So what about auto coverage? What do you need to know when buying a policy for your cars?
More is better - Probably the most important thing I can tell you is to buy enough coverage. Most drivers out on the road today are pitifully underinsured. When you look at your policy, you'll see a couple of coverages called "Property damage" and "Bodily injury." These are the basic coverages you carry. Under Bodily Injury, there are two numbers. It may say something like 50/100 or 250/500. The first number tells how much the company will pay per person when you are at fault in an accident. The second number tells the total they will pay for all persons in the event. For instance, if you have 50/100 coverage and you are at fault in an accident, your policy will pay up to $50,000 per person for injuries sustained, and a maximum of $100,000 for all injured persons in the accident.
Now think about medical costs these days. If the accident is serious, and people are badly hurt, how quickly will you go through $50,000 in medical costs? A couple surgeries, a couple nights in the hospital, and they are past that $50,000 in no time at all. If someone has to be Lifeflighted from the accident scene, the helicopter ride alone can cost many thousands of dollars, and that's before any treatment has begun.
In Tennessee, the state required a minimum of 25/50 coverage. That amount is a joke when you have an actual loss. Many injuries will require much more than $25,000 to be covered. If you are driving with this type of coverage and you have an accident that costs more than the covered amount, you are responsible to come up with the costs separate from your insurance. You will likely be sued for the difference. I had a customer who had 35/70 coverage. His 19-year-old son was driving down the road, dropped something on the floor of the pickup, and leaned over to pick it up. As he leaned over, he lost control of the vehicle, crossed the center line, and collided head-on with a car. As a result of the accident, a 4-year-old in the car was killed. You can't put a price on the life of a child, but the parents said they would take a settlement of $100,000. My customer didn't have that kind of money, and the insurance would only pay $35,000, so my customer was ultimately sued for $1.4 million. When I left the business, the suit was still playing out in the courts.
I hadn't written this customer's policy. I was given this customer when another agent went out of business. I personally would not write policies with these low limits, for this very reason. Having low coverage isn't much better than having no coverage. Either way, you're in trouble if something happens. I wouldn't write a policy for less than 50/100, and 90% of the policies I wrote were for 100/300 or higher. If someone came in asking for state minimums, I'd give him the name of the Allstate agent a block down the street. He'd write that stuff all day long. But it was important to me that my customers were covered if something happened. That's what insurance is for. SafeAuto has made a business out of selling the low coverages. Their motto is "We'll keep you legal for less." But they're not doing their customers any favors by offering that. Please check your coverages. If you have less than 100/300, you ought to raise it. 250/500 is even better. It'll cost a little more but not as much as you might think. Many companies offer discounts for carrying higher coverage.
The third number is the Property Damage coverage. So your policy might say something like 100/300/100. That third number is the amount your company will pay for damages you cause in an accident. You hit another car, your policy pays up to$100,000 to fix that car, or whatever that number is on your policy. I was surprised by how many people carry $10,000 in PD coverage. Many of the cars out on the streets are worth more than $10,000. You hit one of these, cause it to be totaled, you're responsible for the damage over $10,000. Even $25,000 is too low. If you total someone's brand new Lexus or Jaguar, they're coming after you to replace it. Even worse, what if you cause a multi-car accident? You're responsible for every vehicle involved. So once again, I'd recommend a minimum of $100,000 in Property Damage coverage. 250 is even better.
Comprehensive - Many people ask if they need comprehensive coverage. This covers anything that happens to your car other than a collision. For instance, it would take cover of hail damage, cracked windshield from a rock flying off a truck and hitting your car, hitting a deer, etc. Whether or not you need this really depends on the value of your car. If your car is worth $20,000, and you have 2 or 3 thousand in damages from a hail storm, you'll be glad you have this coverage. Many people, however, will drop this coverage when the car is old and not worth more than a few thousand dollars. If there is damage to your car that would cost $5000 to fix, but the car is only worth $2000, the company will total the car, paying you the $2000. Many find it's not worth paying the extra premiums for this, when the payout would be so low.
Lowering the cost - How can you get better rates on your car insurance? The first and most important thing you can do is to be a good driver. If there's a ticket on your record, your rates will go up. Maybe not immediately, but probably on renewal. More tickets, more money. So drive carefully, and keep your record clean. Second, get older. There's not a lot you can do about this one, except give it time. But the older you are the better your rates (to a point). You're going to pay a lot for your 16-year-old to be driving. I mean a ridiculous amount of money. Tell your teenager to drive carefully, get no tickets, be careful. NO TEXTING WHILE DRIVING!!! Also, tell them to keep their grades up. Most companies will reward your teenager for having a 3.0 GPA or better. As they get older, the rates will go down. These are gradual decreases, that happen at certain age levels. For your son in his 20's, his rates will go down further when he gets married. Single, young male drivers cost the most to insure. The exception to older being better comes when you get up into your 80's or so. Many companies will remove the discounts at that age.
Other things you can do to lower the cost - Insure all your cars with the same company. Most companies offer multi-car discounts. They also typically offer multi-line discounts, meaning you pay less if they insure your cars and your house. The shorter your commute to work or school, the lower your premium, as well. If one of your vehicles isn't used for a commute, but is just for general running around from time to time, mention that to your agent. It'll cost you less.
Have good credit. This is one of those things that has changed in recent years. Insurance companies a number of years ago didn't check credit, but today most do, and they base your rates on your credit score. (When I left the business at the end of 2008, it was illegal to base rates on credit scores in California, but all other states would allow it.) If a customer's score is average to good, rates shouldn't be too bad. But those with poor scores will pay much more for insurance. If your credit is great, it will save you hundreds on premiums.
Choose your car wisely. Some cars simply cost more to insure than others. The more expensive the car, the more insurance will cost. It's OK to enjoy your Lexus or BMW, but plan on spending more on insurance. If the vehicle is one of the top 10 stolen cars, you will probably pay more. Cars that are known for safety and reliability will often cost less to insure. These may include Hondas, Volvos, etc. Hybrid owners will get a fairly significant discount from many companies. If buying a car for your teenager, be careful. Though they may want that brand new Mustang, they better have a great job to cover the insurance. You'll do much better to get them a good used Honda Civic, Toyota Corolla, or some other good used dependable car.
Accident forgiveness - This has become a big selling point for many companies. They will advertise that the first accident will be forgiven, and your rate won't increase. Check the details of this offer before getting it. It's not usually included automatically on the auto policy. It's an extra that you will pay a little more to have. Here's what you want to know - When an accident happens, two things occur with your policy. First, an accident surcharge is added to your rate. Second, your driving record has now changed, so you will likely move from the companies "preferred" status to their regular status. This comes with higher rates. Now, some companies that offer accident forgiveness are a little misleading in what that means. You might assume you'll see no increase at all. But with some companies what happens is they simply waive the accident surcharge. This does not change the fact that you will move from preferred to regular status as a driver. So there may still be an increase, just not as much as you would get from the surcharge. Each company handles this differently, so be sure to check with your agent before paying extra for this coverage.
Renting a car - Typically, your auto policy covers vehicles you rent. So when you're travelling, you can probably save money on your rental by declining their coverage. However, you need to realize that the coverage on that rental will be the same as the coverage on your own vehicle. So if you've dropped comprehensive coverage on your car because it's value is low, you probably better buy the rental company's coverage, so you'll be covered if you hit a deer or something like that happens. Also, you will still be liable for whatever deductible your policy has. If you rent a vehicle that is significantly different than your personal vehicle, you may not be covered. For instance, if your car is a family sedan, and you go out and rent a U-Haul truck, you will not be covered. Be sure to take U-Haul's insurance in this case.
Uninsured/Underinsured Motorist - The last thing I'll mention here is the Uninsured/Underinsured Motorist coverage. This kicks in if someone hits you and they are not properly insured. You'd be surprised how many of your fellow drivers are driving around without any insurance, and how many more have just the minimum required. If one of these hits you and you suffer serious damage, whether to your vehicle or personal injury, it is your Uninsured/Underinsured coverage that will cover you. So you want to make sure you have enough. It is common to carry the same amounts as you have for your liability coverage, such as the 100/300/100. Remember that this would also cover people riding in your vehicle if they are injured by that other motorist without enough insurance.
So that's the basics on auto coverage. I'll do two more of these - one on life insurance, and one on general things that apply to all the coverages.
Monday, May 10, 2010
A few words about insurance...
Many years ago I read a book called "Don't Get Taken Every Time." It was a book on how to buy a new car, and was written by a former car salesman. His thought was that he was in the best position to help people know how to get the best deal on cars, since he knew all the tricks of the car sales industry. He suggested that he could be trusted, because he was no longer in a position to make money off the customers.
As I watched the news of the flooding in Nashville a week ago, I was struck by how many people lost everything, and didn't have insurance coverage, because they didn't know that flood insurance is separate from a regular homeowners' policy. Since I'm a former insurance agent, I thought I might be able to share some things I learned in that business that might help someone when they are making insurance decisions. (Understand that every insurance company has its own products, policies, and procedures, and every state has its own laws. Check the things you see here with your agent.) So here's a few thoughts about the process.
Homeowners - Since this is what got me thinking about this, we'll start here. Homeowners' insurance covers your house and your belongings, in the event of a covered loss. Typically, covered losses include things like weather damage (wind, tornado, hurricane, etc.), fire, burglary. Floods are usually excluded. Flood insurance is offered by the insurance company through a government program. This coverage is usually mandatory for those living in a flood plain, but optional for all others. So should you get it? In the Nashville flooding, I saw pictures of houses in the town of White House (north of Nashville) that were surrounded by flood waters. The interesting thing about these houses was that none of them were near a creek, river, or other body of water. The flooding was solely a result of 13-15 inches of rain in a day and a half. So even if you don't live near a water source, you may still be in danger. Ask yourself, when it rains a lot, do I have puddles of standing water in my yard? If so, how high might those puddles be if you had that same kind of rain event that Nashville saw? Is your house on a hill? If so, there may be plenty of places the water could run off. But if your yard is flat, and the street you live on is flat, you probably should at least consider flood coverage. Ask your agent what it would cost. If you live outside a flood plain, it should be fairly inexpensive, but could save you many thousands if flooding happens.
Storage lockers - Q - I have things in a storage locker. Are those covered by my homeowners' policy? A - Every company is different on this. Most policies do not cover things in a storage locker at full replacement. They will often cap the coverage at 10% of the value. Check with your agent on this one. You can often buy insurance through the storage company, but their coverages are fairly low, as well.
Claims - Q - I've had a loss - should I file a claim? A - This partly depends on the size of the loss. First of all, understand that this is what you have insurance for - to cover you when something bad happens. However, you need to understand that a couple of things will happen if you file a claim. Depending on what type of loss you've had, your rates are likely to go up after a claim. Many companies will not count a weather-related loss against you. Wind damage to your roof will often not trigger a rate increase, for instance. But other losses, such as a fire, or a burglary, will. So if the loss is small, you might be better off covering the loss out of pocket, rather than filing a claim. For instance, imagine someone broke into your house and stole $1000 worth of stuff. Let's say you have a $200 deductible. You file a claim, and the insurance companies pays you $800. But your rates go up, so over the next three years, you'll pay considerably more in increased premiums than the $800 you received. Is it worth it? You're probably better off replacing the stuff yourself in this case, if you can.
Something else happens after a claim, as well - in a sense, you become "uninsurable." While your current company will probably keep you on as a customer (with increased rates), you will be unable to shop your coverage around to other companies. Many companies have a policy that if you have a claim in the last three years, they will not write a policy for you as a new customer. So you're stuck for that period of time with your current carrier at whatever rates they decide to charge you. Again, weather-related claims are not included in this policy, but most other claims are.
Water - As mentioned previously, flood damage is not a covered loss. Other water damage may be covered. One of my customers had a water hose burst, the one that connects to the refrigerator ice-maker. The customer happened to be on vacation at the time. Their daughter stopped by the house while they were gone, and found the water pouring out. By this time, it had probably been leaking 2 or 3 days. The water had gone down through the floor, and ruined most everything in the basement. Ultimately, this was a $90,000 loss. This was covered. Be sure to ask your agent what kinds of water damage are covered, and which aren't.
Extras - We've all known salesmen who try to throw in extras here and there, that are designed primarily for their profit. An example would be the extended warranty the sales clerk at Best Buy tries to sell you for whatever you're buying there. Insurance companies have some of these, too. Some of these, however, are useful, and you should consider them. Home warranties - Some agents will mention home warranties, which are typically sold through an outside company, such as American Home Shield. If you house is new and covered by a builder's warranty, you probably don't need this. However, if you're buying an older home, with appliances that are 8-10 years old or older, this might be a good thing. You pay a couple hundred dollars a year, and then if any of your covered home equipment goes out due to wear and tear, accidents, or other problems, you pay a flat-rate fee (it was $60 when I was selling these) for the repair guy to come out and fix the problem. Covered equipment typically includes all major appliances, heat/air equipment, plumbing, etc. For an older home, this could save you a lot of money. For instance, if your heat pump goes out, it could cost several hundred dollars to repair or replace it. With this policy, your cost is just the flat-rate fee. It's worth looking into.
Identity theft - In today's world, this has become a huge problem. Most insurance companies offer some kind of identity theft protection. Many include it as standard coverage in your homeowners' policy, with an option to increase the coverage for a small fee. If you know someone who's had their identity stolen, you know that it can cost a lot of time and money to get the problems fixed. This coverage will help with those costs. Understand, however, that the stated coverage amount can be somewhat misleading. For instance, we used to offer a $30,000 policy. Of that $30,000, only about $2000 was covered for actual stolen money. So if the thief got money out of your bank account, only $2000 was replaced by this policy. The remaining $28,000 in coverage was specifically for costs incurred in the process of fixing the problems. This may include attorneys' fees, lost work time, cost of phone calls, etc. Some companies offer increased ID theft coverage, in which they actually monitor your credit report and watch for suspicious activity. This costs extra, but may be worth it.
Earthquake - Your typical policy does not cover earthquakes. In Tennessee, where I had my business, earthquake coverage was an option to add on. The home had to meet certain building standards in order to qualify for this coverage, but most homes built today would qualify. In that area, earthquake coverage was surprisingly inexpensive - maybe an extra 5 to 10 dollars a year. What many people didn't realize was that we were sitting on a fault that runs roughly from Knoxville down past Chattanooga. It's been inactive for the most part, though there's occasional light activity. But it only takes one good shift of the fault to cause a lot of damage. Earthquake coverage seems like a reasonably inexpensive safeguard that one should probably look into. Of course those of you living in California will pay much, much more for this same coverage. Wherever you live, check with your agent to see what it'll cost.
Jewelry - Jewelry and other expensive articles are often included in your homeowners' policy, but with fairly low limits. So if you have expensive jewelry, art, furs, etc., you need to have additional coverage for these things.
This covers many of the issues that you may want to think about in your homeowners' insurance. In the next couple blogs, I'll share some thoughts on auto coverage and life insurance.
As I watched the news of the flooding in Nashville a week ago, I was struck by how many people lost everything, and didn't have insurance coverage, because they didn't know that flood insurance is separate from a regular homeowners' policy. Since I'm a former insurance agent, I thought I might be able to share some things I learned in that business that might help someone when they are making insurance decisions. (Understand that every insurance company has its own products, policies, and procedures, and every state has its own laws. Check the things you see here with your agent.) So here's a few thoughts about the process.
Homeowners - Since this is what got me thinking about this, we'll start here. Homeowners' insurance covers your house and your belongings, in the event of a covered loss. Typically, covered losses include things like weather damage (wind, tornado, hurricane, etc.), fire, burglary. Floods are usually excluded. Flood insurance is offered by the insurance company through a government program. This coverage is usually mandatory for those living in a flood plain, but optional for all others. So should you get it? In the Nashville flooding, I saw pictures of houses in the town of White House (north of Nashville) that were surrounded by flood waters. The interesting thing about these houses was that none of them were near a creek, river, or other body of water. The flooding was solely a result of 13-15 inches of rain in a day and a half. So even if you don't live near a water source, you may still be in danger. Ask yourself, when it rains a lot, do I have puddles of standing water in my yard? If so, how high might those puddles be if you had that same kind of rain event that Nashville saw? Is your house on a hill? If so, there may be plenty of places the water could run off. But if your yard is flat, and the street you live on is flat, you probably should at least consider flood coverage. Ask your agent what it would cost. If you live outside a flood plain, it should be fairly inexpensive, but could save you many thousands if flooding happens.
Storage lockers - Q - I have things in a storage locker. Are those covered by my homeowners' policy? A - Every company is different on this. Most policies do not cover things in a storage locker at full replacement. They will often cap the coverage at 10% of the value. Check with your agent on this one. You can often buy insurance through the storage company, but their coverages are fairly low, as well.
Claims - Q - I've had a loss - should I file a claim? A - This partly depends on the size of the loss. First of all, understand that this is what you have insurance for - to cover you when something bad happens. However, you need to understand that a couple of things will happen if you file a claim. Depending on what type of loss you've had, your rates are likely to go up after a claim. Many companies will not count a weather-related loss against you. Wind damage to your roof will often not trigger a rate increase, for instance. But other losses, such as a fire, or a burglary, will. So if the loss is small, you might be better off covering the loss out of pocket, rather than filing a claim. For instance, imagine someone broke into your house and stole $1000 worth of stuff. Let's say you have a $200 deductible. You file a claim, and the insurance companies pays you $800. But your rates go up, so over the next three years, you'll pay considerably more in increased premiums than the $800 you received. Is it worth it? You're probably better off replacing the stuff yourself in this case, if you can.
Something else happens after a claim, as well - in a sense, you become "uninsurable." While your current company will probably keep you on as a customer (with increased rates), you will be unable to shop your coverage around to other companies. Many companies have a policy that if you have a claim in the last three years, they will not write a policy for you as a new customer. So you're stuck for that period of time with your current carrier at whatever rates they decide to charge you. Again, weather-related claims are not included in this policy, but most other claims are.
Water - As mentioned previously, flood damage is not a covered loss. Other water damage may be covered. One of my customers had a water hose burst, the one that connects to the refrigerator ice-maker. The customer happened to be on vacation at the time. Their daughter stopped by the house while they were gone, and found the water pouring out. By this time, it had probably been leaking 2 or 3 days. The water had gone down through the floor, and ruined most everything in the basement. Ultimately, this was a $90,000 loss. This was covered. Be sure to ask your agent what kinds of water damage are covered, and which aren't.
Extras - We've all known salesmen who try to throw in extras here and there, that are designed primarily for their profit. An example would be the extended warranty the sales clerk at Best Buy tries to sell you for whatever you're buying there. Insurance companies have some of these, too. Some of these, however, are useful, and you should consider them. Home warranties - Some agents will mention home warranties, which are typically sold through an outside company, such as American Home Shield. If you house is new and covered by a builder's warranty, you probably don't need this. However, if you're buying an older home, with appliances that are 8-10 years old or older, this might be a good thing. You pay a couple hundred dollars a year, and then if any of your covered home equipment goes out due to wear and tear, accidents, or other problems, you pay a flat-rate fee (it was $60 when I was selling these) for the repair guy to come out and fix the problem. Covered equipment typically includes all major appliances, heat/air equipment, plumbing, etc. For an older home, this could save you a lot of money. For instance, if your heat pump goes out, it could cost several hundred dollars to repair or replace it. With this policy, your cost is just the flat-rate fee. It's worth looking into.
Identity theft - In today's world, this has become a huge problem. Most insurance companies offer some kind of identity theft protection. Many include it as standard coverage in your homeowners' policy, with an option to increase the coverage for a small fee. If you know someone who's had their identity stolen, you know that it can cost a lot of time and money to get the problems fixed. This coverage will help with those costs. Understand, however, that the stated coverage amount can be somewhat misleading. For instance, we used to offer a $30,000 policy. Of that $30,000, only about $2000 was covered for actual stolen money. So if the thief got money out of your bank account, only $2000 was replaced by this policy. The remaining $28,000 in coverage was specifically for costs incurred in the process of fixing the problems. This may include attorneys' fees, lost work time, cost of phone calls, etc. Some companies offer increased ID theft coverage, in which they actually monitor your credit report and watch for suspicious activity. This costs extra, but may be worth it.
Earthquake - Your typical policy does not cover earthquakes. In Tennessee, where I had my business, earthquake coverage was an option to add on. The home had to meet certain building standards in order to qualify for this coverage, but most homes built today would qualify. In that area, earthquake coverage was surprisingly inexpensive - maybe an extra 5 to 10 dollars a year. What many people didn't realize was that we were sitting on a fault that runs roughly from Knoxville down past Chattanooga. It's been inactive for the most part, though there's occasional light activity. But it only takes one good shift of the fault to cause a lot of damage. Earthquake coverage seems like a reasonably inexpensive safeguard that one should probably look into. Of course those of you living in California will pay much, much more for this same coverage. Wherever you live, check with your agent to see what it'll cost.
Jewelry - Jewelry and other expensive articles are often included in your homeowners' policy, but with fairly low limits. So if you have expensive jewelry, art, furs, etc., you need to have additional coverage for these things.
This covers many of the issues that you may want to think about in your homeowners' insurance. In the next couple blogs, I'll share some thoughts on auto coverage and life insurance.
Subscribe to:
Posts (Atom)