drugs.
Signature of Parent(s)/Guardian(s)
Defensive Driving WORKS!
The Collision Prevention Formula:
- Recognize the hazards: Continuously scan the road ahead and behind checking your mirror every 3 to 5 seconds.
- Understand the defense: Continuously scan the road for possible hazards. Play the “what if” game by thinking “what if” the driver in front of me stops suddenly? “What if” someone runs a red light at the next intersection? “What if” that driver in the oncoming lane…
- Act correctly in time: Think ahead, try to anticipate what other drivers around you might do, avoid hazardous or dangerous situations before it’s too late.
Help avoid collisions through proper vehicle maintenance. Remember, from clean windows to properly adjusted mirrors to regular engine servicing and much more, you can be held responsible for the little, as well as the big defects in your car.
Know, Show, Slow, Go
Know the rules for intersections and know which way you plan on going before you arrive at the intersection. Show your intentions with signals and proper lane position before entering it. Slow down as you approach the intersection, have your foot over the break. Go only after you’ve checked to make sure the coast is clear. Don’t assume that the other driver knows what to do at the intersection or that the driver will follow the rules.
The weight of your car is the major determining factor in how long it takes you to stop. The heavier the car, the longer it takes to stop. On average, at 65 miles per hour it will take you the length of a football field to stop — that’s completely stop — your car. Remember, automatic breaking systems (ABS) only help to stop without swerving in a skid stop, not in a shorter distance.
The Two Second Rule
Follow the Two Second Rule. Watch the vehicle ahead of you pass a fixed object or point, like a pole or mile marker. Begin counting: “One thousand and one, one thousand and two.” If your car reaches that marker before you finish counting you are following too closely. Ease up and check again.
In adverse conditions, use The Two Second Plus Rule: add one second following distance for each adverse condition. Adverse conditions include:
- Driving at night, in fog, rain or snow. (Plus 1)
- Driving behind a truck or vehicle making it difficult for you to see ahead. (Plus 1)
- Driving behind a motor cycle. (Plus 1)
- Driving through an intersection. (Plus 1)
If you can’t see a truck driver in the truck’s side mirror, then that driver can’t see you or your car — you’re in the vehicle’s blind spot and should pull out of it as soon as it is possible and safe.
Practice the 4 Rs
Head-on collisions are the most violent type of auto accident. Practice the 4 Rs:
- Read the road ahead.
- Reduce your speed.
- Drive to the Right.
- Ride off the road if necessary.
A driver who’s coming head-on toward you in your lane may “wake-up” and realize they’ve crossed into your lane, and then correct their error by heading to your left, or back into their proper lane. So, drive RIGHT and off the road if necessary. Don’t swerve left.
This information includes material from the National Safety Council’s Defensive Driving Course and their annual publication Accident Facts. This information highlights examples of safety precautions you can consider to help protect yourself, others, and your personal property. This list is not meant to be all encompassing. Moreover, a particular precaution may not be effective in all circumstances.
CLAIMS & ACCIDENTS
Filing An Insurance Claim
You’ve just had an accident. It may be a minor fender bender or a more serious collision resulting in injuries or extensive damage to one or more cars. Perhaps another motorist was clearly to blame. Regardless of the severity of the accident or who was at fault, there are a number of basic steps you’ll need to follow once the initial turmoil subsides. You need to be aware of procedures to file the claim. This can sometimes seem like a complicated and stressful process yet the more you know, the smoother it will be and the greater your chances of being happy with the outcome.
Report the accident immediately
The first thing you should do is to promptly contact your insurance agent and the insurance company to notify them that you’ve been in an accident. Do this as soon as possible, even if you’re far from home.
You should always notify your insurance company of the accident even if it was minor and not your fault. The insurer should always be informed, regardless of the circumstances. Secondly, always have the police come to the scene and file a report. Letting the other person involved in the accident talk you out of your privilege to file the incident with the police is never a good idea.
Find out how to proceed
Ask us or the insurance company claims representative what you need to do, and what forms or documents you need to support your claim. The insurer may require a “proof of loss” form, as well as medical and auto repair bills, a copy of the police report, and other documents relating to your claim. Supply all the materials and information your insurer needs, and do it in a timely manner because this helps to put the claims process in “high-gear”.
Read your policy
Although your auto policy isn’t exactly a leisurely Saturday read, the days immediately following an accident are probably a good time to look it over. Knowing exactly what your policy covers can help prevent surprises later on.
Keep records of your expenses and other paperwork
Potential out-of-pocket expenses might include medical and hospital bills, car repair bills, rental car costs, and lost wages. Since you will probably need receipts in order to be reimbursed, it’s wise to keep copies of these and other important documents in a safe and organized location.
Don’t forget your other insurance
Don’t forget that other types of insurance (e.g., health, homeowner’s, etc.) may cover certain losses resulting from an auto accident, depending on the type of loss and other circumstances.
Accidents & Your Insurance Policy
How Much Will Your Auto Insurance Go Up After an Accident
Well, it finally happened. You’ve been in a car accident. Fortunately, you have auto insurance to cover the damage, even though you may have been at fault. Now comes the big question: how much will your premiums go up as a result of this accident? If you weren’t at fault, you’ll be happy to know that your premium probably won’t increase much, if at all. If you were at fault, the following information may help you to understand and anticipate the premium increase you might see.
Why does the premium go up?
Before considering how much your premium might go up, it’s helpful to understand why an accident can cause your premium to increase. Very simply, actuarial tables indicate that people who have had at-fault accidents in the past are more likely to have them again. Insurance companies use this information to charge the premium that most accurately reflects your chances of having another accident in the future. People who are at greater risk for accidents should reasonably be expected to pay higher premiums. So if the rate does go up, it’s nothing personal against you.
How is the premium increase determined?
In a nutshell, here are a few ways insurers commonly figure out the amount by which they’ll raise a premium following an at-fault accident.
Percentage of base rate
Insurers typically follow the Insurance Services Office (ISO) standard of increasing your premium by 40 percent of their “base rate” after your first at-fault accident. A base rate is the average amount of all claims paid, plus the insurance company’s processing fee. For example, if the insurer’s base rate is $400, your premium after the accident will go up by $160. This means that if the premium was $300 before the accident, it will be $460 after the accident. Subsequent accidents would result in greater premium increases.
Percentage of your rate
Some insurers use a variation on this method. Instead of using a “base rate,” they calculate the premium increase based on the premium you were paying before the accident occurred. Again, for the first at-fault accident, the increase would probably be 40 percent. Under this system, if the annual premium before the accident was $300, it would go up to $420 after the accident. Subsequent accidents would result in greater premium increases.
Safe Driver Insurance Plan
Both of the systems described above are based on the ISO’s Safe Driver Insurance Plan, which is typically followed by insurers. The Safe Driver Insurance Plan lists different types of auto accidents and moving violations, and assigns a ‘point’ value (from 0 to 4) to each type based on the severity of the incident. These points are different than the points that the state department of motor vehicles charges against your driver’s license to track your driving record. Under the Plan, as you accumulate points, you are assessed surcharges that generally result in higher insurance rates. The number of points charged determines a premium increase. For example, typically 3 points are charged if you’re convicted of drunk driving, triggering a hefty increase. On the other hand, accidents that weren’t your fault or for which you covered the losses out of your own pocket (i.e. deductible) generally don’t result in any points. Such accidents usually won’t make the premium go up at all.
Other factors may also affect premium increases after an accident. These might include, among others, your location, your age, the kind of car you drive, and the “loss experience” of drivers similar to you (meaning total claims made by the group of similar individuals). Most of these factors are independent of the accident itself. The premium might also go up at renewal time if you buy a flashier car that’s more expensive to insure in the same policy year that the accident appended.
These same factors can also work to your advantage in some cases. If you turn 40 during the same policy year as the accident, you enter the lowest-risk age group (between 40 and 55) and may be eligible for a discount that will help offset the premium increase caused by the accident. The same is true if you get married during the same policy year, since married persons are considered a lower risk factor.
Home Insurance Topics
UNDERSTANDING THE BASICS
Insuring Your Home
What is homeowners insurance?
Homeowners insurance is a policy covering your home (the structure) and its contents (personal belongings). It can save you from severe financial loss if your home is damaged or destroyed. It covers your family’s possessions and can provide you with compensation for liability claims, medical expenses, and other amounts that result from property damage and personal injury suffered by others. Most lenders require homeowners insurance in order to obtain a mortgage.
For example, a homeowners insurance policy can protect you against the following scenarios:
- A tornado or storm shattering your home’s windows or scattering your roofing shingles across the neighborhood
- A burglar breaking into your home and stealing that figurine you inherited from your grandmother
- Your dog biting a neighbor or delivery person
- Physical therapy costs for a guest injured by a fall in your home
- A successful personal injury lawsuit brought by a neighbor the last time you practiced your chip shot in the backyard
- Damage from a vehicle crashing into your house
Homeowners insurance is also a way for condominium and cooperative unit owners, mobile home owners, and renters to protect their possessions from damage or theft, and to obtain liability coverage for property damage and personal injury suffered by others.
Who is covered?
Homeowners insurance protects more than just the owner of the house, condominium, or other property. Depending on your living situation, the following individuals are covered under your homeowners policy:
- Named insured
The insurance policy identifies the “Named Insured” (meaning the individual who is primarily insured under the policy), who is usually the same person named on a deed or lease as the owner or tenant, respectively. You, as the named insured, receive the most extensive coverage under your homeowners policy, for you are covered by property insurance on your dwelling and other structures, in addition to personal property and liability insurance. Named insured condominium owners and renters do not receive such extensive coverage because they do not, on an individual basis, own their dwelling or other structures.
If your spouse resides in your dwelling, then he or she is covered by personal property and liability insurance, even if he/she isn’t identified on the Declarations Page as a named insured.
Individuals who reside in your dwelling are covered by personal property and liability insurance if they are your relatives (e.g., your children) or if they are under 21 years of age and in the care of any member of your family.
Housekeepers, au pairs, or gardeners, for example, are covered by personal property insurance.
- Guests and other visitors
Your guests and other invited visitors can typically be covered by personal property insurance so long as you contact the insurance company or your agent to request coverage.
What is covered?
The property insurance section of your homeowners policy protects more than just your actual home or dwelling. In most cases, your insurance company will reimburse you for damage or theft affecting:
- Your dwelling, any structures attached to the dwelling, and building materials and supplies that are stored near the dwelling and are used to construct, alter, or repair the dwelling or other structures on your property
- Structures on your premises that are not attached to the dwelling, such as a tool shed or detached garage
- Personal property such as the contents of your house like furniture, clothing, and stereo equipment, as well as outdoor items like sporting equipment and gardening tools
Generally, the coverage limit for other structures and personal property coverage is a set percentage of the dwelling coverage amount. If you wish, you can increase a policy’s preset coverage amount by endorsement (see below).
Condominium or cooperative unit coverage
If you own a condominium or cooperative unit, your homeowners insurance does not cover you for your entire dwelling space because you do not individually own the structure you live in. Instead, you are covered for your personal property and any portion of the unit you own under the terms of the condominium or cooperative documents. Renters are covered for personal property only because renters do not own any portion of the property.
Specific coverage In most cases, whether you own or rent a home, the homeowners insurance company will reimburse you for costs, expenses, and other amounts related to:
- Loss of use
If your dwelling is not fit to live in because of damage covered by the policy, you should receive reimbursement for your family’s or household’s living expenses while you wait to permanently relocate or wait for the dwelling to be repaired. A set coverage limit is always applied to a policy’s standard loss-of-use coverage, but it can be increased by endorsement.
If you or another insured are found responsible for personal injury or property damage suffered by another person, your insurance company will offer a settlement amount owed to that person. This is only true if carelessness or negligence, rather than intentional misconduct, caused the injury or damage. If an injured or damaged person brings a lawsuit, your insurance company should pay to defend you or any other insured named in the lawsuit. For example, you may be found negligent if a meter reader was injured by falling off your tricky cellar stairs because the railing was broken (and you knew about the situation but failed to repair it). You may be found liable for intentional misconduct if you cut down a tree on your neighbor’s property to improve your view.
- Medical payments to others
If a nonresident requires medical assistance as a result of an injury suffered on or near your premises, your insurance company should pay his or her medical expenses. Injuries that take place away from your premises are also covered, as long as you, another insured, a household employee, or your pet caused the injury.
Open perils vs named perils
Your policy can also cover either open perils or named perils. A named perils policy specifies which perils are covered as well as which perils are not. Rather than covering a number of listed or named perils, an open perils policy covers you broadly against risk of direct loss to your dwelling and other structures, and also includes an extensive list of perils which are not covered.
What is not covered?
There is a wide variety of damages, conditions, and costs that are not covered by homeowners insurance. Your insurance policy describes a number of situations that are specifically excepted or excluded from coverage (called exclusions). Some policies contain more exclusions than others. Your policy also describes certain conditions you must meet, and duties you must perform, in order for you to be covered. Terms and limitations that were originally included in your policy can be changed by a document called an “endorsement.” For these reasons, you should carefully read your homeowners policy to learn the limitations and exclusions that apply to your specific situation. Here are just a few examples of situations when you may not be covered by a standard homeowners insurance policy:
Although the structures and possessions that lie upon a parcel of land are usually covered by a homeowners policy, the land itself is not. This means, for example, you’re not covered by your policy if your neighbor’s pool overflows and contaminates your untilled garden.
- Coverage Limitations
The Declarations Page of your policy recites maximum coverage amounts that limit what the insurance company must pay. Separate limits are set for the dwelling, other structures, personal property, loss of use, personal liability, and medical payments to others. This means that even if you suffer a loss to your personal property in the amount of, let’s say, $50,000, the insurance company will pay you no more than the policy’s stated limitation recited on the Declarations Page. If this figure within your policy is $100,000 then you’re covered for all of it. On the other hand, if it’s only $30,000 then you’ll have a $20,000 deficit.
Your homeowners policy will not cover you for damage that results from floods, waves, sewer overflows, or water seeping into your basement.
If you’re involved in a business activity, your homeowners policy will not cover you for liability or medical payments due other persons, even if the damage or injury occurred in your home. Other structures located on your premises that are used for business purposes are also not covered by the policy. This means your standard homeowners policy will not reimburse you for medical care required by a client who slips and falls in your home office as he’s putting his coat on the rack.
- Your tenantsYour standard homeowners policy will not cover you for damages or injuries suffered by the tenants who rent any part of your home.
- Other insurance
If an injury or damage is covered by other insurance in addition to your homeowners policy, your homeowners insurance company will only pay its proportionate share of the amount due.
- Theft by another insured
Your homeowners insurance will not cover you for a loss caused by a theft committed by another insured person under the policy. This means your policy will not cover you if your nephew (who lives with you) steals a valuable baseball card from the family room.
- One or two family dwellings
Structures that have more than two family dwelling units cannot be covered by homeowners insurance
Registered motor vehicles are specifically excluded from personal property coverage. Only vehicles like motorized wheelchairs and lawn mowers, which are not usually registered with the state, are covered by personal property insurance. Your car is also not covered under the “Personal Liability and Medical Payments to Others” sections of your homeowners policy because insurance companies prefer you to insure vehicles with an automobile insurance policy.
How much coverage is needed?
Your home can be insured for either:
- Replacement Cost–pays you the cost of replacing damaged property, with no deduction for depreciation, but with a maximum dollar amount
- Guaranteed Replacement Cost–pays the full cost of replacing damaged property, with no deduction for depreciation and no dollar limit. This coverage is not available in all states. Some insurance companies may limit coverage to 120 percent of the cost of rebuilding your home.
- Actual Cash Value–pays you an amount equal to the replacement value of damaged property minus a depreciation allowance.
Unless a policy specifically states that property is covered for its replacement value, coverage is for actual cash value.
It is important that your policy should cover 100% of the replacement cost of your home. That way, the insurance company will pay you the full replacement cost for any damage up to the coverage limit. If you fear inflation will decrease the value of your policy, an inflation guard endorsement, which is built-in to many homeowners policies these days, ensures that your coverage amount increases a bit every year to keep up with inflation. What this means, for example, is if your house increases in value next year by 5% your policy’s replacement limit will also increase, according to some predetermined index of local home values.
Additions to your home
If you add improvements to your home, you should increase your coverage. Don’t wait until the addition is completed to increase your coverage, contact your insurance agent or representative shortly before or after construction begins. Otherwise, if the new addition is damaged or destroyed before you have increased your coverage, you may be responsible for the cost of repairing or rebuilding the addition.
Also, make sure that contractors and subcontractors working on your addition have workers compensation by requesting copies of their insurance certificates. If the coverage is insufficient you may need to extend the liability limits portion of your homeowners policy, or simply find a company whose insurance meets your requirements. The reason for this is relatively simple to understand… Workers injured while working on your addition could sue you if the contractor doesn’t have the proper insurance coverage.
Why insure your property?
Property insurance covers risk from loss or damage to your personal property. Even the smallest residence can contain property worth thousands of dollars–for instance, an entertainment or sound system, home computer, or jewelry. If a catastrophe struck tomorrow, and you could afford to replace everything you own, then you may not need property insurance. If that isn’t the case, then it’s likely you need it.
Homeowner policies cover personal property to some extent
In addition to your home, a standard homeowners policy also covers personal property, meaning articles you own other than land and buildings. Your personal property consists of the contents of your house (like furniture, clothing, and stereo equipment, as well as outdoor items like sporting equipment and gardening tools). Generally, the limit for personal property coverage is stated as a percentage of the dwelling coverage amount listed within the policy.
If you own a condominium or cooperative unit, your homeowners insurance provides coverage for your personal property and any portion of the unit you own under the terms of the condominium or cooperative documents. Similar to a homeowner, you must choose a specific amount of coverage for the building. It is crucial to determine how much responsibility you have under the condominium or cooperative documents. In these types of situations one should never guess what these amounts or percentages are. It is advisable to find out for sure and if possible receive this information in writing. Then keep it in a safe place in case you need it in the future.
Homeowners policies have set limits
Homeowners policies set specific dollar limits for particular categories of personal property in a section entitled Special Limits of Liability. Note that for some categories, the policy specifies a limit only for theft, not for damage or destruction. The reason is that items such as jewelry, firearms, and furs are especially susceptible to theft, and insurance companies want to limit their exposure to these fairly common incidents. The damage or destruction of these items is less common, and insurance companies are willing to cover them up to their actual cash value.
Below are some examples of the standardlimits for particular categories of personal property:
- $200 for money, bank notes, bullion, gold, silver, coins, and metals
- $1,000 for securities, accounts, deeds, letters of credit, notes other than bank notes, manuscripts, personal records, passports, tickets, and some other related items
- $1,000 for the theft of jewelry, furs, watches, and precious and semi-precious stones
- $2,000 for the theft of firearms
- $2,500 for the theft of silverware, silver-plated ware, goldware, gold-plated ware, and pewterware
- $2,500 for property at the residence used for business purposes
- $250 for property used away from the residence for business purposes
*Of course, depending on your policy’s type, limits and endorsements these figures may or may not be accurate.
Chances are, the value of many of your personal belongings may exceed the limits in your homeowners policy. Only you know for certain. That’s why you have the option of increasing these specific limits by purchasing either a Scheduled Personal Property endorsement or a floater. You may need an increased jewelry limit, for instance, for covering engagement or wedding rings. If you buy a personal property rider, you must be able to verify the cost and condition of the item. Photos or a video can be used to inventory your property. However, you should be sure to keep the inventory away from the premises (i.e., safe deposit box). Professional appraisals are needed for certain items, such as jewelry, antiques, or camera equipment (beyond a basic camera).
Renters need property insurance, too
Many renters are under the mistaken belief that they are covered under their landlord’s homeowners insurance policy. This is not true. Your landlord’s policy covers the building itself, not the personal belongings of you or other tenants. The fact that you pay rent instead of a mortgage payment doesn’t make your personal possessions any less valuable. By taking out a renters insurance policy, you can cover your personal property from loss or damage that results from broken pipes, fire, theft or any other event specified in the policy. In fact, renters may even be more likely to suffer from a loss of personal belongings because they live in close proximity to other individuals and families.
Renters insurance also protects you from liability claims against you if someone suffers an injury or property damage because of something you did or didn’t do. For example, if you forget to turn your stove off, and your apartment catches fire and destroys the building, you could be held liable by the landlord. Your renters insurance policy provides a set amount of liability protection.
In addition to protecting you from property loss or damage and liability claims, renters insurance (HO4) is very reasonably priced.
Protect your possessions wherever they are
Property insurance may protect your possessions wherever they are. For example, if you are on vacation and lose a valuable item, as long as the loss is by a covered peril or event, in most cases the location doesn’t matter. Your policy will specify covered perils and events.
How much property coverage do you need?
To determine how much property insurance coverage you need, make an inventory of all your home’s contents. Don’t forget to include furniture, appliances, jewelry, artwork, and the contents of your closets, cabinets and the toy chest. When possible, list the serial number, date and cost of purchase. Include receipts if possible. An easy way to inventory your possessions is to use a video camera or take photos. When using a video camera, you can talk about the specific items, their cost, and when you bought them. Ideally, you would want enough insurance coverage to replace your possessions if they were destroyed.
Keep a copy of your inventory in a location away from your home, like a safety deposit box, or maybe at a close friend or relative’s house. This way, if your home is destroyed, your inventory list will be safe at another location. When you make major purchases, remember to add them to your inventory and check with your insurer–you may need to increase your coverage levels.
Two methods to determine value
Insurance companies use one of two methods to determine the value of property:
- Replacement cost–pays you the cost of replacing damaged property, with no deduction for depreciation, but with a maximum dollar amount.
- Actual Cash Value–pays you an amount equal to the replacement value of damaged property minus a depreciation allowance.
Unless a policy specifically states that property is covered for its replacement value, coverage is for the lower, actual cash value. Check your policy, or ask your insurance agent or representative if you are not sure what level of coverage you have.
Periodically review your existing coverage
Review your existing homeowners or renters policy to make sure you have enough coverage for all valuable possessions. Periodically review your coverage to make sure it is keeping pace with new purchases and/or gifts you have received.
How Much Should It Cost?
One question insurance customers never fail to ask is, “What’s it going to cost me?” The cost of homeowners insurance is influenced by a broad range of market factors:
- From rising construction costs to the
- Increasing number of liability lawsuits.
- But it’s also affected by the customer’s needs, policy choices and habits.
- We are dedicated in helping our clients control their insurance costs.
Homeowners insurance is one of the most important investments you’ll make. You should keep in mind the difference between market value and replacement value, and make certain your home is insured “to value.” In many cases, it costs more to reconstruct a house than the house would bring on the open market. Talk with us to make sure you have the right amount of coverage.
You can take steps to lower the cost of your premiums. Our companies offer special discounts and credits for such features as fire extinguishers, sprinkler systems, and burglar alarms. These are factors in loss prevention, which ultimately help control insurance costs.
You can also lower your home insurance costs can by raising your deductible. Small claims are expensive for insurance companies to handle. You can reduce your premiums by as much as 10 percent if you increase your deductible from $250 to $500. Increasing the deductible to $1,000 can lower premiums by almost a third.
In addition, the price you pay is influenced by how you pay. Our companies offer different payment plans, so you can pay your premiums in a way that best fits your lifestyle.
Finally, you can save money by placing all your home and auto policies with us because we offer discounts if you have more than one policy with us.
Do I Have Enough Home Insurance?
If your home is completely destroyed, you want to be able to rebuild it to its original condition. This requires having enough insurance to replace your home, which may cost more than its value on the open market. The cost of rebuilding is usually more expensive than new construction, especially if your home was destroyed along with many others in a single neighborhood or town. In the wake of a flood, for example, simple supply and demand can drive the cost of materials and labor up and cause the price of rebuilding to skyrocket.
- Our companies will work with you to determine your home’s replacement cost. Normally using data from the E.H. Boeckh Company, the U.S. authority on replacement value, the insurance company will consider the construction costs of homes in your area that are of similar size and quality.
- Typically, a homeowners policy covers possessions whose total value equals 70 or 75 percent of the homeowners coverage. In simple terms, that translates to $70,000 to $75,000 worth of coverage for your personal possessions if you have $100,000 in coverage on your home.
- If you collect art, have valuable jewelry or keep other things of special value, consider expanding your coverage to protect those items.
- When the value of the things you own exceeds the 70 to 75 percent coverage included in a typical policy, additional coverage can be critical.
- In addition, many policies have sub-limits on specific categories of valuables. If the value of those items exceeds the policy sub-limit, extra coverage is probably in order.
A standard policy will probably insure your possessions at actual cash value, which is the value of an item at the time of a loss. To make sure you can fully replace lost or stolen items, you may want to add an endorsement for replacement cost coverage, which will replace the item with one of similar make and model, regardless of the stolen or damaged item’s actual cash value. In many of our companies homeowners policies, replacement coverage is included at no extra cost. Check with us, about your policy, to be sure.
Finally, we suggest that you take the time to inventory your possessions.
- In the wake of a catastrophe such as a fire, it can be very difficult to create a list of all the things you owned.
- Now is the time to walk through your house and make an inventory of your possessions.
- One easy way to do this is to videotape the contents of your home.
- When you’re done, place a copy of the tape in a safe deposit box. Or make a copy of your tape or inventoried documents, and store them at a family members home. Then, if the worst ever does happen, you’ll have a record that can help us to help you in the replacement of your possessions.
Understanding The Benefits of Home Insurance
Why You Need Homeowners Insurance
Your home is your castle, so the saying goes. In order to protect it, people purchase homeowners insurance, one of the most popular forms of insurance today. Of course, if you have an outstanding mortgage on your home, chances are you had no choice–your lender required you to secure homeowners insurance before the loan was approved. But if the choice is up to you, remember that homeowners insurance provides important benefits. A few hundred dollars a year can buy you a hundred times that in peace of mind.
The three benefits of homeowners insurance include:
- protecting your home,
- protecting your personal property, and
- providing liability coverage.
The main purpose of homeowners insurance is to protect your home (and other structures, like a shed or detached garage). This coverage is the bread and butter of any homeowners policy. Your house is often the most important investment you’ll ever make, and even a relatively small amount of damage may set you back financially if you don’t have insurance, or don’t have enough insurance.
Take the following scenarios:
- Lighting strikes a power line leading into your house, causing a fire.
- A delivery truck careens off the road into your house.
- Your hot water heater explodes.
- A tree falls through your roof during a storm.
With the typical homeowners policy, you are covered in each of these situations. You don’t have to worry about the unpredictable. The financial problems created by random accidents and perils will not force you out of your home.
Not only will your policy cover the cost of the damage (exactly how much depends on your policy), but also it will cover (up to a limit) your living expenses in makeshift quarters while you wait for your home to be repaired.
In addition to protecting your home, the typical homeowners policy covers your personal property as well. Your personal property consists of the contents inside your home–for example, furniture, clothing, stereo, computer equipment, jewelry, and sentimental items–as well as outdoor items like sporting equipment and lawn tools. So if a fire damages both your kitchen walls and your appliances, your appliances will be covered.
An important aspect of homeowners insurance is that its coverage is not limited to property damaged on your premises, but applies to your personal property anywhere in the world. This is known as “off-premise protection”. If you travel now or ever intend to travel, this protection can be invaluable. In sum, if you value your personal possessions, the personal property coverage of a homeowners policy can be very important.
In addition to insuring your property, the typical homeowners policy includes a specific level of liability protection that covers you for damage you cause inside or outside of your home. Unlike the random perils that govern your property (e.g., fire, explosion, theft), the trigger for this coverage is your negligence and, unfortunately, the “I’ll see you in court” mentality. Included here are medical payments to third parties, and your legal costs for any lawsuits brought against you. The importance of this coverage may not be as obvious as that of property coverage. Nevertheless, it may protect you against potentially troubling personal injury lawsuits. For example: you invite your neighbor over for coffee, and she trips and breaks her leg on a pair of shoes you left in the middle of your floor. Your insurance will cover her medical bills and other costs (the ceramic vase she was carrying) if you’re held responsible. Or, away from home, suppose you run over someone’s foot with your golf cart on the way to the clubhouse. Your insurance will cover the injured person’s medical bills if you’re found liable.
What is covered?
The most typical homeowners insurance policy in the United States is referred to as the “HO-3” policy. Among other things, it commonly provides coverage for damage resulting from:
- Fire and lighting
- Windstorm and hail
- Theft, vandalism, or malicious mischief
- Damage from vehicles
- Sudden and accidental damage from smoke
- Objects falling from sky (meteorite, airplane etc.)
- Weight of ice, snow, and sleet
- Accidental discharge or overflow of water from your plumbing
- Freezing of plumbing
- Sudden and accidental tearing, cracking, burning, or bulging of a steam or hot water heating system
- Your personal property
- Your negligent and unintentional act, whether on or off your premises
In fact, with the HO-3, every calamity is covered except those that are specifically excluded in the policy. The standard exclusions in the HO-3 policy are:
- The land under your house
- Floods (this insurance must be purchased separately)
- Earthquakes (this insurance must be purchased separately)
- Nuclear accident
- Intentional damage
- Sewer backup or overflow
- Structures used for a business (this insurance must be purchased separately) wear and tear on a home, including deterioration, insect and rodent infestation, settling, cracking, bulging, or expansion of pavement, walls, or foundations, or damage from domestic animals
- Cars, trucks, vans, motorcycles, aircraft, and boats with anything more than a small motor
- Theft from a house under construction (this insurance must be purchased separately)
- Freezing of pipes in an unoccupied, vacant, or under-construction house
- Vandalism and malicious mischief if the house has been vacant for more than 30 days
- Freezing, thawing, pressure, or weight of water or ice to a fence, pavement, patio, swimming pool, or dock
- property belonging to tenants
- animals, birds, and fish
- losses resulting from the failure to protect property after a loss
Keep in mind that you can always add available additional endorsements to complement standard coverages.
Determining Coverage Levels
Insuring Your Home
Homeowners insurance provides three basic coverages.
- First, the policy covers damage to your home–the dwelling itself.
- Second, it provides coverage for the contents of your home.
- Third, it provides a level of liability protection for claims arising from the actions of you and your family.
Two methods to determine value
Insurance companies use one of two methods to determine the value of property:
- Replacement cost–pays you the cost of replacing damaged property, with no deduction for depreciation.
- Actual Cash Value–pays you an amount equal to the replacement value of damaged property minus a depreciation allowance.
Unless a policy specifically states that property is covered for its replacement value, coverage is for the lower, actual cash value. If you are not sure which type you have, first check your policy, or ask your insurance agent or representative if you are not sure what level of coverage you have.
Assessing your need
Certain factors can affect the appropriate level of homeowners coverage. If, in the event your house is destroyed, you want to rebuild your home with materials of like kind and quality, and replace the contents, you should insure your home for an amount which may be considerably larger than your mortgage balance. On the other hand, if you just want to be able to pay off your mortgage and walk away, then your level of coverage should match the balance of your mortgage. Be careful, however, because this is where some consumers slip up by thinking that “cheaper” is “better”. Without sufficient insurance coverage, the insurance company may pay only a portion of the cost to replace or repair your home and its contents.
In most cases, policy holders want to insure their possessions for replacement values. But make no assumptions. The replacement value is probably different than the market value of your home and the depreciated cash value of its contents.
Determining your level of coverage–the building
If you have a mortgage, your lender may require you to maintain a certain level of insurance, and the lender will be named on your policy as an insured party or copayee. While the level of coverage required by the lender may be enough to cover its exposure, that actual level may not be sufficient to fully protect you. The reason for this is easy to explain… Lenders want to know that the mortgage balance will be paid if the home is destroyed. They have no specific interest in seeing that your home is built back to its former level of glory.
To decide how much homeowners coverage you should have, determine the cost to rebuild your home. As a licensed independent agent we can help you calculate the current cost of construction for a house like yours, or you can hire a professional appraiser. You may or may not be surprised to discover that it would could cost more today to rebuild your home than the price you initially paid for it. This is not something you want to discover after your home has been destroyed and you need to rebuild it.
Often, consumers mistake market value or taxable value for the amount at which they should be insuring their home, but this could result in being horribly underinsured. For example, assume your home is a 2,000-square-foot-home, has a taxable value of $75,000, and would cost $45 per square foot to rebuild. The total cost to rebuild this home would be $90,000. If you were insured for the taxable value, you would be trying to rebuild a your home while facing a $20,000 deficit. Plus you don’t want include the value of the land your home is on when calculating your coverage; land is not at risk from theft, fire, windstorm, and other perils covered in your homeowners policy.
Determining your level of coverage–your home’s contents
In a standard policy, possessions are usually covered at stated percentage of the value of the structure coverage, and there are listed limits for certain items. This level may not be sufficient to cover the replacement of all your property. To determine how much property insurance coverage you need, make an inventory of all your home’s contents. Don’t forget to include furniture, appliances, draperies, jewelry, artwork, and the contents of your closets, cabinets and the toy chest. When possible, list the serial number, date and cost of purchase. Include receipts if possible. An easy way to inventory your possessions is to use a video camera or take photos. When using a video camera, you can talk about the specific items, their cost, and when you bought them. Ideally, you would want enough insurance coverage to replace your possessions if they were destroyed. If the value of your possessions is larger than the stated percentage of your structural coverage, don’t panic–you can buy additional coverage for your possessions.
Keep a copy of your inventory in a location away from your home–like a safety deposit box, or with a trusted friend or family member. This way, if your home is destroyed, your inventory list will be safe at another location. When you make major purchases, remember to add them to your inventory and check your policy–you may need to increase your coverage levels.
Determining your level of coverage–liability protection
The standard amount of liability coverage in a homeowners policy is $100,000, which covers personal liability, medical payments, and property damage for damage, or personal injury caused to others. If you feel you need more coverage, talk to us about the availability of a higher level of coverage or the possibility of purchasing a separate liability umbrella policy.
Periodically review your existing coverage
At least once a year, review your homeowners coverage to make sure it is keeping pace with any major purchases or additions to your home. In addition, if you fear inflation will decrease the value of your policy, an inflation guard endorsement, which is built-in to many homeowners policies these days, ensures that your coverage amount increases a bit every year to keep up with inflation. What this means, for example, is if your house increases in value next year by 5% your policy’s replacement limit will also increase, according to some predetermined index of local home values.
Common Policy Exclusions
Homeowners insurance policies not only state what perils are covered, they also can list which perils are excluded from coverage. Neither the named perils policy types (HO-1, HO-2, HO-4, HO-6, HO-8) nor the open perils policy form (HO-3) cover the following events:
- Enforcement of building codes and similar laws
- Power failures
- Neglect (meaning your failure to take reasonable steps to protect your property)
- Nuclear hazard
- Intentional acts
Flood insurance and earthquake insurance are only available as separate policies.
Additional exculsions–open peril policies
In addition to the above-named exclusions, the following perils are excluded from coverage if you have an open perils (HO-3) policy:
- Freezing pipes and systems in vacant dwellings
- Damage to foundations or pavements from ice and water weight
- Theft from a dwelling under construction
- Vandalism to vacant dwellings
- Latent defects, corrosion, industrial smoke, pollution
- Settling, wear, and tear
- Pets, other animals, and pests
- Weather conditions that aggravate other excluded causes of loss
- Government and association actions
- Defective construction, design, and maintenance
While HO-3 does not cover you for the above exclusions, it does cover you for ensuing losses that result from excluded events (as long as the ensuing loss is not itself excluded from coverage). For example, if your fireplace is defective or was improperly installed so that smoke and flames are blown out into your living room, you’re not covered for the replacement of the fireplace, but you are covered for the smoke and fire damage that your house had to endure the first time you used the fireplace.
While the list of exclusions is longer with open perils policies, you are usually covered for everything not specified on the list of exclusions. With a named perils policy, your coverage is only for the perils named within the policy. Remember also that under HO-3 policies, the open perils list applies to the dwelling and related structures. Your personal possessions are covered for the more restrictive broad named perils.
Tenants in rental buildings don’t own the building or the unit in which they live, so the policy coverage and exclusions apply only to personal possessions.
Because the cost of your homeowners insurance can vary by hundreds of dollars depending on the size of your home, where you live, the type of home you live in, construction and feature types, etc.. Because every penny counts, here are some possible steps to help you save money on your homeowners insurance:
Raising your deductible–A deductible is the amount of money you must pay up front out of pocket for a loss before the insurance company will pay for anything. The typical minimum deductible for a homeowners policy starts at $250. But look at the following chart:
If you increase your deductible to…You may save on your homeowners policy…$500up to 12%$1,000up to 24%$2,500up to 30%$5,000up to 37%
- Obtain home insurance and auto insurance from the same insurer–These days companies will commonly give you a discount of 5% to 15% off your total premium if you purchase two or more policies from them.
- Avoid flood areas–According to the National Flood Insurance Program’s statistics, the average cost of flood insurance is slightly more than $400 a year.
- Don’t insure your land–Don’t include the value of your land in deciding how much homeowners insurance to buy. The reason is the land under your house is not prone to theft, fire, or other weather extremes that are covered in your homeowners policy.
- Improve your home security–We typically offer a discount if you have a smoke detector, burglar alarm, or dead-bolt locks. In addition, we may be able to reduce your premium if you install a sprinkler system and burglar alarm that is monitored by the police. However, these systems can be costly. Before installing them, check with us to find out what is specifically required to qualify for a discount.
- Stay with an insurer–Loyalty may have its advantages and translate into real money savings.
- Look for private insurance first–The cost of private insurance is often equal to or less than that of government-sponsored insurance, especially if you live in a high-risk area (plagued by storms, fires, or crime).
Cash Value & Replacement Costs
There are several different methods by which your insurance company may calculate the amount it will pay you for a loss. Payment based on the replacement cost of damaged or stolen property is usually the most favorable figure from your point of view, because it compensates you for the actual cost of replacing property. If your camera is stolen, a replacement cost policy will reimburse you the full cost of replacing it with a new camera of like kind. The insurer will not take into consideration the fact that you ran three rolls of film through the camera every day for the last two years, causing a considerable amount of wear and tear.
In contrast, actual cash value (ACV), also known as market value, is the standard that insurance companies arguably prefer when reimbursing policyholders for their losses. Actual cash value is equal to the replacement cost minus any depreciation (ACV = replacement cost – depreciation). It represents the dollar amount you could expect to receive for the item if you sold it in the marketplace. The insurance company determines the depreciation based on a combination of objective criteria (using a formula that takes into account the category and age of the property) and subjective assessment (the insurance adjuster’s visual observations of the property or a photograph of it). In the case of the stolen camera, the insurance company would deduct from its replacement cost an amount for all the wear and tear it endured prior to the time it was stolen.
How to get replacement cost coverage
Personal property generally loses value over time due to ordinary wear and tear. Accordingly, you are arguably better off with a replacement cost policy. If you prefer such coverage, then read your policy and check with your insurance agent. There are certain requirements you typically need to meet before you are entitled to receive replacement cost for your house and possessions. Remembering, you will most likely need to replace the item and provide a receipt to get the “replacement” dollar amount.
When is actual cash value better?
Although actual cash value is a smaller figure than replacement cost, you may prefer ACV in certain situations. If you don’t intend to repair or replace the damaged or destroyed property, you may just want cash as soon as possible. You can receive ACV compensation more quickly than replacement cost compensation, and thus have the cash in hand at an earlier date.
FILING A CLAIM
Filing General Claims
If a covered loss does occur, the claims process is completed by:
- First filing your claim,
- and then settling your claim.
Filing your claim
Filing your claim is a seven step procedure:
Report burglaries, thefts, and other crimes to the police.
Telephone your insurance agent and formerly report the loss. You’ll receive any additional information you need at this time.
Take any steps necessary to prevent further damage. For example, repair any windows broken during a burglary. Save your receipts so that you can submit them to the insurance company for reimbursement.
Take an accurate inventory of all lost property.
Save receipts for living expenses if you must make temporary living arrangements while damage is being repaired.
Obtain claims forms. Once received, complete and return them as soon as possible as this greatly helps in speeding things along.
Make sure that an adjuster inspects any & all damage.
Settling your claim
You and your insurance company must come to an agreement on the terms of settlement; that is, how much you will be compensated for your loss. Generally, the insurance company will make an offer. If it is acceptable to you, the insurance company must send the payment to you promptly. If you are unsatisfied with the offer, follow these simple steps:
Discuss the matter directly with your insurance company or agent. Explain why you think the offer is not fair. Send copies of all supporting bills, receipts, and other documents.
Before resorting to any formal dispute resolution procedures, you may find it worthwhile to attempt more informal negotiations. In particular, you may save valuable time and money this way if the amount in dispute is relatively small.
If, on the other hand, the amount in dispute is considerable, or you have unsuccessfully attempted to negotiate, you can follow the more formal procedures outlined in your policy. The appraisal and arbitration clauses in your homeowners policy govern disagreements over the compensation paid on a claim.
Filing a Claim After a Disaster, Fire, Etc.
If you have a homeowners insurance policy, you should review it very carefully, and understand exactly what is covered and what is not in the event of a disaster, such as a fire or storm. This is important because if a loss should occur, you will certainly want to know whether or not you can make a successful claim. It may be a good idea to reevaluate your current coverage to make sure that you have adequate protection.
Remember, homeowners policies don’t cover flood damage, but do cover other kinds of water damage. For example, damage caused by rain that comes in through a window or roof broken during a storm is covered. You will need separate flood insurance to cover damage caused by flooding.
What should you do after a disaster has struck?
Of course we’re all human and therefore susceptible to the emotional toll if a disaster strikes, but keeping a clear head can help us to do certain things right away.
Make temporary repairs. You will need to make whatever repairs are necessary in order to make your home habitable and prevent further damage. For example, you may need to put plastic coverings over windows or holes in the roof, and replace electrical appliances damaged by water. Be very careful if you are not used to this kind of work and get professional help if you need it. But, be careful not to make extensive repairs at this time. An adjuster must appraise the damage first. Save any and all receipts so that you can be reimbursed by the insurance company later.
Call your insurance agent to report the loss. By doing so, you’ll be provided with any additional information you need at this time. If the disaster is widespread, your agent may be very busy. Be patient, and keep trying.
Save receipts for living expenses if temporary living arrangements are needed. Such expenses may include temporary housing costs, storage expenses, and furniture rentals.
Make a list of all the damaged property. Try to include makes, models, and serial numbers. If you had previously made a complete home inventory list, then now is the time to retrieve it. Take pictures of the damaged items, if you can. Organize old bills and receipts, if they are available, to establish value and age. Work from memory, if necessary. Remember to include clothing, personal items, kitchenware, china, sporting goods, garden equipment and tools, toys and games, outdoor furniture, towels and linens, curtains, wall hangings, and decorations. Don’t throw anything away no matter how bad the damage until the adjuster has a chance to inspect and appraise it.
Identify structural damage. Don’t enter the property if “good-sense” judgment tells you it’s unstable. Don’t forget the garage, sheds, and pool areas. Look for cracks, and missing shingles or roof tiles. You may want to hire a licensed engineer to identify damage you can’t see. Have an electrician inspect the electrical system, and a plumber inspect the plumbing system. Get bids for the repair work. Never hire the first person who comes along and tells you they can fix your property right away without first checking them out, and never sign a work contract until you are satisfied with their professional credentials and abilities.
Have an adjuster appraise the damage. Your insurance agent or company will arrange this, and there should be no charge. Again, remember if the disaster is widespread, adjusters will be busy. Be patient. When your adjuster comes, he or she should do a complete inspection and appraisal. If not, make sure he or she comes back for a second look. Be sure to point out all damaged areas.
Complete the “proof of loss” forms which will be sent to you by your insurance company. Return them as soon as possible. Keep copies of all forms you send back. Send copies of lists and other documents as needed to prove your losses. Make sure to keep the originals.
How is the settlement amount determined?
You and your insurance company will have to reach an agreement as to the amount of compensation you will receive. The settlement amount will depend on the type of policy you have, including all listed endorsements and exclusions.
Cash value vs. replacement cost
A cash value policy pays only the actual cash value of the property that is damaged or destroyed. Replacement cost pays the full dollar amount needed to replace the property.
Extended replacement cost
This kind of coverage replaces your entire house if it is completely destroyed. A typical policy will pay up to the limit of the policy.
Guaranteed replacement cost
Guaranteed replacement cost coverage pays whatever it costs to rebuild your home as it was before the disaster.
How do you receive payment?
You may receive as many as four separate checks. The first may be an advance, not a final payment. This is so you can pay for temporary living expenses, if needed. If you suffer both structural damage and loss of personal property, you will get a separate check for each. You may also get a separate check for temporary living expenses (minus the advance).
If you’re offered a settlement right away, and you accept it, you may get just one check. If you find more damage later, you can reopen the claim, and receive a second check. You typically may have up to one year to file or reopen a claim.
What if your home is mortgaged?
If your home is mortgaged, the check you receive for structural damage may be made payable to both you and your lender. The lender gets equal rights to this payment so that it can make sure that repairs are suitably completed. The lender will probably endorse the check, and put it in an escrow account. The lender will inspect the final repairs, and then release the funds.
Funds in excess of the mortgage, in payment for personal property, and in payment for additional living expenses should be made payable to you alone, and not to your lender.
Claims & Your Premiums
Will Your Insurance Go Up After a Claim?
The answer typically is no. A single claim, no matter how large, won’t raise premiums, especially if it is the result of an act of God (meaning forces of nature). That’s the good news.
What if it is a claim for a dog bite?
Here’s the one exception. If the claim is for a dog bite, and you do nothing to improve the situation, rates are sure to increase.
Okay, you’ve filed two claims under your homeowners insurance policy. Will your premiums go up now?
It depends upon the type of claim, and how much time has passed between the two claims. Say, for example, you have one claim for a slip and fall in one year, and another claim for damage due to faulty plumbing three years later. Your premium will probably increase. But, if a wild fire damages your house one year, and a storm rips through it the next year, chances are you won’t have to worry about your premiums going up.
The difference is whether or not you, the homeowner, could have done something to prevent the loss. In cases of natural disasters, there is almost nothing you can do to prevent damage, and you won’t be penalized. But, if it seems that you don’t maintain your home properly, or it is unsafe in some way, or you make multiple similar claims, red flags go up at the insurance company, and you’ll pay with increased premiums or nonrenewals.
Insuring a New Home During Construction
You should definitely consider insuring your new home during construction. If you don’t, you’re exposing yourself to a great deal of risk if a fire, theft, or other event damages or destroys your partially-completed home.
How can you insure your new home during construction?
One way to cover your new home during construction is to purchase a standard builders risk policy. This will cover any damage to the building as it’s being built, and may also provide some coverage for the theft of building supplies. It also provides liability coverage, which may come in handy if one of your friends trips during a “tour” of your dream house, and decides to sue you. However, the policy will not cover your personal property until the building is made secure or “lockable.”
Another option is to purchase a “dwelling and fire” policy. This type of policy covers damage to the physical structure, but provides no theft coverage. A dwelling and fire policy may be an appropriate choice if you are living in your old house during construction because the homeowners policy on that house will cover the theft of items from the construction site. Dwelling and fire policies also provide liability coverage, just like a standard homeowners policy.
What happens once the building is complete?
Once the building is complete, you should re-evaluate your coverage. If you opted for dwelling and fire coverage, you will need to purchase a full homeowners policy right away. If you bought standard homeowners insurance, make sure that you have purchased the right amount, especially if you have made alterations to the original building plan.
Insuring Your Home During Remodeling
If you are adding an extra room or improving your home in some way, you will likely need to update your homeowners insurance policy so that the new addition or improvements will be covered. You should do this before you start any work, because if you don’t and the new addition or improvement is damaged or destroyed while being built, you may have to pay for the loss.
It’s always advisable to contact your insurance agent before construction begins to increase your coverage to reflect the new changes in your home.
Make sure contractors and subcontractors carry the proper insurance coverage
When you have contractors and subcontractors on your property to do work on your house, you run the risk of one of them being injured on the job and suing you. You need to do two things to adequately protect yourself from this potential liability:
- Make sure that all contractors and subcontractors carry adequate workers’ compensation coverage. Don’t be bashful. Demand to see a copy of their policies beforework begins.
- If the workers’ compensation coverage is not adequate, you may need to extend the limits of the liability portion of your homeowners policy or find a contractor whose policy limits are acceptable.
Insuring Your Property During a Move
Whether you are moving across the country or just down the street, you will likely need to insure your property. Just think of all your belongings being picked up and set down at least twice, carried up and down stairs, around sharp corners, and being tossed about in the back of a truck or van. Something is bound to be dropped, scraped, chipped, broken, damaged, or destroyed. Or, worse yet, the truck or van may be stolen with all your property still stowed onboard.
Most moving companies limit their liability. And if you’re moving yourself, your moving helpers probably won’t take responsibility. You will end up paying for the loss.
The answer to this problem is to insure your belongings during transit. This type of insurance is called moving insurance, and is part of an insurance line called inland marine insurance.
Where can you get inland marine?
You can get inland marine insurance in several ways:
- Your own homeowners insurance policy might cover moves. Check your policy to find out if it does, and what the limits are.
- If you are having a moving company move you, they may offer moving insurance. All commercial moving carriers must provide a basic moving insurance policy to you at no charge. This covers both local and interstate moves but generally pays only 60 cents per pound.
- If you are moving yourself, you may be able to buy a policy from a move-it-yourself company.
What kind of coverage is available?
Basically, three kinds of coverage are available:
- Basic coverage (which pays 60 cents per pound) at no cost to you,
- Coverage based upon the value of the item less depreciation, and
- Coverage based upon total replacement cost.
The third choice provides you with the best coverage but it will be slightly more expensive.
Is there a deductible?
That depends on the policy, too. Typically, a policy that provides total replacement cost allows you to choose a deductible (e.g., $250 or $500).
How much does moving insurance cost?
Moving insurance is affordable. If you choose the basic moving insurance policy that the carriers must offer you, the cost is zero because it’s added into their quote. If you choose a policy based upon the value of your property less depreciation, the cost will be added. Coverage based on total replacement cost depends on the value of the shipment.
Insuring A Home Based Business
Generally speaking, homeowners insurance does not cover your home business. Some standard homeowners policies cover a maximum of $2,500 for business equipment in the home, but none cover business-related liability or other losses.
If you run a business from your home (and there are about 12 million Americans who do), it is likely that you need both property insurance to cover fire and theft and liability insurance to cover anyone who gets hurt by using your product or who gets hurt on your property.
What kind of losses do you need insurance protection for?
As a business owner, you will need insurance to cover the following types of losses:
- Property and equipment damage or loss from fire or theft
- Customer or supplier injuries on your property, or caused by your product
- Advertising liability
- Inability to collect accounts receivable
- Business record damage or loss
- Lost income due to damage to your home
What kind of policies are available?
If you operate a home day-care service or if your company is “incidental” (which means it grosses less than $5,000 per year), you may be able to simply add an endorsement to your existing homeowners policy.
Perhaps a package policy for your small home-based businesses is the key. This package usually covers loss or destruction of business property on or off the premises, loss of valuable papers, personal injury and advertising liability, and accounts receivable protection.
Typically, if you purchase a package policy, you’ll also want to purchase homeowners and auto policies from the same company. This way, the package plan extends the property and liability coverage on your home and car to your business. This prevents gaps or duplication of coverage.
If the package policy is not available to you (not all states allow them), you will have to buy individual policies, such as business property, general liability, and business income insurance.
What other types of insurance policies might you need?
- Car insuranceYour existing personal car insurance policy may cover some of the business tasks you use your car for. However, depending on the type of vehicle and what it’s used for, you may need a separate business automobile policy.
- Health and disability insuranceYou need health insurance in case you become sick and incur medical expenses, and disability insurance if in case you become unable to work because of illness or injury. If you have employees, you may want to consider offering a group policy, if your business is eligible.
- Workers’ compensationYou are required by law to have a workers’ compensation insurance policy in place if you have employees working for you on the premises. These laws vary from state to state, so check with your insurance agent or your state’s insurance department to find out exactly what you need.
Creating A Household Inventory
A household inventory is a complete and detailed written list of all the personal property located in your dwelling, or stored in other structures like garages and tool sheds. Your inventory should include your possessions as well as items owned by individuals who are also insured under your homeowners policy, such as family members, other household residents, and domestic employees. You should prepare an inventory whenever you move into a new dwelling and update it periodically (say once every six months) to keep track of new and discarded items.
Why do it?
Total recall of all the contents of any one room is quite an accomplishment for any of us, even at the calmest of moments. Remembering all the contents of your house and garage after a fire, theft, or other calamity is practically impossible. Yet that’s what you’ll be asked to do when you submit a claim on your homeowners insurance, unless you previously prepared a written inventory of your household possessions and property. Omitting or failing to include an adequate description of an item may prevent you from receiving compensation from your insurance company. Considering that the whole point of buying homeowners insurance is to obtain compensation for financial loss, why bet the farm (or your house and its contents) on your memory, or add to the emotional loss and stress which comes from any type of loss?
You’ll also find that a detailed inventory helps when filing a police report, or when trying to prove a loss to the Internal Revenue Service.
What should the inventory contain?
Under the terms of your homeowners policy, your claim for damaged or stolen personal property should show the quantity, description, actual cash value (if different from the purchase price), and amount of loss associated with each item. Copies of bills, receipts, and other documents that justify the figures in your claim are also typically requested. It makes sense for your inventory to include that information, as well as the purchase price and purchase date of every item. It’s a good idea to note serial numbers for appliances and electrical equipment. Listing the contents of each room and building separately helps organize the inventory and promotes completeness. Make sure you include all the contents of every room, excluding only the four walls, ceiling, and floor. Include rugs and carpets, wall hangings, curtains, blinds, and draperies. Be descriptive and refer to colors, dimensions, manufacturers, and composite materials whenever you can. Make sure you include component parts and the contents of drawers, shelves, closets, storage boxes, and built-in cabinets. For instance, describe not only the bed but the headboard, mattress, and bedding. Try to identify every item that you would have to box or carry out, if you were to move out of the house or apartment.
For clothing, make sure you give a full description of any expensive items, such as leather or wool coats, boots, suits, or formal wear. If you’d rather not describe every item of clothing, at least list quantities (e.g., six wool sweaters, two pairs of sneakers, two pairs of corduroy trousers), and the family member these items belonged to which in most cases can be associated with the room you are inventorying.
Make sure to include the items stored in your attic, basement, garage, or outbuildings. Sports equipment tends to be expensive and should be described in as much detail as possible. Don’t forget tools and outdoor equipment like lawn furniture and barbecue grills.
Just do it
You won’t be graded on your inventory for accuracy, completeness, or legibility. If you can’t stand the soup-to-nuts approach, at least take the time to jot down any items valued at $50 or more. Since a picture’s worth a thousand words, consider taking a photograph or videotape of each room, with separate photos for big-ticket items. If you use a camera, make sure you label each photo with notes about the items shown. If you use a video camera, provide a running commentary describing every item (date of purchase, price, etc.) that comes into view. Hopefully, you’ll never have to use your inventory, but if worst comes to worst, and you have to deal with a calamity, you’ll be happy you took the time to make a permanent record of all your possessions.
Now is the time to inventory.
Where should you store your inventory?
Remember the purpose of the inventory. In the case of a fire or catastrophic event, your inventory will do you no good if it got burned up in the fire, or washed away with the flood. Regardless of whether the inventory is stored on film, video cassette, computer software, a sketchpad or a the back of an envelope, keep a copy of it stored somewhere safe–like a safety deposit box at a bank or at a trusted friend or relative’s house. But don’t store your inventories copy at their home if they live next door or just down the street. A strong storm or fire could sweep through your area and do extensive and broad range damage.
HOME SAFETY TIPS
Home Fire Safety
Fire: Nothing is more terrifying. The thought of flames racing through your home is probably your worst nightmare. Unfortunately, it is an all-too-frequent occurrence in this country. Every year, 4,000 Americans die in fires. The vast majority of those deaths occur at home-each year, 100,000 homes are destroyed, 40,000 family pets are killed and uncounted irreplaceable family treasures are lost forever.
Tragically, most fires are preventable. The leading cause of fires in the home is faulty heating equipment. A couple of simple measures can ensure that your home heating system is safe. For example,
- Changing your air filter regularly will ensure that your furnace isn’t overtaxed.
- Don’t leave piles of newspaper or other combustibles within two feet of your furnace.
While home heating systems are the No. 1 cause of fires in the home, cigarettes are the No. 1 factor in home fire fatalities.
- If you do smoke, be sensible.
- Don’t smoke in bed.
- Use a large metal or glass ashtray.
- Put that cigarette out with water before you drop it in the trash.
The No. 2 cause of fire-related deaths is arson. Intentionally set fires claim the lives of more people each year than all natural disasters including floods, hurricanes, tornadoes and earthquakes combined.
- Most arson fires are fueled with combustible material found nearby.
- A little diligence around the house, along with a watchful eye for strangers, can make a world of difference.
In fact, a little diligence is the key to home safety in general. It may go without saying, but:
- Smoke detectors that work,
- fire extinguishers that are well-charged and quickly accessible,
- and a ladder for the upper floors can easily save lives.
How To Handle A Kitchen Fire:
Many household fires start in the kitchen. Untended cooking and human error account for most of these. Not mechanical failure of stoves or ovens. Here’s how to handle a kitchen fire…
- Call 911 immediately. Prepare for the worst and don’t hesitate to call.
- Smother frying-pan fires by covering with a lid, then turn off heat with lid in place until the pan cools. Do not try to carry the pan outside because this could seriously burn you should the contents spill out.
- Other food fires may be extinguished with baking soda, so try to keep an extra box stored in an upper cabinet location. Never use water or flour on cooking fires.
- Turn off the heat to smother oven or broiler fires and keep the door shut.
- Well prepared homeowners keep a fire extinguisher in the kitchen and know how to use it. The National Fire Protection Association recommends extinguishers classified 2A:10B:C. Make sure the one your choose is always UL (Underwriters Laboratories) approved.
Did you know that every day in this country, more than 16,000 homes and apartments are broken into and ransacked by thieves? That makes burglary a very big business. Break-ins cost Americans about $3 billion every year.
The good news is that 9 out of 10 burglaries could be prevented with some basic precautions.
Begin with a little common sense:
- Make it harder for thieves to gain entrance to your home. You can start by making doors more secure.
- Standard, spring-catch locks can be opened easily by a crook with a credit card.
- A single-cylinder deadbolt lock is enough to discourage many thieves. And you might be able to lower your insurance premiums in the bargain.
Burglars like unprotected windows, too.
- Key-locks on windows add an extra measure of security;
- so do steel or wooden rods in the channels of sliding-glass doors.
- A dark house is an invitation to a thief. Install timers on your home’s lighting systems, indoors and out.
- And don’t provide cover, camouflage or encouragement for the burglar who’s casing your neighborhood. Prune the shrubbery around doors and windows, and keep ladders and tools locked up.
One of the most satisfying ways to foil burglars is to organize a neighborhood blockwatch. Keeping an eye on each other’s homes not only prevents crime, it promotes a sense of community. Let your neighbors know when you leave town (as long as you know them personally), and ask them to do the same. Most police and sheriff’s departments will gladly help you start a neighborhood watch program.
And one more thing:
- Don’t “hide” spare keys under doormats or flower pots or in the mailbox. And forget about ordering one of those fake rocks used for hiding keys…burglars have seen those catalogs, too!
A lot of homeowners don’t know what ice dams are — until it’s too late.
Ice dams are most common in northern climates. They occur when heavy snow buildup melts during the day and then refreezes when temperatures drop overnight.
After several days of melting-freezing cycles, it’s common for the melted water and ice to work up under the shingles until water enters the attic and eventually does damage to the ceilings, wall and contents. In cases where the ice dam goes unnoticed for an extended period of time, it can do significant damage to the building and its contents.
There’s no way to guarantee an ice dam won’t damage your home, but you can take steps to cut the chances of an ice dam forming in the first place:
- If you haven’t already, thoroughly clean all leaves, sticks and other debris from your home’s gutters and down spouts. This lets melting roof snow flow into gutters and through down spouts, just as they were designed.
- Make every effort to keep snow on your roof to a minimum. Long-handled devices on the market called “roof rakes” let you stand on the ground and pull the snow off the roof. Keeping heavy snow loads off your roof reduces the chances for both ice dam formation and roof failure due to the weight.
- All winter long, keep gutters and down spouts clear of snow and icicles.
- Evaluate the insulation and ventilation in your attic. Most experts agree the R-value of attic insulation should be at least R-30 (R-38 is preferable in northern climates). In addition, good airflow from under the eaves or soffit area along the underside of the roof and out through the roof vents is essential to a cool, dry attic. Consult a reputable roofing and/or insulation contractor about these improvements.
Prevent Frozen Pipes
If you think turning the heat down in your home while you’re away on vacation will save you a few dollars, think again. If your home’s pipes should freeze and burst, it could end up costing thousands of dollars to repair floors and replace furniture and keepsakes. The damage could be so severe that you and your family would have to relocate while repairs are made.
By taking a few simple precautions, you can save yourself a ton of aggravation.
Here are a few simple steps to protect your home or apartment:
- Insulate pipes in your home’s crawl spaces and attic. Exposed pipes are most susceptible to freezing.
- Heat tape or thermostatically controlled heat cables can be used to wrap pipes. Be sure to use products approved by an independent testing organization, such as Underwriters Laboratories Inc., and only for the use intended (exterior or interior).
- Seal leaks that allow cold air inside. Look for air leaks around electrical wiring, dryer vents and pipes. Use caulk or insulation to keep the cold out and the heat in.
- Disconnect garden hoses and, if practical, use an indoor valve to shut off and drain water from pipes leading to outside faucets.
- When you’re away from home, set the thermostat in your house no lower than 55 degrees. Ask a friend to stop by your house daily to make sure it’s warm enough to prevent freezing, or shut off and drain the water system.
Here are a few additional helpful tips from the National Association of Remodelers:
- Make sure your furnace is in good working order for the cold spurts. Check that the furnace filter is clean and replace it if it’s not. Ensure that the thermostat and pilot light are working properly and that the pipe bringing fuel to your furnace isn’t leaking or loose.
- Have your heating ducts cleaned. It’s recommended that the ducts be vacuumed every five years.
- Check the caulking around doors and windows to make sure there’s no cracking or peeling. Recaulking if needed prevents cold air from entering your home. Why pay a higher heating bill if you don’t have to?
- Keep snow and ice from building up around the bottom of the garage door so it closes completely and doesn’t warp.
- Frozen water pipes can quickly crack followed by gallons of water all over your home. Prevent this by draining your pipe’s hose bibs and by keeping your heat on even when you’re away from home.
- Safely drain and properly dispose of the gasoline from lawnmowers, weedwackers, and other engines that won’t be used until summer.
Long before you see the black clouds on the horizon, your family should designate a place in your home to go if a tornado approaches. A place away from windows is best. In case you don’t have time to make it to the basement, an interior hallway is a wise place to go.
When a tornado watch is issued, the American Red Cross advises people to listen to local television and radio stations for updates on the weather. A tornado watch is issued when conditions are favorable for the formation of a tornado. The Red Cross stresses the importance of keeping aware of the changing weather situation; the more time you have to move to safety, the more likely you and your family are to survive unharmed.
A tornado warningpresents an immediate threat. A tornado warning is issued when a tornado is spotted visually or on weather radar. In case of a tornado warning, the Federal Emergency Management Agency (FEMA) advises people to:
- Go at once to the basement, storm cellar, or the lowest level of the building
- If there is no basement, go to an inner hallway or a smaller inner room without windows, such as a bathroom or closet
- Get away from the windows
- Go to the center of the room. Stay away from corners because they tend to attract debris
- Get under a piece of sturdy furniture such as a workbench or heavy table or desk and hold on to it
- Use your arms to protect your head and neck
- If in a mobile home, get out and find shelter elsewhere.
FEMA stresses the last point, especially. It is very easy for a mobile home to be overturned in high winds. FEMA suggests arranging for a safe place to go well ahead of time, such as with a friend, family member, or a neighbor.
There are many myths about what to do during a tornado. The American Red Cross is hoping to put to rest these fallacies.
One popular belief is that opening a building’s windows allows the air pressure to equalize as a tornado passes overhead. Air pressure can equalize itself through normal openings within a building and opening windows doesn’t particularly help, especially given the likelihood of glass breaking due to flying debris. The American Red Cross stresses that it is much more important to get to safety than to open windows.
Another persistent myth says that the southwest corner of a building is the safest. Studies have shown that the safest place in a building is away from all of the windows regardless of what corner of the building you’re in.
If you’re caught outdoors during a tornado, don’t try to outrun it in your car. A tornado can change directions quickly. You should seek shelter indoors. If that isn’t possible, get out of your car and duck down in the lowest spot you can find, such as a ditch or gully. Because a tornado doesn’t suck objects up, but rather blows them around at speeds which can easily exceed 300mph, a highway underpass is not safe since it leaves you exposed to flying debris. During these devastating storms even the smallest of item caught in its furry such as small roof shingle parts, glass fragments, wood splinters and the like are bullets in the wind causing serious or even fatal injuries. Staying low to avoid this debris is the key to survival if caught outdoors.
Here Comes The Sun Keep your radio tuned to a local station, too. It may be possible that the tornado that has passed overhead is one of many tornadoes in your area.
After the storm has blown over, carefully inspect your home for damage. The sooner you start the claims process for any damage that did occur, the quicker you can get started on repairs.
When inspecting your home, be sure to avoid downed power lines. FEMA warns that just because a power line is down doesn’t mean it can’t give you a serious shock.
The American Red Cross mentions that flashlights, not candles, should be used for inspecting your home because of the possibility of gas leaks.
Disaster Planning Made Simple
Of course to be deeply affected by a disaster you don’t have to be directly hit by it. Lengthy interruptions in basic services can catch you off guard. Downed power lines, broken water and gas mains can threaten your safety even when your home was untouched and survived an ordeal. For many people, a little preparation could make a big difference in coping with the aftermath of a severe earthquake or storm. Disaster-planning experts say people should be prepared to go without power and most other basic services for up to 72 hours. That means no electricity, water, fire fighters or police.
With a few simple additions, the average household already has many of the resources needed to deal with a disaster. Here are a few suggestions and hints on how best to use what’s already on hand.
- Water. The water heater (30-40 gallons) should contain enough water to last a four-person household four days. (Turn off power before draining and be careful of sediments that can accumulate at the bottom of the tank.) Ice cubes in the freezer and liquid from canned food can be used. If you’d rather not store extra bottles of water, consider keeping purification tablets on hand. Household chlorine bleach will disinfect water, too. Use one-eighth of a teaspoon per gallon of water and let stand for 30 minutes before drinking. Do not use bleach with added soaps or fragrances.
- Food. Most houses have ample food for several days. Use food in the refrigerator first, then the freezer. Frozen food will keep up to three days in an unopened freezer. Keeping a few extra canned goods in the back of the cupboard is always smart.
- First Aid. Most homes have the necessary items to handle routine accidents. A basic first-aid kit and a book on first aid should be kept in a central location. It’s a good idea to take a first-aid and CPR course from the Red Cross.
- Fire Extinguishers. Have one or more fire extinguishers and learn how to use them. Have the extinguisher serviced according to the manufacturer’s instructions.
- Other essentials. Identify your home’s utility shut-off valves and learn how to turn them off. Have at least one flashlight and a battery-powered radio. Make an evacuation plan so all family members know several escape routes and where to meet outside.
Flood Survival Tips
Heavy rains can quickly lead to flooding. Floods have a different set of challenges to prepare for than other severe weather events.
A homeowners policy doesn’t automatically cover damage from flooding, and you can’t simply purchase flood insurance as an endorsement to your policy like you might expect. Instead, you must purchase a separate flood insurance policy through an insurance company that participates in the National Flood Insurance Program. Or contact us for details.
Well in advance of flooding conditions, assess your chances of being affected by a flood. A call to the town or county clerk is a good way to find out if you live in a flood plain.
Before a flood arrives, you should have an evacuation route planned; know how long it will take to evacuate your area and build in time to account for others evacuating at the same time.
You should carefully examine your need for flood insurance according to the flood threat as determined by the Federal Emergency Management Agency (FEMA) for your area. Generally, homeowners insurance does not cover damage done by flooding. It’s a mistake to believe that flood insurance isn’t necessary because of federal disaster aid. Often, federal aid comes in the form of a loan that has to be paid back.
FEMA points out that $50,000 worth of damage done to a home worth $100,000 can be financially devastating. While paying the typical flood premium of $324 a year may seem steep, not having the insurance after a flood is more costly. FEMA estimates that getting a loan to repair $50,000 damage can cost you $3,732 a year for 20 years as you repay the loan.
Getting your house in order Prior to evacuation, you can prepare your home. Moving furniture and other valuables to an upper floor can help protect them from water damage.
Never cross a road flooded in water If you live near a river or creek, be alert during any heavy rain. It is not uncommon for a flash flood to sweep down a river and catch nearby residents by surprise.
When the time comes to evacuate, it is paramount that you never cross a road covered in water. People die every year during floods because they attempt to cross washed-out roads and are swept away by the current. According to the Ohio Committee for Severe Weather Awareness, even if you drive a sport utility vehicle, you shouldn’t attempt to cross because it’s difficult to gauge the water depth as well as the current.
Life Insurance Topics
Choosing An Amount
It turns out that for life insurance, the solution to the puzzle of “how much” can be found with some basic calculations. The reason for purchasing life insurance, of course, is to provide your family with long-term financial security. To come up with a dollar figure that will provide that security, you should begin with a careful review of your financial situation.
Essentially, there are two categories that you should consider-what your family’s immediate needs will be if something happens to you, and what their ongoing needs will be.
- Immediate needs can include the final expenses associated with a terminal illness, burial costs, estate taxes, the balance of an unpaid mortgage and even relocation expenses.
- Ongoing needs might include monthly bills and expenses, mortgage payments, daycare costs, education, income replacement and retirement.
Most people aren’t so anxious to figure out how their family will replace the income lost if they die, or even to tackle such details as how much their own funeral will cost, or if the family will have to sell their home should such an event occur, and what the marketplace will be like if selling the home is neccesary. One way to start the process is to consider this basic rule of thumb for life insurance:
- In general, most people should have life insurance that is equal to five to seven times their annual gross income.
Life insurance comes in two basic forms. There is:
- Term life insurance and
- Permanent life insurance (also known as Cash-Value). Knowing which one is appropriate for you means understanding what your needs are and what you are protecting.
You should elect an amount necessary to meet the needs you are trying to satisfy.
Choosing The Type
There are two basic types of life insurance, term insurance and cash value insurance. There are many variations on these two basic types. Term Policies provide life insurance for a specified period of time. These policies provide benefits in the event of death, but they generate no “cash value”. If you have a limited amount to spend, and only need the additional coverage insurance for a finite period of time (for instance.. until the children graduate from college), you may be able to get more coverage by acquiring term insurance than by with cash value insurance. Today’s term policies usually have two sets of premiums – guaranteed maximum premiums, and “current premiums”, which are usually much lower. The company cannot increase current premium above the guaranteed maximum premiums shown in the policy.
When you buy term insurance you need to make a choice as to how long you want the protection. You may renew the policy without a physical examination for the period of years specified in the policy. Some term insurance can be converted to cash value insurance up to a specified age with no physical examination. Premiums for the converted insurance will initially be higher than the premiums you would be paying for the term insurance. Cash-Value Insurance combines death benefits with a cash accumulation feature. The buyer of a cash value policy pays more in the early years than for term insurance, but the money not needed to pay for the cost of the death benefit accumulates as interest. If the policy is surrendered before the insured dies, there may be a cash value paid to the owner. In addition you can make loans from your policies cash value. This interest rate for most policies decreases after a specified number of years, and if the loan is never paid back then the amount is deducted from the policy’s benefit. As a general rule, it is not a good idea to buy cash value life if you plan to surrender early.
If all premiums are paid, cash value insurance usually lasts for the whole life of a person, and pays death benefits to the beneficiaries named in the policy upon the death of the insured. The cash value can be used as loan collateral for borrowing funds at the interest rate specified in the policy. Any outstanding loans are deducted from policy proceeds at death or surrender. Some of these products may enjoy tax advantages.
Designating a Beneficiary
A beneficiary is the person or entity you name (designate) to receive the death benefits of a life insurance policy.
Revocable and irrevocable beneficiaries
The beneficiary can be either irrevocable or revocable. Once named, you cannot change an irrevocable beneficiary without his or her consent. A revocable beneficiary can be changed at any time.
Primary, secondary, and final beneficiaries
You can name as many beneficiaries as you want, subject to procedures set in the policy. The beneficiary to whom the proceeds go first is called the primary beneficiary. Secondary beneficiaries are entitled to the proceeds only if they survive both you and the primary beneficiary. A third level of beneficiary (“final” beneficiaries) can be named as well. Final beneficiaries receive proceeds only if they outlive all other beneficiaries. Usually aunts, uncles, nieces, nephews, and charities are named at this level.
You should name both secondary beneficiaries and final beneficiaries. You may outlive the primary beneficiary, you may die simultaneously, or the primary beneficiary may be unable to collect the proceeds. In these cases, if you have not named secondary beneficiaries, the proceeds pass to your estate. Proceeds paid to your estate are subject to all the expenses and delays associated with settling an estate, whereas named beneficiaries can receive proceeds almost immediately after your death.
You may name multiple beneficiaries if you choose. There are no legal restrictions–and few company restrictions–on the number of beneficiaries you can designate. The only requirement is that they must all have an insurable interest in you (e.g., spouse, child, business partner, etc.) at the time you apply for the insurance.
If you name multiple beneficiaries, you must also specify how much each beneficiary will receive. You may not want to give each beneficiary an equal share, so you must state how the proceeds should be divided. Because of the numerous interest and dividend adjustments the insurance company must make, the death benefit check often does not exactly equal the policy’s face value. Thus, it’s wise to distribute percentage shares to your beneficiaries, or to designate one beneficiary to receive any leftover balance.
How do you name or change a beneficiary?
When you buy life insurance, the insurer will provide you with a beneficiary designation form. Generally, you only need to list the names of the beneficiaries, sign the form, and date it. When changing a beneficiary, a similar form is used. It is advisable to specifically revoke any previous designations by writing this in on the change of beneficiary form. You may want to review your beneficiary designation every two or three years. Additionally, be sure to check and update your designation upon certain life events (e.g., divorce, remarriage, the birth of children, etc.).
Don’t make the mistake of thinking that you can change your beneficiary in your will. A change of beneficiary made in your will does NOT override the beneficiary designation form. If you want to change the beneficiary, execute a change of beneficiary form. Do not rely on your will to do so.
Why designating the proper beneficiary is important
Life insurance is purchased for two primary reasons: to create an instant estate to provide for your family members, and to solve cash flow problems caused by your death. To attain these goals, you want to ensure that all the life insurance proceeds are received by the beneficiary. To do this, you need to avoid estate taxes that will deplete these funds. One way to avoid taxes is to properly designate the beneficiary.
Should you name your spouse as beneficiary?
Most married people name their spouse as primary beneficiary. If your spouse is the beneficiary, then the proceeds pass free of estate taxes under the unlimited marital deduction, regardless of who owns the policy. However, if the spouse also has a sizeable estate, the proceeds will be included when he or she dies (unless, of course, they have been spent). In the later case, you may end up only postponing estate taxes, not completely avoiding them.
Additionally, if you and your spouse die simultaneously, the Uniform Simultaneous Death Act (USDA) provides that the beneficiary will be presumed to have died first. This means that the unlimited marital deduction will be lost, and the proceeds will be included in your gross estate.
Be aware, however, that if you live or move to a community property state, your spouse must give written consent before you can designate anyone else as your beneficiary.
Other things to think about
Be careful if you name your estate or your executor
If your estate or your executor is named as beneficiary on your life insurance, the proceeds will be included in your gross estate for federal estate tax purposes. If your gross estate is large enough, estate taxes must be paid. These taxes reduce the life insurance proceeds available for your family, and the process of settling the estate will delay the availability of the life insurance proceeds.
Of course, your child or spouse may also serve as your executor. In this case, he or she may be a perfectly appropriate beneficiary. Just make sure you indicate that the beneficiary is your child or spouse, and not just the executor of your estate.
Be careful if you name a creditor, or someone who will use the proceeds to do you a favor
Occasionally, a beneficiary is considered by the IRS to be for the benefit of your estate. When this happens, the proceeds from the life insurance policy are included in your gross estate for estate tax purposes. Examples of this include:
- naming a creditor as beneficiary (in payment of a debt)
- naming a beneficiary to receive proceeds under an agreement that requires him or her to pay your estate’s debts or expenses
- naming a beneficiary to receive proceeds to pay alimony or support
Don’t name a minor unless a guardian has been appointed or a trust is used
Insurers generally will not make settlements directly to minors. Do not name a minor as a beneficiary unless you also appoint a guardian or use a trust.
Name a beneficiary in accordance with a divorce decree, settlement agreement, or state law
Your right to change a beneficiary may be limited by a divorce decree or settlement agreement. In some states, divorce automatically terminates a spouse’s interest. In other states, divorce allows a policyowner to change the beneficiary, even if the beneficiary is irrevocable.
How do you claim life insurance benefits?
Life insurance benefits are not paid automatically. If you are the beneficiary of a life insurance policy, you must file a claim in order to receive any money. Often, this is as simple as contacting your insurance agent, and filling out some paperwork.
However, if this is the only step you take, you may be missing out on other life insurance benefits to which you are entitled. For example, your spouse or family member may have owned one or more group policies that pay benefits depending on how the insured person died, or in restricted amounts. If you spend time uncovering these unseen policies, you may uncover additional support funds from life insurance than you had expected.
Finding individually-owned life insurance policies
Your spouse or family member may have owned one or more permanent or term life insurance policies. Individually-owned term or permanent policies are what most people think of as life insurance. These policies are purchased by one person, and pay benefits when the insured person dies. If your spouse or family member owned one of these policies, he or she probably kept it with his or her important papers; in a file, or in a safety deposit box. However, if you know that your spouse or family member owned an individual policy and you can’t find it, call his or her insurance agent or company to check. If you’re not sure if your spouse or family member owned a policy, you can contact the American Council of Life Insurance. Its members can do a free search for you.
Finding group life insurance policies
Group life insurance policies provide coverage to many people under one policy. Group insurance policies may be issued through an employer, bank, credit agency, or other professional or social organizations, and they often pay benefits in specialized circumstances. Because the group holds the actual policy, the insured person receives a certificate of insurance as proof that he or she is insured. Look for these certificates in your spouse’s or family member’s personal papers, files, and safety deposit box. However, even if you can’t find any certificates, this doesn’t necessarily mean your spouse or loved one wasn’t insured. You should still check with your spouse’s or family member’s employer, bank, or credit agency, or study loan paperwork or purchase contracts. Read the following sections for information about types of group policies your spouse or family member may have owned.
Employer-based group life insurance
If your spouse or family member was employed at the time of his or her death, you may be the beneficiary of a life insurance policy issued through his or her employer. Because some employers offer their employees a certain amount of life insurance at no cost, you may not even be aware that your spouse or family member was insured by a group policy because he/she did not pay his/her own premiums. In addition, your spouse or family member may have had the option of purchasing additional group life insurance through his/her employer, paying the extra premiums himself/herself. Thus, before assuming that your spouse or family member did not have group life insurance, you should check his/her pay stubs, and call his/her employer.
Accidental death and dismemberment policy
Your spouse or family member may have been offered an accidental death and dismemberment policy through an employer, credit card, or bank. These policies pay benefits if an insured individual dies accidentally. This is another type of life insurance you may be unaware that your spouse or family member had because, occasionally, these policies are offered as part of a loan package, or even issued as a free benefit by banks, or as a rider to an employer-issued insurance policy. If your spouse or family member died accidentally, look for such a policy in his or her files, or contact his or her employer, bank, credit card issuer, or insurance company.
Travel accident insurance
If your spouse or family member was killed while traveling by air, boat, or train, you may be eligible to receive the proceeds from a travel accident insurance policy he or she may have purchased when buying tickets. In addition, if your spouse or family member used a credit card to purchase travel tickets, you could be automatically entitled to a life insurance benefit payable if he or she dies as a result of an accident when using those tickets. Some travel agencies and road and travel clubs also routinely issue travel accident insurance policies, and employers sometimes pay death benefits to employees who are killed while traveling on company business.
Mortgage life insurance
If your spouse or family member owned a house, he or she may have purchased mortgage life insurance. A mortgage life insurance policy pays off the balance of the policyholder’s mortgage upon his or her death. If you’re not sure whether your spouse or family member purchased such a policy, check with the mortgage lender.
Credit life insurance
Banks and finance companies routinely offer credit life insurance when someone takes out a loan, or is issued a line of credit. This insurance will pay off the outstanding balance of a loan or account if the insured individual dies. A few extra dollars is added to the monthly loan payments to pay the premiums. Many institutions try to sell this type of policy when someone finances a purchase, or signs up for a line of credit, and occasionally they add it to a contract before the individual signs it. Thus, it is likely that you won’t find out that your spouse or family member owned such a policy unless you check with credit card companies, banks, or any lenders to whom your spouse or family member owed money at the time of his or her death.
How do you file a life insurance benefit claim?
- Notify the insurance company that the policyholder has died
You should contact the insurance company as soon as possible. Call the policyholder services department directly, or if the life insurance policy was issued through our agency or an employer, ask us/them to notify the company for you to begin the claims process.
- File a claim form
You’ll begin the claims process by filling out and signing a proof of death form, and then attaching to it an original or certified copy of the policyholder’s death certificate. If you are too distraught to fill out the form yourself, we may fill it out for you, although you’ll still have to sign it. If there is another beneficiary named on the policy, that person must also fill out a claim form. You may also have to fill out Form W-9 (Request for Taxpayer Identification Number and Certification), which will enable the insurance company to notify the Internal Revenue Service of any interest it has paid to you on the value of the policy. To expedite your claim, follow the insurance company’s and/or policy instructions carefully.
- Wait for the company to process the claim
Life insurance claims are usually paid quickly, often within a few days. First, however, the insurance company will ensure that you are the beneficiary of the policy, that the policy is current and in force, and that all conditions of the policy have been met. This is usually a simple matter, and does not delay the claims process. Claims are more often delayed because the insurance company has not received a valid death certificate. The insurance company also has a right to challenge or deny a claim if it believes that a specific policy provision has been violated.
How should you receive the life insurance proceeds?
In a lump-sum cash payment
Life insurance proceeds are often paid as lump-sum cash payments. Most people elect this form of payment because it enables them to control how the insurance money is invested or spent. In addition, if you elect to receive a lump-sum payment, you will not owe income tax on the life insurance proceeds.
Through a settlement option
A settlement option is a way of paying the proceeds of a life insurance policy other than in a lump-sum cash payment. Many types of settlement options are available, but all are designed to ensure good money management in situations where the beneficiary is unable or unwilling to manage a lump sum of cash. Either the policy owner chooses the settlement option at the time he or she purchases the policy, or the beneficiary chooses the option at the time the benefit becomes payable (unless the policy owner had chosen an irrevocable option).
If you receive the proceeds of an insurance policy through a settlement option, the insurance company will keep the policy proceeds, invest them, and pay you interest. Or, you may be allowed to withdraw part of the proceeds or receive periodic payments of both principal and interest.
Most life insurance policies are filled with fine print, legalese, and technical insurance jargon. However, if you can find the time and muster the patience, it’s probably a good idea to sit down and read through your policy. If you do, you’ll understand your policy better and gain an understanding of your rights and obligations under the contract.
Here are some common provisions to look for when you read your policy:
Entire contract clause
When your life insurance policy takes effect, the application for insurance that you filled out is incorporated into the contract. The statements you made on the application become contractual provisions and can be used as evidence in a dispute over the contract’s validity. Typically, states require that a clause be inserted in your policy stating that the policy and the application attached to it together form the entire contract between you and the insurer. This clause is beneficial to you because if your insurer accuses you of misrepresentation and seeks to void the contract, they’re prevented from using other evidence outside of the contract. They can only void the contract if you made false statements on your application.
A life insurance policy is a piece of property. The owner of the policy may be the individual whose life is insured under the contract, it may be the beneficiary, or it may be someone else. In all likelihood, if you are the insured, you are also the owner of the policy. As the owner, you have certain privileges of ownership, including the right to transfer or assign the policy, the right to change the beneficiary, the right to receive the cash value and dividends (if applicable), and the right to borrow against the cash value (again, if applicable).
The beneficiary clause allows you to name the person who will receive the policy’s death benefit proceeds upon your death. The designation of your beneficiary is an important decision, enabling you to control the disposition of the insurance money. While you may designate yourself as beneficiary under certain types of retirement income policies, the beneficiary under a traditional policy will generally be either your estate or an individual. It’s usually not advisable to name your estate, however, because then the proceeds will have to pass through probate and payment of them will be held up. If you name a specific individual, the proceeds will be paid directly to him or her upon your death without delay. A beneficiary designation may be revocable (can be changed by you at any time) or irrevocable (can’t be changed). In addition, a beneficiary may be primary or contingent. Basically, the primary beneficiary is the person first entitled to the policy proceeds at your death. If the primary beneficiary dies before you (and thus before any proceeds are paid), the contingent beneficiary takes his or her place.
This is an clause that is required in most life insurance policies. Typically, it states that the validity of the contract cannot be questioned or challenged for any reason whatsoever after the policy has been in force for a period of two years during your (the insured’s) lifetime. The reason for this clause lies in the long-term nature of the life insurance contract. Its purpose is to give the insurer ample time to review the contract while providing you and your beneficiary with some assurance that you will not be harassed by lawsuits long after the policy was originally bought.
Misstatement of age clause
This is somewhat of an exception to the incontestable clause. The incontestable clause does not apply when you, the insured, misrepresent your age. The reason is simple. Because age is a key factor in determining whether a company offers you life insurance and in setting premiums, some applicants are tempted to understate their age in order to pay a lower premium. Understandably, insurers wish to avoid this. The misstatement of age clause provides that if you have misrepresented your age, the insurer will lower the face amount of the policy to the amount of insurance that the premium paid would have purchased at the correct age.
Your policy specifies the due date for premiums (e.g., monthly, quarterly, semiannually). Whatever the due date, you generally must pay your premiums on or before that date. If you fail to do so, you will be in default and technically the policy will lapse. This rule is subject to a disclaimer, however, in the form of a grace period during which the policy still remains in force if a premium hasn’t been paid on time. For example, if you have a premium due on January 1 and don’t pay it by that date, you might have until February 1 to make the payment before the policy would lapse. If you died on January 15, the death benefit proceeds would still be paid, but minus the amount of the premium in default.
Many life insurance contracts contain a clause allowing you to reinstate or reactivate a lapsed policy (i.e., one for which you stopped paying the premiums). However, reinstatement is not your unconditional right. If available, it will be subject to a number of very specific requirements on your part. First, if it’s a cash value policy, reinstatement will be possible only if at the time of the policy’s lapse you did not withdraw its cash surrender value. Second, reinstatement must be accomplished within a specified time period, normally five years after the lapse. Third, you must resubmit proper evidence of your insurability. Not only must your health still be satisfactory to the insurer, but other factors such as your income and personal habits must not have changed greatly either. Finally, an insurer will generally only permit reinstatement if you pay all the overdue premiums (plus interest) and if you pay (again, with interest) or reinstate any indebtedness from loans that may have existed at the time of lapse.
Almost all life insurance policies exclude suicide during a specified period after the policy is issued. Under this clause, the typical period during which coverage for suicide will be denied is two years (although some policies limit it to one year). Assuming you are the insured, this means that if you commit suicide (whether by insanity or not) within two years after purchasing your policy, the insurer will not pay any death benefits to your beneficiary. The insurer would be responsible for refunding the premiums paid by you, but that would be the extent of their financial obligation under these circumstances.
At one time, almost all life insurance policies excluded death resulting from aviation. Today, most policies will provide coverage if you die in an airplane accident, although you may have to pay an extra premium to cover the heightened risk if you’re a private or commercial pilot (or a crewmember).
During war time or when a war seems likely to occur, insurance companies may insert a war clause into their policies. This clause usually states that if you (the insured) die in a war, the insurer does not have to pay the death benefit proceeds that would ordinarily be payable under the policy. Instead, all they have to do is return the premiums you paid plus interest.
Special provisions, riders and options
Note that the provisions described here are only the ones that are more or less common to all life insurance contracts. In most cases, you have the choice of purchasing riders and optional coverages that allow you to expand your coverage and tailor the policy to your needs. In addition, certain types of policies may have special provisions of their own. Cash value policies, for example, generally include provisions relating to policy loans and the surrender of all or part of the cash value.
Estate Planning & Life Insurance
Life insurance has come a long way since the days when it was known as burial insurance and used mainly to pay for funeral expenses. Today, life insurance is a crucial part of many estate plans. It can:
- provide much-needed income that is immediately accessible to your survivors
- allow you to replace wealth lost due to estate shrinkage (i.e., the estate taxes and expenses associated with your death) and
- allow you to give money to your favorite charity.
What are the estate planning benefits of life insurance?
Life insurance can protect your survivors financially:
You can buy life insurance to help ensure that your survivors don’t suffer financially when you die. You can protect their long-term financial needs by planning so that they will have enough money to pay their bills and live comfortably for years to come. You can also use life insurance to protect your survivors’ short-term financial needs. Because life insurance proceeds normally don’t pass through probate, your loved ones will have enough money to pay their bills right away–they won’t have to wait until your estate is settled.
Life insurance can replace wealth that is lost due to estate shrinkage:
Life insurance may be the number one method of replacing wealth that is lost due to estate shrinkage. To ensure that the estate (money and assets) you leave to your survivors isn’t less than you intended, you can buy enough life insurance to cover the expenses associated with your death, such as taxes, fees, and other debts that your survivors will have to pay.
Life insurance can be given to charity:
If you want to leave money to charity when you die, consider using life insurance. Not only does life insurance allow you to make a substantial gift to charity at relatively little cost to you, but there are certain tax benefits as well. For instance, depending on how you structure your gift, you may be able to take an income tax deduction equal to your basis in the policy or its fair market value. Or, you may be able to deduct the premiums that you pay for the policy. In addition, gifts to charity may reduce estate taxes owed when you die.
Plan carefully if you expect to leave behind a substantial estate
Your survivors generally won’t owe income tax on any life insurance proceeds that you leave to them. However, they may owe estate taxes if you leave behind a large enough estate but don’t plan ahead. In general, if you’re leaving behind a taxable estate worth less than a certain amount, your survivors won’t owe estate taxes on a life insurance policy that you leave them. But, if you intend to leave an estate larger than that amount, you may want to consider the estate tax consequences of owning life insurance.
In general, to avoid life insurance-related estate taxes, make sure that you don’t:
- Own the policy or have any incidents of ownership in the policy
- Make the proceeds payable to your estate
- Make the proceeds payable to your personal representative (executor)
- Make the proceeds payable to a beneficiary to satisfy a debt or to pay alimony or support
- Pay the premiums
Taxes & Life Insurance
How is life insurance taxed?
Historically, life insurance has been accorded liberal tax treatment. As insurance products have become more sophisticated, however, the line separating insurance products from investment products has become a bit more complicated, depending on the type of policy(s) you own. As a result, a mix of complex rules and exceptions now govern the taxation of insurance products. Familiarity with these rules will help you avoid an unwary consequences and help you plan accordingly.
Taxes are typically levied whenever cash changes hands. During the term of any life insurance policy, there are a number of occasions when money can and does change hands. The only question is whether the transaction amounts to a taxable event that triggers current income tax liability. For instance, in most cases, premiums are paid with after-tax dollars. To the extent they are deemed a return of premiums, benefits paid out during your lifetime are usually paid out tax free. Typically, death benefits are received tax free by your beneficiaries after your death. But, the sale or surrender of your policy during your lifetime triggers a tax on the realized gain.
Premiums may be paid with pre-tax dollars:
If your company offers the option to purchase life insurance through a qualified retirement plan, then your pre-tax contributions to the plan (and/or your company’s contributions) can be used to buy a life insurance policy. However, not many companies offer their employees the option to purchase life insurance through their qualified retirement plan. If you do not purchase the insurance policy through a qualified retirement plan, then the premiums have to be paid with after-tax dollars.
Cash value accumulates tax deferred:
As the investment element of your policy grows, you realize gains. Generally, you are allowed to defer taxes on those gains provided you don’t sell or surrender the policy. There are a few rare–but important–exceptions.
Dividends are typically not taxable:
Dividends are paid out of the insurer’s surplus earnings for the year. Regardless of whether you take them in cash, or keep them on deposit with the insurer, they are considered a return of premiums. As long as you don’t get back more than you paid in, you are merely recouping your costs and no tax is due.
Cash withdrawals in excess of basis are taxable income:
When you begin to withdraw cash from a cash value life insurance policy, the amount of withdrawals up to your basis in the policy will be tax free. Your basis is the amount of premiums you have paid into the policy. Any withdrawals in excess of your basis will be taxed as income. If the policy is classified as a “modified endowment contract,” then untaxed earnings must be withdrawn first and taxed. Keep in mind, though, that only certain types of cash value policies even allow withdrawals in the first place.
Policy loans usually not taxable:
If you take out a loan against the cash value of your insurance policy, the amount of the loan is not taxable (except in the case of a modified endowment contract). This result is the case even if the loan is larger than the amount of the premiums you have paid in. Such a loan is not taxed as long as the policy is in place.
Interest on policy loans usually not tax deductible:
The interest on any loans you take out against the cash value of your life insurance is usually not tax-deductible.
Surrender of policy may result in taxable gain:
If you surrender your cash value life insurance policy, any gain on the policy may be subject to federal (and possibly state) income tax. The gain on the surrender of a cash value policy is the difference between the net cash value and loan forgiveness amounts and your basis in the policy. Your basis is the total premiums you paid in cash, minus any policy dividends and tax free withdrawals that you made.
Policy exchanges are typically not taxable:
The tax code allows you to exchange one life insurance policy for another without triggering current tax liability. However, you must follow the IRS’s rules when making the exchange.
Death benefits usually not subject to federal income tax:
Whoever receives the death benefits from your insurance policy (at the time of your death) usually does not have to pay federal income tax on those proceeds. Thus, if you die owning a cash value life insurance policy with a $500,000 death benefit, then the beneficiaries under the policy will generally not have to pay any federal income tax on the receipt of the $500,000. In addition, the payment of death benefit proceeds from a cash value life insurance policy to a beneficiary is usually not considered a taxable gift.
Insurance proceeds may be included in your taxable estate:
If you hold any incidents of ownership in an insurance policy, the proceeds from that insurance policy will be included in your taxable estate. Furthermore, if you gift away an insurance policy within three years of your death, then the proceeds from that policy will be pulled back into your taxable estate. Incidents of ownership include the right to change the beneficiary, the right to take out policy loans, and the right to surrender the policy for cash.
Savings & Life Insurance
Cash value life insurance provides both death benefits and a savings feature. When you buy a permanent or cash value policy, part of your premium pays for the life insurance protection and part goes toward the savings component. As you pay your premiums the savings portion is invested, and the principal and earnings accumulate as your cash value.
You aren’t required to leave the funds in the policy, however. You can sometimes withdraw from or borrow against the accumulated cash value. You can then use the withdrawn or borrowed funds to finance your retirement, pay a child’s college tuition, or assist a child with a down payment on a house, among other things. This type of insurance can be a valuable asset, both as an investment and for life insurance purposes.
Types of life insurance policies you can use to save
With a whole life policy, insurers generally invest the funds primarily in long-term fixed-rate securities (bonds, for example) that typically provide the policyholder with modest returns of perhaps 3 to 5 percent. Additional returns may also be achieved through dividend distributions (if applicable). Yet, because whole life premiums don’t vary in frequency or amount as they might with universal life, whole life is a more predictable product.
With a variable life policy, you choose how to invest the premiums from the investment choices available in the policy. You can place them in potentially higher-yielding stock and bond funds if you desire. The funds are invested at a variable rate of return. Since you control how the funds are invested, you can choose more aggressive investments if the markets are flourishing. Over the last 20 years, the return on variable life policies has far exceeded the return on most whole life policies. A variable life policy is an appropriate choice if you can tolerate the higher degree of risk. However, variable life returns depend on market conditions. Therefore, while you’ll receive strong returns when the market is soaring, your returns will drop when the market falls.
With universal life, the insurer invests the savings portion of your premium in a fixed-rate account that is subject to change at regular intervals. You have no control over how the funds are invested. These investments can yield fairly attractive returns when rates on fixed investments are rising. However, while you generally receive interest at close to market rates, you can’t easily predict the long-term return. Since universal life policies typically allow you to raise or lower your premiums on an annual basis, you can increase your contribution when the insurer is offering a higher return. This flexibility with premium payments is one of the primary advantages of universal life.
Variable universal life (VUL)
With variable universal life, you choose how to invest the premiums. You are given a number of investment accounts to choose from, ranging from conservative to aggressive portfolios. A VUL policy is a viable choice to consider if you can tolerate the higher degree of risk involved. However, VUL returns depend on market conditions. Therefore, when the market falls, so will your returns. VUL typically allows you to raise or lower your premiums on an annual basis. This flexibility with premium payments is a key advantage of VUL.
Advantages of using life insurance as a savings vehicle
- It provides life insurance protection for your family.
- You can earn money on your premium payments (depending on investment performance).
- The cash value grows tax deferred until withdrawn or surrendered.
- Sometimes you can withdraw from the cash value (generally up to a certain percentage).
- You can borrow from the cash value at a relatively low interest rate (the amount you can borrow will vary by policy type).
- You may be able to combine a policy loan with a policy withdrawal.
- You may have a number of investment choices (depending on policy type).
NOTE: Depending on the specific type of cash value policy, some of these advantages may apply in varying degrees or not at all.
Life insurance is meant to provide proceeds that will help to replace your income and/or pay off liabilities in the event of your death. If you are self-employed, you may have an even greater-than-average need for life insurance. Not only will you want to protect your family after you die, but you’ll want to protect the financial needs of your business as well.
Why life insurance is important
Like most people, you probably get your money by working. As long as you are alive, your income-producing capability is relatively secure, and you and your family can enjoy the lifestyle you have established. Even in hard economic times, most people are industrious enough to produce an income or manage to get by until the situation improves. When an income earner dies, however, the surviving family could face economic hard times that won’t end. The financial needs for the surviving family may include:
- final expenses, such as burial and funeral costs
- unpaid medical bills
- income replacement for survivors
- mortgage balance
- education fund for children
- unplanned emergency expenses
Why life insurance may be even more important for the self-employed
When the income earner is a self-employed individual, there may be an even greater need for insurance. As a sole proprietor, you are personally liable for all the debts of your business. There is no legal distinction between personal and business assets. By legal definition, a sole proprietorship terminates when the owner dies. Any losses or financial obligations at the death of the sole proprietor become the responsibility of the estate. It is possible that personal assets may have to be sold or transferred to settle business debts. Business debts may include:
- business loans
- mortgage or lease payments on business location
- accrued payments due to suppliers, vendors, consultants, employees, etc.
- taxes due to local, state, and federal taxing authorities
- fees to lawyers, accountants and other advisors to settle business affairs
Life insurance can be used to cover these financial responsibilities, as well as to provide for the ongoing needs of your family after your death.
What to do about it
Talk to us and we will help you assess your need for life insurance and design a program to fit your specific situation.
The topic of Life insurance for children is understandably a difficult issue for many parents. If your child dies, it would be a serious tragedy. But a child’s death does not normally create a unrealistic financial hardship for the child’s family. After all, the general purpose of life insurance is to replace income after a death. Unless the child is a substantial wage earner (like an entertainment star), no income is lost if the child dies. Although a child’s death does create one immediate financial problem: funeral expenses.
Isn’t it smart to buy insurance now, while the rates are low?
It’s true: life insurance policies for young children are very inexpensive. But there’s a reason for that. Children’s insurance policies are usually for smaller amounts, like $10,000 and are typically added to the parents policy in the form of a rider.
Insurance policies for teenagers and young adults are pretty inexpensive, too. In terms of insurance costs. As your child ages and you take on added financial responsibilities in order to provide for their needs and education your need to have this type of insurance on your child may also increase.
Isn’t it smart to buy insurance now, in case my child develops a medical condition?
It’s a common sentiment: you want to protect your child now, in case he or she develops a medical condition and can’t buy insurance later. If you believe your child is at risk to develop a medical condition, buying life insurance now might ease your mind. If you lose sleep over the possibility that your child will become uninsurable, then by all means purchase a life insurance policy now.
What you can do instead
If purchasing Life insurance on your child is something you are uncomfortable with, consider this:
To protect your child, you may want to purchase additional coverage on your own life and/or on your spouse’s life. As wage earners, your death would profoundly affect your child’s financial future. Make sure the coverage on both parents’ lives ensures there will be enough money for day-to-day living as well as college expenses, even if something happens to one of you.
Charity & Life Insurance
Life insurance can be an excellent tool for charitable giving. Not only does life insurance allow you to make a substantial gift to charity at relatively little cost to you, but you and the charity may benefit from tax rules that apply to gifts of life insurance.
Why use life insurance for charitable giving?
There are several advantages to giving life insurance to charity:
Life insurance allows you to make a much larger gift to charity than you might otherwise be able to afford:
Although the cost to you (your premiums) is relatively small, the amount the charity will receive (the death benefit) can be quite substantial.
The charity is guaranteed to receive the proceeds of the policy when you die:
As long as you continue to pay the premiums on the life insurance policy, the charity is guaranteed to receive the proceeds of the policy when you die. The amount of the death benefit is fixed (or in the case of cash value insurance, perhaps even increasing), and is not subject to market fluctuations or loss of principal. Since life insurance proceeds paid to a charity are not subject to income and estate taxes, probate costs, and other expenses, the charity can count on receiving 100 percent of your gift.
Giving life insurance to charity has certain income tax benefits:
Depending on how you structure your gift, you may be able to take an income tax deduction equal to your basis in the policy or its fair market value, and you may be able to deduct the premiums you pay for the policy. In addition, an outright gift of life insurance is typically sheltered from gift tax by the charitable gift tax deduction, as long as you’re giving a complete interest in the policy.
Giving life insurance to charity has certain estate tax benefits:
If you’re worried about estate taxes, you can structure your charitable gift of life insurance to meet your needs. For instance, you can structure your gift so that the proceeds of the policy are not included in your gross estate. Or, you can structure your policy so that the amount of the proceeds payable to the charity can be deducted from your gross estate.
What are the disadvantages of using life insurance for charitable giving?
Donating a life insurance policy to charity (or naming the charity as beneficiary on the policy) means that you have less wealth to distribute among your heirs when you die. This may discourage you from making gifts to charity. However, this problem is relatively simple to solve. Buy another life insurance policy that will benefit your heirs instead of a charity.
Ways to give life insurance to charity
Name a charity as beneficiary on your life insurance policy:
This is the simplest way to use life insurance to give to charity. You, as owner of the policy, simply designate the charity as beneficiary. Designating the charity as beneficiary may allow you to make a larger gift than you could otherwise afford. If the policy is a form of cash value life insurance, you still have access to the cash value of the policy during your lifetime. However, this type of charitable gift does not provide many of the other tax benefits of charitable giving because you retain control of the policy during your life. Upon your death, the proceeds are included in your gross estate, although the full amount of the proceeds payable to the charity can be deducted from your gross estate.
Name a charity as the recipient of dividends:
Another simple way of making a charitable gift is to assign the dividends on your existing policy to charity. You, as owner of the policy, simply make this designation at the time of application, or at any other time while you own the policy. By assigning your dividends to charity you are able to make a charitable gift. You retain control over the policy and its cash value during your life. You also receive an income tax deduction as dividends are paid to the charity. However, this type of charitable gift does not provide many of the other tax benefits of charitable giving because you retain total control of the policy. Proceeds are included in your gross estate, and there’s no offsetting estate tax deduction because the proceeds do not go to charity.
Donate an existing life insurance policy to charity:
In order to donate an existing life insurance policy to charity, you must assign all rights in the policy to the charity. You must also deliver the policy itself to the charity. By doing this, you give up all control of the life insurance policy forever. This strategy provides the full tax advantages of charitable giving because the transfer of ownership is irrevocable. You may be able to take an income tax deduction equal to your basis or its fair market value. The policy is not included in your gross estate when you die, unless you die within three years of the transfer. In this case, your estate would get an offsetting charitable deduction.
Donate a new life insurance policy to charity:
In order to use this strategy, you would purchase an insurance policy, and immediately assign all rights in the policy to the charity. You would also deliver the policy itself to the charity. You would pay the premiums and if structured properly, be able take a charitable deduction for those premiums. The IRS may treat this transaction as if the charity itself had purchased the policy on your life. Most states require the purchaser of a policy to have an insurable interest in the life of the insured. Since it would be difficult to prove that a charity has an insurable interest in your life, your estate could recover the proceeds from the charity, and any tax benefits you had received would be reversed. However, if the transfer were allowed to stand, and the proceeds pass to the charity as intended, you would be entitled to the full tax advantages of charitable giving.
Commercial Insurance Basics
Inland Marine Insurance For Your Business
If you move goods or equipment from one location to another, or have an off-premises exposure, you need the special protection of Inland Marine coverage. Inland Marine can protect many types of property including property at your location, in transit, at a customer’s location, or property of others in your care. We have numerous coverages designed to provide you with the specific protection your business needs.
The following is a list of only some of the coverages available:
- Accounts Receivable
- Boat Dealers and Marina Operators
- Builders Risk and Installation
- Camera and Musical Instrument Dealers
- Contractors Equipment and Tools
- Electronic Data Processing Equipment
- Equipment Dealers
- Fine Arts
- Merchants Property
- Mobile Communication Equipment such as cellular phones, CBs, etc.
- Motor Truck Cargo Carriers
- Physicians and Surgeons Equipment
- Radio and TV Towers
- Salespersons Samples
- Valuable Papers
Property Insurance For Your Business
We offer a variety of excellent property coverages for your business’ buildings, personal property, and income. Most property policies include additional coverage at no charge that provides higher coverage limits than most standard policies, in addition to extra coverages normally not found. Some coverages even offer you the option to purchase higher limits.
The following list only highlights some of the coverages included:
- Newly Acquired Property and Business Personal Property
- Property Off-Premises
- Outdoor Property and Outdoor Signs attached to Buildings
- Lawn Coverage on which your property is located
- Arson Reward information leading to an arrest
- Extra Expenses incurred to keep your business running after an insured loss
- Water Back-up and Overflow from sewers, drains or sumps
- Money and Securities
General Liability Insurance For Your Business
You must protect your customers from potential injury – your financial security can be put at risk if you are legally liable for damage to someone’s property or if someone is injured as a result of your business operation. No matter how thoroughly you have been trained in your line of business, you are not fully protected unless you have liability insurance.
Liability coverages often include:
- coverage for tenants’ property damage liability
- Medical Payments
- Expanded Fire Damage – coverage is extended to apply not only as a result of fire, but also explosion, release of smoke from an unfriendly fire, or sprinkler leakage incidents
- coverage is provided for additional insureds when required by written contract
- Extended Property Damage – coverage is provided for bodily injury and property damage resulting from the use of reasonable force to protect persons or property
- additional insured status is extended to employees who provide professional health services when this exposure is incidental
Umbrella Liability Insurance For Your Business
Umbrella policies offer additional protection for catastrophes, unusual exposures, and additional liability limits beyond underlying insurance coverages.
- High limits – Affordable protection of $1,000,000 or more for each occurrence in excess of the underlying insurance.
- Broad coverage – Protection goes beyond the scope of coverage provided by the underlying insurance.
- Legal costs in addition to limits – Legal defense costs are covered in addition to the umbrella limits of liability.
- Legal defense from the first dollar – If the underlying policy does not provide this protection, legal defense and settlement costs are covered from the first dollar.
Our umbrella policy is designed to meet clients’ needs for a well-rounded business insurance program.