General Insurance Questions
Auto Insurance Questions
Homeowners Insurance Questions
Personal Umbrella Insurance Questions
Life Insurance Questions
Renters Insurance Questions
General Insurance Questions
Q: What kinds of questions should I be expected to answer when I am applying for an insurance policy? Why do insurers ask all of these questions?
A: When you apply for an insurance policy, you will be asked a number of questions. For example, the agent will ask you a number of questions such as your name, age, sex, address, etc. In addition, you will be asked a number of other questions which will be used to determine what type of risk you are. For example, when an insurance company is deciding whether or not to offer automobile insurance to a potential policyholder, they will want to know about the person’s driving record, whether there have any accidents or tickets and what type of car is to be insured.
All of this information will be used for two purposes.
1. Based upon the responses to these questions, the insurance company will decide whether the specific information of the applicant is consistent with the type of risks the insurer is trying to attract. Some insurers specialize in offering insurance to only those with good driving records and therefore will only accept applications from people who qualify as a safe driver.
2. Once the insurer has decided that your risk information is consistent with the types of risks it accepts, the answers to the questions will be used to determine which rate class applies. For example, the insurance company will decide whether you should be offered insurance at the high rate class or the low rate class.
Collectively, this entire process is known as the underwriting process. The primary function of the underwriting department in an insurance company is to decide whether or not to offer insurance to a person who has completed an application.
If the answer is yes, then the underwriting department seeks to determine the “quality” of that risk so that the proper premium can be charged. That is, the high rate class has a higher premium than the low rate class.
Q: What do I give up by not using an agent to purchase insurance?
A: The disadvantage of not using an agent to purchase insurance is that the policyholder does not receive as much, or often any, personal service. An agent with whom there is direct contact can be vital when purchasing a product and absolutely necessary when filing a claim.
Auto Insurance Questions
Q: Will I have coverage under my policy if I drive someone else’s vehicle?
A: The owner of the car is responsible for use of that car, therefore their insurance is primary and your insurance is secondary. Always check with the registered owner’s insurance company to ensure that you are covered as a permissive driver under their policy. Be cautious when loaning others your vehicle. When you loan your vehicle you are also loaning your insurance coverage. If someone has an accident while operating your car, your rates could possibly increase due to losing accident free credits endorsed on your policy and/or accident points may be added to your policy.
Q: If renting a U-Haul type vehicle, will my auto policy cover me?
A: No, your policy only covers private passenger vehicles including vans and pickups that do not exceed 10,000 pounds gross vehicle weight. You will have to purchase additional insurance from the company renting you the vehicle.
Q: My son or daughter is taking their test to get licensed today, what do I need to do?
A: First, contact an agent with the permit number in order to add them to your policy or a separate policy in order to obtain a DL-123 form required by the NCDMV. Once they obtain a license, you will need to provide their license number. We will then need you to complete a Young Driver’s Questionnaire and return it to us to submit to the appropriate insurance company.
Q: Why are premiums so high for young drivers?
A: They have been shown to have more accidents and claims. Insurance companies try their best to keep rates as competitive as possible to retain the business of their parents and the young drivers as they become more experienced. Therefore, it is very important that we educate our children about driving safely and the affects of not being cautious has on their insurance coverage.
Q: Why is it so important for me to carry uninsured motorists coverage if everyone on the road is already required by NC state law to have insurance?
A: Although we know that this is a law, we know from experience that enforcement comes too late most of the time in the event of an uninsured accident. The limits one is required to carry may also be far below the amount needed to compensate you for injuries and damage sustained in an accident. Also having this coverage gives your insurance company significant legal standing to pursue the compensation needed on your behalf from the responsible party. It is estimated that at any given time 20% of the vehicles on the road are uninsured.
Q: If my car is totaled in an accident, what will the insurance company pay for me?
A: In the event of a total loss, the insurance company will decide upon the vehicle’s value. Likely this will be a reasonable amount that an auto of the same basic features and condition would sell for in the marketplace, however they do NOT pay what you owe on the vehicle. However, if you purchase a brand new vehicle, you will have an option to purchase “GAP Insurance” for a small additional charge, which will pay the difference between what you owe and what the vehicle is worth at the time of loss. Contact your agent with any questions regarding this coverage.
For additional questions or assistance, please contact Callahan & Rice Insurance Group, Inc.
Homeowners Insurance Questions
Q: What is homeowners insurance and who should buy this type of coverage?
A: Homeowners insurance is one of the most popular forms of personal lines insurance on the market today. The typical homeowners policy has two main sections: Section I covers the property of the insured and Section II provides personal liability coverage to the insured. Almost anyone who owns or leases property has a need for this type of insurance. And many times, homeowners insurance is required by the lender as part of the requirements in obtaining a mortgage.
Q: What is the difference between “actual cash value” and “replacement cost”?
A: Covered losses under a homeowners policy can be paid on either an actual cash value basis or on a replacement cost basis. When “actual cash value” is used, the policyholder is entitled to the depreciated value of the damaged property. Under the “replacement cost” coverage, the policyholder is reimbursed an amount necessary to replace the article with one of similar type and quality at current prices. Usually insurance companies require proof of replacement before paying full replacement cost.
Q: What factors should I consider when purchasing homeowners insurance?
A: There are a number of factors you should consider when purchasing any product or service, and insurance is no different.
Here is a checklist of things you should consider when you purchase homeowners insurance.
First and foremost, purchase the amount and type of insurance that you need. Remember that if your policy limit is less than 80% of the replacement cost of your home, any loss payment from your insurance company will be subject to a coinsurance penalty. Also, determine the amount of personal property insurance and personal liability coverage that you need.
Second, determine which, if any, additional endorsements you want to add to your policy. For example, do you want the personal property replacement cost endorsement?
Finally, once you have decided on the coverage you want in your homeowners insurance policy, you can now decide which insurer you would like to purchase the insurance from. Some people like the idea of purchasing insurance from a mutual company rather than a stock company. You should also decide whether you would like an insurance agent to assist you in your purchasing decision or if you would like to buy the product directly from an insurer without the assistance of an agent.
Q: What are some practical things I can do to lower the cost of my homeowners insurance?
A: There are a number of things you can do to lower the cost of your homeowners insurance. The best thing to do is to shop around.
It is not surprising to find quotes on homeowners insurance that vary by hundreds of dollars for the same coverage on the same home. When you shop, be careful to make sure each insurer is offering the same coverage. Many insurers use the ISO policy forms, but this is not always the case.
Another way to lower the cost of your homeowners insurance is to look for any discounts that you may qualify for. For example, many insurers will offer a discount when you place both your automobile and homeowners insurance with them. Other times, insurers offer discounts for dead bolt locks, smoke detectors, fire and/or burglar alarms. Be sure to ask your agent or company about any of these discounts.
Another easy way to lower the cost of your homeowners insurance is to raise your deductible. Increasing your deductible from $250 to $500 will lower your premium, sometimes by as much as five or ten percent. However, be careful to make sure that you have the financial resources necessary to handle the larger deductible.
Q: What are the policy limits (i.e., coverage limits) in the standard homeowners policy?
A: [Note: Part of this answer is based on the Insurance Services Office’s HO-3 policy.]
Coverages A and B provide protection to the Dwelling and Other Structures on the premises on an open peril risks basis up to the policy limits. The policy limit for Coverage A is set by the policyholder at the time the insurance is purchased. The policy limit for Coverage B is usually equal to 10% of the policy limit on Coverage A.
Coverage C covers losses to the insured’s Personal Property on a named perils basis. The policy limit on Coverage C is equal to 50% of the policy limit on Coverage A. Coverage D covers the additional expenses that the policyholder may incur when the residence cannot be used because of an insured loss. The policy limit for Coverage D is equal to 20% of the policy limit on Coverage A. The coverage limit on Coverage E, Personal Liability and Coverage F, Medical Payments to Others, is determined by the policyholder at the time the policy is issued. Some of these coverages can be increased to meet individual needs.
Q: Where and when is my personal property covered?
A: Coverage C, which provides named perils coverage, applies to all your personal property (except property that is specifically excluded) anywhere in the world. For example, suppose that while traveling, you purchased a dresser and you want to ship it home. Your homeowners policy would provide coverage for the named perils while the dresser is in transit; even though the dresser has never been in your home before.
Personal Umbrella Insurance Questions
Q: What is a personal umbrella liability policy?
A: The personal umbrella liability policy is an insurance contract designed to accomplish two goals.
First, it increases the liability protection beyond what the policyholder already has in his or her homeowners and automobile insurance policies.
Second, the personal umbrella policy is designed to fill in the gaps in a policyholder’s liability coverage, since several types of liability exposures exist that are not covered by automobile and homeowners policies.
Together with homeowners and automobile insurance policies, broad personal liability protection is attained through the purchase of a personal umbrella policy.
Q: How do I know if I need a personal umbrella liability policy?
A: It used to be that the only people who needed personal umbrella liability policies were wealthy individuals who had sizable amounts of personal assets that would be at risk in a lawsuit.
However, in our very litigious society, many people are realizing that they have a need for more liability insurance than what is provided under their homeowners and automobile insurance policies. The personal umbrella policy is ideally suited to provide this protection.
Life Insurance Questions
Q: How much life insurance should an individual own?
A: Rough “rules of thumb” suggest an amount of life insurance equal to 6 to 8 times annual earnings. However, many factors should be taken into account in determining a more precise estimate of the amount of life insurance needed.
Important factors include:
Income sources (and amounts) other than salary/earnings.
Whether or not the individual is married and, if so, what is the spouse’s earning capacity.
The number of individuals who are financially dependent on the insured.
The amount of death benefits payable from Social Security and from an employer sponsored life insurance plan.
Whether any special life insurance needs exist (such as mortgage repayment, education fund, estate planning need), etc.
It is recommended that a person’s insurance adviser be contacted for a precise calculation of how much life insurance is needed.
Q: What about purchasing life insurance on a spouse and on children?
A: In certain circumstances, it may be advisable to purchase life insurance on children; generally, however, such purchases should not be made in lieu of purchasing appropriate amounts of life insurance on the family breadwinner(s). It is of utmost importance that the income earning capacity of the primary breadwinner be fully protected, if possible, through the purchase of the required amount of life insurance before contemplating the purchase of life insurance on children or on a non-wage earning spouse. In a dual-earning household, it is important to protect the income earning capacity of both spouses. Life insurance on a non-wage earning spouse is often recommended for the purpose of paying for household services lost at this individual’s death.
Q: Should term insurance or cash value life insurance be purchased?
A: Although a difficult question–one whose answer will vary depending on circumstances–several principles should be followed in addressing this issue.
It must first be recognized that in any life insurance purchasing decision, there are at least two basic questions that must be answered:
Q: How much life insurance should I buy?” and “What type of life insurance policy should I buy?
A: The question contained in (1) involves an “insurance” decision and the question contained in (2) requires a “financial” decision.
The “insurance” question should always be resolved first. For example, the amount of life insurance that you need may be so large that the only way in which this needed amount of insurance can be afforded is through the purchase of term insurance with its lower premium.
If your ability (and willingness) to pay life insurance premiums is such that you can afford the desired amount of life insurance under either type of policy, it is then appropriate to consider the “financial” decision–which type of policy to buy. Important factors affecting the “financial” decision include your income tax bracket, whether the need for life insurance is short-term or long-term (such as 20 years or longer), and the rate of return on alternative investments possessing similar risk.
Q: How does mortgage protection term insurance differ from other types of term life insurance?
A: The face amount under mortgage protection term insurance decreases over time, consistent with the projected annual decreases in the outstanding balance of a mortgage loan. Mortgage protection policies are generally available to cover a range of mortgage repayment periods, such as 15, 20, 25 or 30 years. Although the face amount decreases over time, the premium is usually level in amount. Further, the premium payment period often is shorter than the maximum period of insurance coverage–for example, a 20-year mortgage protection policy might require that level premiums be paid over the first 17 years.
Q: Can an existing life insurance policy be used to provide for the repayment of an outstanding mortgage loan?
A: Yes, the purchase of a new mortgage protection term insurance policy is usually not required by the lender. An existing policy, either term or cash-value life insurance, can be used for many purposes, including paying off an outstanding mortgage loan balance in the event of the insured’s death.
Credit life insurance is frequently recommended in conjunction with the taking out of an installment loan when purchasing expensive appliances or a new car, or for debt consolidation. Is credit life insurance a good buy?
Credit life insurance is frequently more expensive than traditional term life insurance. Further, if you already own a sufficient amount of life insurance to cover your financial needs, including debt repayment, the purchase of credit life insurance is normally not advisable due to its relatively high cost.
Renters Insurance Questions
Q: Why would I want to buy renters insurance?
A: If you live in an apartment or a rented house, renters insurance provides important coverage for both you and your possessions. A standard renters policy protects your personal property for named perils coverage, which is specifically listed in your policy, including but not limited to theft or fire. In certain cases of fire damage, the policy may pay for temporary living expenses if your rental is damaged. The renters policy coverage can also shield you from personal liability. Anyone who leases a house or apartment should consider this type of coverage.
Renters coverage applies to your personal property no matter where you are in the world. This means you’re covered when you are on vacation as well as at home.
Q: Why do some apartment complexes require tenants to have renters insurance?
A: The owners of these apartment complexes require their tenants to have renters insurance to ensure that they have personal liability coverage. Owners of apartment complexes carry property insurance to protect themselves in the event that the apartment building is damaged. However, if a negligent tenant causes damage, the owner’s insurer will sue the responsible tenant for the amount of damage they caused. The owner wants to make sure that the tenant has insurance coverage that will protect him or her in this event.
Q: What if I share my apartment with a roommate? Do we both need to have renters insurance?
A: Standard renters policies, also called Tenant Homeowner Policies, cover only you and relatives that live with you. If your roommate is not a relative, each of you will need your own renters policy to cover your own property and to provide you liability coverage for your own actions. Some insurance companies will allow both renters to be listed as named insureds on a single policy.