Frequently Asked Questions
Auto
Auto insurance protects you against financial loss if you have an accident. It is a contract between you and the insurance company – you agree to pay the premium, and the insurance company agrees to pay your losses as defined in your policy.
Auto insurance provides property, liability and medical coverage.
- Property coverage pays for damage to or theft of your car.
- Liability coverage pays for your legal responsibility to others for bodily injury or property damage.
- Medical coverage pays for the cost of treating injuries, rehabilitation, and sometimes lost wages and funeral expenses.
An auto insurance policy is comprised of six different kinds of coverage. Most states require you to buy some, but not all, of these coverages. If you’re financing a car, your lender may also have requirements.
Your auto policy may include six coverages. Each coverage is priced separately.
1. Bodily Injury Liability
This coverage applies to injuries you, the designated driver or policyholder, cause to someone else. You and family members listed on the policy are also covered when driving someone else’s car with their permission.
It’s very important to have enough liability insurance because, if you are involved in a serious accident, you may be sued for a large sum of money. Definitely consider buying more than the state-required minimum to protect assets such as your home and savings.
2. Medical Payments or Personal Injury Protection (PIP)
This coverage pays for the treatment of injuries to the driver and passengers of the policyholder’s car. At its broadest, PIP can cover medical payments, lost wages, and the cost of replacing services normally performed by someone injured in an auto accident. It may also cover funeral costs.
3. Property Damage Liability
This coverage pays for damage you (or someone driving the car with your permission) may cause to someone else’s property. Usually, this means damage to someone else’s car, but it also includes damage to lamp posts, telephone poles, fences, buildings, or other structures your car hits.
4. Collision
This coverage pays for damage to your car resulting from a collision with another car or object or as a result of flipping over. It also covers damage caused by potholes. Collision coverage is generally sold with a deductible of $250 to $1,000 – the higher your deductible, the lower your premium. Even if you are at fault for the accident, your collision coverage will reimburse you for the costs of repairing your car, minus the deductible. If you’re not at fault, your insurance company may try to recover the amount they paid you from the other driver’s insurance company. If they are successful, you’ll also be reimbursed for the deductible.
5. Comprehensive
This coverage reimburses you for loss due to theft or damage caused by something other than a collision with another car or object, such as fire, falling objects, missiles, explosion, earthquake, windstorm, hail, flood, vandalism, riot, or contact with animals such as birds or deer.
Comprehensive insurance is usually sold with a $100 to $300 deductible, though you may want to opt for a higher deductible as a way of lowering your premium. Comprehensive insurance will also reimburse you if your windshield is cracked or shattered. Some companies offer glass coverage with or without a deductible.
States do not require that you purchase collision or comprehensive coverage, but, if you have a car loan, your lender may insist you carry it until your loan is paid off.
6. Uninsured and Underinsured Motorist Coverage
This coverage will reimburse you, a member of your family, or a designated driver if one of you is hit by an uninsured or hit-and-run driver.
NO! Almost every state requires you to have auto liability insurance. All states also have financial responsibility laws. This means that even in a state that does not require liability insurance, you need to have sufficient assets to pay claims if you cause an accident. If you don’t have enough assets, you must purchase at least the state minimum amount of insurance. However, insurance exists to protect your assets – trying to see how little you can get by with can be very shortsighted and dangerous.
If you’ve financed your car, your lender may require comprehensive and collision insurance as part of the loan agreement.
If you lease a car, you still need to buy your own auto insurance policy. The auto dealer or bank that is financing the car will require you to buy collision and comprehensive coverage. You’ll need to buy these coverages in addition to the others that may be mandatory in your state, such as auto liability insurance.
If you’ve financed your car, your lender may require comprehensive and collision insurance as part of the loan agreement.
- Collision covers the damage to the car from an accident with another automobile or object.
- Comprehensive covers a loss that is caused by something other than a collision with another car or object, such as a fire, theft, or collision with a deer.
The leasing company may also require “gap” insurance. This refers to the fact that if you have an accident and your leased car is damaged beyond repair or “totaled,” there’s likely to be a difference between the amount that you still owe the auto dealer and the check you’ll get from your insurance company. That’s because the insurance company’s check is based on the car’s actual cash value, which takes into account depreciation. The difference between the two amounts is known as the “gap.”
On a leased car, the cost of gap insurance is generally rolled into the lease payments – you don’t actually buy a gap policy. Generally, the auto dealer buys a master policy from an insurance company to cover all the cars it leases and charges you for a “gap waiver.” This means that, if your leased car is totaled, you won’t have to pay the dealer the gap amount. Check with the auto dealer when leasing your car.
If you have an auto loan rather than a lease, you may want to buy gap insurance to protect yourself from having to come up with the gap amount if your car is totaled before you’ve finished paying for it. Ask your insurance agent about gap insurance. Gap insurance may not be available in some states.
When renting a car, you need insurance. If you have adequate insurance on your own car, including collision and comprehensive, this may be enough.
Before you rent a car, contact your insurance company to find out how much coverage you have on your own car. In most cases, the coverage and deductibles you have on your personal auto policy would apply to a rental car, providing it’s used for pleasure and not business. If you don’t have comprehensive and collision coverage on your own car, you will not be covered if your rental car is stolen or if it is damaged in an accident.
There is a big difference between when an insurance company cancels a policy and when it chooses not to renew it. Insurance companies cannot cancel a policy that has been in force for more than 60 days except:
- if you fail to pay the premium
- you have committed fraud or made serious misrepresentations on your application
- your driver’s license has been revoked or suspended
Non-renewal is a different matter. Either you or your insurance company can decide not to renew the policy when it expires. Depending on the state you live in, your insurance company must give you a certain number of days notice and explain the reason for non-renewal before it drops your policy. If you think the reason is unfair or want a further explanation, call the insurance company’s consumer affairs division. If you don’t get an explanation, call your state insurance department.
Home
Homeowner’s insurance provides financial protection against disasters. A standard policy insures the home itself and the things you keep in it.
Homeowner’s insurance is a package policy. This means that it covers both damage to your property and your liability or legal responsibility for any injuries and property damage you or members of your family cause to other people. This includes damage caused by household pets.
Damage caused by most disasters is covered, but there are exceptions. The most significant are damage caused by floods, earthquakes, and poor maintenance. You must buy separate policies for flood and earthquake coverage. Maintenance-related problems are the homeowner’s responsibility.
A standard homeowner’s insurance policy includes four essential types of coverage.
1. Coverage for the structure of your home
This part of your policy pays to repair or rebuild your home if it is damaged or destroyed by fire, hurricane, hail, lightning, or other disaster listed in your policy. It will not pay for damage caused by a flood, earthquake, or routine wear and tear. When purchasing coverage for the structure of your home, it is important to buy enough to rebuild your home.
Most standard policies also cover structures that are detached from your home such as a garage, tool shed, or gazebo. Generally, these structures are covered for about 10% of the amount of insurance you have on the structure of your home.
2. Coverage for your personal belongings
Your furniture, clothes, sports equipment, and other personal items are covered if they are stolen or destroyed by fire, hurricane, or other insured disaster. Most companies provide coverage for 50% to 70% of the amount of insurance you have on the structure of your home. So if you have $100,000 worth of insurance on the structure of your home, you would have between $50,000 to $70,000 worth of coverage for your belongings. The best way to determine if this is enough coverage is to conduct a home inventory.
This part of your policy includes off-premises coverage. This means that your belongings are covered anywhere in the world, unless you have decided against off-premises coverage. Some companies limit the amount to 10% of the amount of insurance you have for your possessions. You have up to $500 of coverage for unauthorized use of your credit cards.
Expensive items like jewelry, furs, and silverware are covered, but there are usually dollar limits if they are stolen. Generally, you are covered for between $1,000 to $2,000 for all of your jewelry and furs. To insure these items to their full value, purchase a special personal property endorsement or floater and insure the item for its appraised value. Coverage includes ”accidental disappearance, ” meaning coverage if you simply lose that item, and there is no deductible.
Trees, plants, and shrubs are also covered under standard homeowner’s insurance. Generally you are covered for 5% of the insurance on the house – up to about $500 per item. Perils covered are theft, fire, lightning, explosion, vandalism, riot, and even falling aircraft. They are not covered for damage by wind or disease.
3. Liability protection.
This covers you against lawsuits for bodily injury or property damage that you or family members cause to other people. It also pays for damage caused by your pets. So, if your son, daughter, or dog accidentally ruins your neighbor’s expensive rug, you are covered. However, if they destroy your rug, you are not covered.
The liability portion of your policy pays for both the cost of defending you in court and any court awards, up to the limit of your policy. You are also covered not just in your home, but anywhere in the world.
Liability limits generally start at about $100,000. However, experts recommend that you purchase at least $300,000 worth of protection. Some people feel more comfortable with even more coverage. You can purchase an umbrella or excess liability policy, which provides broader coverage, including claims against you for libel and slander, as well as higher liability limits. Generally, umbrella policies cost between $200 to $350 for $1 million of additional liability protection.
Your policy also provides no-fault medical coverage. In the event a friend or neighbor is injured in your home, he or she can simply submit medical bills to your insurance company. This way, expenses are paid without their filing a liability claim against you. You can generally get $1,000 to $5,000 worth of this coverage. It does not, however, pay the medical bills for your family or your pet.
4. Additional living expenses in the event you are temporarily unable to live in your home because of a fire or other insured disaster
This pays the additional costs of living away from home if you can’t live there due to damage from a fire, storm, or other insured disaster. It covers hotel bills, restaurant meals, and other living expenses incurred while your home is being rebuilt. Coverage for additional living expenses differs from company to company. Many policies provide coverage for about 20% of the insurance on your house. You can increase this coverage, however, for an additional premium. Some companies sell a policy that provides an unlimited amount of loss-of-use coverage for a limited amount of time.
If you rent out part of your house, this coverage will also reimburse you for the rent that you would have collected from your tenant if your home had not been destroyed.
Yes. A person who owns his or her home would have a different policy from someone who rents. Policies also differ on the amount of insurance coverage provided. The different types of homeowners policies are fairly standard throughout the country. However, individual states and companies may offer policies that are slightly different or go by other names such as “standard” or “deluxe.” You should consult with a professional insurance consultant to determine which coverage best suit your needs.
If you own the home you live in, you have several policies to choose from. The most popular policy is the HO-3, which provides the broadest coverage. Owners of multi-family homes generally purchase an HO-3 with an endorsement to cover the risks associated with having renters live in their homes.
- HO-1: Limited coverage policy – This ”bare bones” policy covers you against the first 10 disasters. It’s no longer available in most states.
- HO-2: Basic policy – It provides protection against all 16 disasters. There is a version of HO-2 designed for mobile homes.
- HO-3: The most popular policy – This ”special” policy protects your home from all perils except those specifically excluded.
- HO-8: Older home – Designed for older homes, this policy usually reimburses you for damage on an actual cash value basis, which means replacement cost less depreciation. Full replacement cost policies may not be available for some older homes.
If you rent your home
- HO4-Renter – Created specifically for those who rent the home they live in, this policy protects your possessions and any parts of the apartment that you own, such as new kitchen cabinets you install, against all 16 disasters.
If you own a co-op or a condo
- H0-6: condo/co-op – A policy for those who own a condo or co-op, it provides coverage for your belongings and the structural parts of the building that you own. It protects you against all 16 disasters.
Unlike driving a car, you can legally own a home without homeowner’s insurance. But, if you have bought your home and financed the purchase with a mortgage, your lender will most likely require you to get homeowner’s insurance coverage. That’s because lenders need to protect their investment in your home in case your house burns down or is badly damaged by a storm, tornado, or other disaster. If you live in an area likely to flood, the bank will also require you to purchase flood insurance. Some financial institutions may also require earthquake coverage if you live in a region vulnerable to earthquakes. If you buy a co-op or condominium, your board will probably require you to buy homeowner’s insurance.
After your mortgage is paid off, no one will force you to buy homeowner’s insurance, but it doesn’t make sense to cancel your policy and risk losing what you’ve invested in your home.
There is a big difference between when an insurance company cancels a policy and when it chooses not to renew it. Insurance companies cannot cancel a policy that has been in force for more than 60 days except:
- if you fail to pay the premium
- you have committed fraud or made serious misrepresentations on your application
Non-renewal is a different matter. Either you or your insurance company can decide not to renew the policy when it expires. Depending on the state you live in, your insurance company must give you a certain number of days notice and explain the reason for non-renewal before it drops your policy. If you think the reason is unfair or want a further explanation, call the insurance company’s consumer affairs division. If you don’t get an explanation, call your state insurance department.
Life
Many financial experts consider life insurance to be the cornerstone of sound financial planning. It is generally a cost-effective way to provide for your loved ones after you are gone. It can be an important tool in the following ways:
1. Income replacement
For most people, their key economic asset is their ability to earn a living. If you have dependents, then you need to consider what would happen to them if they no longer have your income to rely on. Also, proceeds from a life insurance policy can help supplement retirement income. This can be especially useful if the benefits of your surviving spouse or domestic partner will be reduced after your death.
2. Pay outstanding debts and long-term obligations
Consider life insurance so that your loved ones have the money to offset burial costs, credit card debt, and medical expenses not covered by health insurance. In addition, life insurance can be used to pay off the mortgage, supplement retirement savings, or help pay college tuition.
3. Estate planning
The proceeds of a life insurance policy can be structured to pay estate taxes so that your heirs will not have to liquidate other assets.
4. Charitable contributions
If you have a favorite charity, you can designate some of the proceeds from your life insurance to go to this organization.
To decide how much life insurance to buy, you need to first figure out what your goals are in purchasing this coverage. Ask yourself the following:
- Do I want to spare my loved ones funeral costs and outstanding debts?
- Am I concerned that my spouse or domestic partner will not be able to continue to pay off the mortgage if I die suddenly?
- Do I have dependents who count on my income?
- Am I concerned about college savings for my children or retirement savings for my spouse if I die suddenly?
While all situations are different, here are two scenarios to help you think through the questions you should pose to your insurance professional:
Dependents
If you have children, a spouse who does not work outside the home, or aging parents who you financially support, you have dependents. Alternatively, you may simply have a spouse or domestic partner who would be unable to pay the mortgage without your financial contribution. In either case, your loved ones will no longer have your income to help them pay the bills and maintain their lifestyle after you are gone. You will have to purchase enough insurance to provide for their future, while considering how much of your budget should be devoted to life insurance.
Some insurance experts suggest that you purchase five to eight times your current income. While this may be a good way to begin estimating your family’s needs, you will also need to figure how much your dependents will need to pay for some or all the following:
- Cost of owning a home (mortgage, maintenance, insurance, taxes and utilities)
- College savings
- Food, clothing, utilities
- Child care
- Nursing home or elder care
- Retirement savings
- Funeral expenses and estate taxes
Your family may also need extra money to make some changes after you die. They may want to relocate or your spouse may need to go back to school to be in a better position to support the family.
No dependents
If you are young and plan to have a family in the future, you may also want to consider purchasing life insurance now so that you can lock in a good rate.
Just because you don’t have dependents, does not mean you don’t have responsibilities. For instance, you may be concerned with not being an economic burden to others if you die unexpectedly. You may also want to leave some money behind to close family, friends, or a special charity as a remembrance. In this case, you should purchase enough coverage to pay funeral and burial expenses, outstanding debts, and tax liabilities, so that the bulk of your estate goes to your family, friends, or charities.
Your insurance needs will vary greatly according to your financial assets and liabilities, income potential, and level of expenses.
While there are many different types of life insurance policies, they generally fall into two categories – term and permanent.
Term
Term insurance is the simplest form of life insurance. It provides financial protection for a specific time, usually from one to 30 years. These policies are relatively inexpensive and are well suited for goals such as insurance protection during the child-raising years or while paying off a mortgage. They provide a death benefit, but do not offer cash savings.
Purchasing term insurance is like renting a home. It is a short-term solution. Monthly costs are usually lower, but you will not be building equity. Just as many people rent (while saving to buy a home), individuals who need insurance protection now but have limited resources may purchase term coverage and then switch to permanent protection. Others may view term insurance as a cost-effective way to protect their family and still have money to put into other investments.
Permanent
Permanent insurance (such as universal life, variable universal life, and whole life) provides long-term financial protection. These policies include both a death benefit and, in some cases, cash savings. Because of the savings element, premiums tend to be higher. This type of insurance is good for long-range financial goals.
Purchasing permanent insurance is like buying a home instead of renting. You are taking care of long-term housing needs with a long-term solution. Your monthly costs may be higher than if you rent, but your payments will build equity over time. If you purchase permanent insurance, your premiums will pay a death benefit and may also build cash value that can be accessed in the future.
A beneficiary is the person or financial institution (a trust fund, for instance) you name in a life insurance policy to receive the proceeds. In addition to naming a specific beneficiary, you should name a second or “contingent” beneficiary, in case you outlive the first beneficiary.
If there is no living beneficiary, the proceeds will go to your estate. If there are probate proceedings, this could possible delay your loved ones receiving the money. The proceeds may also be subject to estate taxes.
Picking a beneficiary and keeping that choice up-to-date are important parts of purchasing life insurance. The birth or adoption of a child, marriage, or divorce can affect your initial choice of who will receive the death benefit when you die. Review your beneficiary designation as new situations arise to make sure your choice is still appropriate.
Pay special attention to the wording of your beneficiary designations to ensure that the right person receives the proceeds of your estate. If you write “wife/husband of the insured” without using a specific name, an ex-spouse could receive the proceeds. On the other hand, if you have named specific children, any later-born or adopted children will not receive the proceeds unless the beneficiary designation is updated.
You should review all of your insurance needs at least once a year. If you have a major life change, you should contact your insurance agent or company representative. The change in your life may have a significant impact on your insurance needs. Life changes may include:
- Marriage or divorce
- A child or grandchild who is born or adopted
- Significant changes in your health or that of your spouse/domestic partner
- Taking on the financial responsibility of an aging parent
- Purchasing a new home
- Refinancing your home
- Coming into an inheritance
Business
Insurance companies selling business insurance offer policies that combine protection from all major property and liability risks in one package. (They also sell coverages separately.) One package purchased by small and mid-sized businesses is the business owner’s policy (BOP). Package policies are created for businesses that generally face the same kind and degree of risk. Larger companies might purchase a commercial package policy or customize their policies to meet the special risks they face.
BOPs include:
1. Property insurance for buildings and contents owned by the company. There are two different forms, standard and special, which provides more comprehensive coverage.
2. Business interruption insurance, which covers the loss of income resulting from a fire or other catastrophe that disrupts the operation of the business. It can also include the extra expense of operating out of a temporary location.
3. Liability protection, which covers your company’s legal responsibility for the harm it may cause to others. This harm is a result of things that you and your employees do or fail to do in your business operations that may cause bodily injury or property damage due to defective products, faulty installations, and errors in services provided.
BOPs do NOT cover professional liability, auto insurance, worker’s compensation, or health and disability insurance. You’ll need separate insurance policies to cover professional services, vehicles, and your employees.
Professionals who operate their own businesses need professional liability insurance in addition to an in-home business or business owner’s policy. This protects them against financial losses from lawsuits filed against them by their clients.
Professionals are expected to have extensive technical knowledge or training in their particular area of expertise. They are also expected to perform the services for which they were hired according to the standards of conduct in their profession. If they fail to use the degree of skill expected of them, they can be held responsible in a court of law for any harm they cause to another person or business. When liability is limited to acts of negligence, professional liability insurance may be called “errors and omissions” liability.
Professional liability insurance is a specialty coverage. Professional liability coverage is not provided under homeowner’s endorsements, in-home business policies, or business owner’s policies (BOPs).
As a business owner, you need the same kinds of insurance coverages for the car you use in your business as you do for a car used for personal travel – liability, collision and comprehensive, medical payments (known as personal injury protection in some states), and coverage for uninsured motorists. In fact, many business people use the same vehicle for both business and pleasure. If the vehicle is owned by the business, make sure the name of the business appears on the policy as the “principal insured” rather than your name. This will avoid possible confusion in the event that you need to file a claim or a claim is filed against you.
Whether you need to buy a business auto insurance policy will depend on the kind of driving you do. A good insurance agent will ask you many details about how you use vehicles in your business, who will be driving them, and whether employees, if you have them, are likely to be driving their own cars for your business.
While the major coverages are the same, a business auto policy differs from a personal auto policy in many technical respects. Ask your insurance agent to explain all the differences and options.
If you have a personal umbrella liability policy, there’s generally an exclusion for business-related liability. Make sure you have sufficient auto liability coverage.
Business interruption insurance can be as vital to your business’s survival as fire insurance. Most people would never consider opening a business without buying insurance to cover damage due to fire and windstorms. But too many small business owners fail to think about how they would manage if a fire or other disaster damaged their business premises so that they were temporarily unusable. Business interruption coverage is not sold separately. It is added to a property insurance policy or included in a package policy.
A business that has to close down completely while the premises are being repaired may lose out to competitors. A quick resumption of business after a disaster is essential.
Business interruption insurance compensates you for lost income if your company has to vacate the premises due to disaster-related damage that is covered under your property insurance policy, such as a fire. Business interruption insurance covers the profits you would have earned, based on your financial records, had the disaster not occurred. The policy also covers operating expenses, like electricity, that continue even though business activities have come to a temporary halt.
Make sure the policy limits are sufficient to cover your company for more than a few days. After a major disaster, it can take more time than many people anticipate to get the business back on track. There is generally a 48-hour waiting period before business interruption coverage kicks in.
The price of the policy is related to the risk of a fire or other disaster damaging your premises. All other things being equal, the price would probably be higher for a restaurant than a real estate agency, for example, because of the greater risk of fire. Also, a real estate agency can more easily operate out of another location.
Extra expense insurance reimburses your company for a reasonable sum of money that it spends, over and above normal operating expenses, to avoid having to shut down during the restoration period. Usually, extra expenses will be paid if they help to decrease business interruption costs. In some instances, extra expense insurance alone may provide sufficient coverage, without the purchase of business interruption insurance.
If you’re running a business from your home, you may not have enough insurance to protect your business equipment. A typical homeowner’s policy provides only $2,500 coverage for business equipment, which is usually not enough to cover all of your business property. You may also need coverage for liability and lost income. Insurance companies differ considerably in the types of business operations they will cover under the various options they offer. So it’s wise to shop around for coverage options as well as price.
Regardless of the type of policy you choose, if you’re a professional working out of your home, you probably need professional liability insurance. Some types of in-home businesses, such as those that make or sell food products or sell homemade personal care products, may have to buy special policies.
To insure your business, you have three basic choices, depending on the nature of your business and the insurance company you buy it from.
Homeowner’s Policy Endorsement
- You may be able to add a simple endorsement to your existing homeowner’s policy to double your standard coverage for business equipment such as computers. For as little as $25, you can raise the policy limits from $2,500 to $5,000. Some insurance companies will allow you to increase your coverage up to $10,000 in increments of $2,500.
You can also buy a homeowner’s liability endorsement. You need liability coverage in case clients or delivery people get hurt on your premises. They may trip and fall down your front steps, for example, and sue you for failure to keep the steps in a safe condition. The homeowner’s liability endorsement is typically available only to businesses that have few business-related visitors, such as writers. But some insurers will provide this kind of endorsement to piano teachers, for example, depending on the number of students. These endorsements are available in most states.
In-Home Business Policy/Program
- An in-home business policy provides more comprehensive coverage for business equipment and liability than a homeowner’s policy endorsement. These policies, which may also be called in-home business endorsements, vary significantly depending on the insurer.
In addition to protection for your business property, most policies reimburse you for the loss of important papers and records, accounts receivable, and off-site business property. Some will pay for the income you lose (business interruption) in the event your home is so badly damaged by a fire or other disaster that it can’t be used for a while. They’ll also pay for the extra expense of operating out of a temporary location.
Some in-home business policies allow a certain number of full-time employees, generally up to three. In-home business policies generally include broader liability insurance for higher amounts of coverage. They may offer protection against lawsuits for injuries caused by the products or services you offer, for example.
In-home business policies are available from homeowner’s insurance companies and specialty insurers that sell stand-alone in-home business policies. This means that you don’t have to purchase your homeowner’s insurance from them.
Business Owner’s Policy (BOP)
- Created specifically for small to mid-size businesses, this policy is an excellent solution if your home-based business operates in more than one location. A BOP, like the in-home business policy, covers business property and equipment, loss of income, extra expense, and liability. However, these coverages are on a much broader scale than the in-home business policy. A BOP doesn’t include workers compensation, health, or disability insurance. If you have employees, you’ll need separate policies for these coverages.