Lower deductible higher premium or higher deductible lower premium which is the better choice?
Tuesday, July 6th, 2010 | Business Insurance, Personal Lines, Risk Management, Uncategorized | No Comments
Tuesday July 6, 2010 – Regardless of the type of insurance, one of the basic dedcisions for individual and business insurance buyers, is what deductible would make sense for the particular type of policy.
A deductible is the amount of loss that an insured must pay before the insurance carrier pays the first dollar on the claim. Sometimes deductibles are non monetary; for example in the form of a waiting period. A business interruption policy may have a 30, 60 or 90 day waitning period before insurance pays for the lost income. However most deductibles are in dollars; for example a $500 deductible may be chosen for an auto insurance policy.
Of course premium is directly related to deductible. For example, a homeowners policy with a $500 deductible is considerably more expensive than one with a $2,500 deductible. The reasons for this fact are: (1) with a higher deductible, the insured is telling the insurance carrier that he/she will take care of the more common small losses. They only want insurance to pay the occasional more costly claims. and (2) insurance carriers believe that when the insured is “self-insuring” small losses, they will have a higher incentive to apply loss prevention techniques. For example a homeowner with a higher deductible policy is more likely to install a burglar alarm to prevent a burglary in the first place.
My own perspective on this subject is that insureds should take the highest possible deductible that they can comfortably pay in the event of a loss. Everytime an insured absorbs (i.e. pays) small losses below the dedutible, the loss does not get reported and there is no record of a claim to affect future premiums.
However, many folks prefer a lower deductible – sleep insurance. They don’t mind a somewhat higher upfront premium for the peace of mind that regardless of the type of loss their out-of-pocket cost is manageable. That is why I mentioned above that the best deductible is the highest amount the insured can absorb comfortably (emphasis on “comfortably”). In reality however it is also known that many small losses are not reported even on policies with low deductibles. People and businesses tend to take care of a small property damage by just fixing it, or replace an inexpensive personal item without reporting a claim. The time and effort needed to report a claim and follow up with the claims process is simply too much for the small insurance payment. So insurance carriers make a higher premium and get a free pass on claims, too.
The choices that each of us make in buying insurance are based on our own individual situation and can differ from person to person and from policy to policy. One may choose a lower deductible plan for health insurance and pick a high deductible homeowners insurance. Consult with your insurance agent and ask him/her to review all of your insurance policies to make sure you are buying enough insurance to protect you, your family and your business but that you are not over-buying insurance. Such a review may save several hundereds of dollars a year by adjusting policy types, limits and deductibles.
Call Pacific Way at 909-599-1972 or email me at roobik@pacificway.net to discuss your specific insurance needs.
World Cup Risks Supported by Insurance
Friday, June 4th, 2010 | Business Insurance | No Comments
June 4, 2010 - The 2010 FIFA World Cup held in South Africa begins in a week. Before a ball is struck, it’s important to note that global insurers and reinsurers are providing billions of dollars in risk protection for the event.
Munich Re reports that staging the World Cup finals is an enormous undertaking for both hosts and organizers and presents risks on every scale. The list of those requiring protection ranges from FIFA, the official organizer of the World Cup, to broadcasters, sponsors, travel firms, airlines and retailers.
In fact any party connected with the event will likely require insurance to cover their costs, expenses and profits should the event be cancelled. Munich Re observes:
In addition to contingency cover, insurance protection against war or terrorist attack is another important protection. South Africa was among 16 countries that saw their terrorism threat level increase, according to Aon’s 2010 Terrorism Threat Map released earlier this week.
Reuters recently reported that at least $5 billion of cancellation and other insurance is in place for the 2010 World Cup, with coverage spread out among the global insurance and reinsurance marketplace.
NFIP Lapses Again
Friday, June 4th, 2010 | Personal Lines | No Comments
June 4, 2010 - Insurance Journal reports that the National Flood Insurance Program (NFIP), which expired at midnight on May 31 after Congress failed to act on legislation reauthorizing the program, is not expected to be able to issue new policies for a week or longer.
This is the fourth time in recent months that the program has been allowed to lapse. The hiatus means that the NFIP is not authorized to sell new policies, issue increased coverage on existing policies, or issue renewal policies.
However, NFIP policies that are in force will remain in force and claims under those policies can continue to be paid after May 31.
Allowing the NFIP to lapse at the start of the 2010 hurricane season is irresponsible, according to the National Association of Mutual Insurance Companies (NAMIC). In a press release, NAMIC federal affairs director Kathy Mitchell said:
It’s worth noting that it was the widespread flooding associated with Hurricane Katrina in 2005 that put a spotlight on the NFIP and started the debate about how to improve it. Five years later, that debate continues.
After its last hiatus the NFIP was granted a temporary extension until May 31. That renewal was retroactive to March 28, covering the more than two-week period when Congressional inaction allowed the program to lapse.
On the FEMA Web site, the agency says the hiatus period is expected to end soon. FEMA has issued guidance including a set of Frequently Asked Questions concerning NFIP authorization to help insurers participating in the program to communicate with insurance agents and policyholders. Check out I.I.I. information on flood insurance.
Dwelling or Homeowners Insurance – How To Determine The Right Type of Policy
Tuesday, March 30th, 2010 | Personal Lines | No Comments
March 30, 2010 – Whether you need a dwelling policy, or homeowners insurance depends mainly on if you consider the home you want to insure is your primary residence. The insurance industry describes a primary residence as a residence that you reside in for the majority of the year. For some insurance companies this is as simple as saying what ever property you live in for at least 6 months and a day is considered a primary residence. We can also assume in confidence that your primary home will contain most if not all your personal possessions. A homeowners policy provides standard insurance mainly for your personal property, as well as for the dwelling and even personal liability. There is also various other coverage’s and options of coverage that is included in a homeowners policy, but I’ll save those details for another article.
So what if you don’t live in the home and either rent it out as an investment, or consider it a vacation home 3 months out of the year? Let’s start with the first one- investment property. Any investment property that you rent out should only require coverage for the dwelling and liability. A dwelling policy fits this situation perfectly because you don’t need to insure your personal property since it is not located at this building. However, if you have some personal items at the property you can add additional coverage to a dwelling policy to cover it, but for the most part a dwelling policy provides insurance for the building itself and if available- liability. The bottom line is with a standard dwelling policy you are only paying for coverage you need. If additional insurance is necessary beyond the dwelling itself, such as liability or even a small amount of personal property coverage you can add it to the dwelling policy.
You have employees? No workers Comp coverage? You are risking everything!
Tuesday, December 29th, 2009 | Workers Compensation | No Comments
December 29, 2009 – In the current economic environment business owners try very hard to cut their overhead costs. There are many ways to do this: negotiate better rent for the business premises, lower the office supply expenses, cut back on business entertainment, reduce payroll by laying off employees, etc.
One effective cost reduction method is to look at the business insurance expenses and coverage. For example, insurance premium can be lowered if deductibles are raised or by shopping multiple carriers to find the most cost-effective policies. Businesses can also determine that they no longer need certain types of insurance. A fresh look each year at the insurance program can end up saving a significant amount of cost by identifying insurance that is no longer necessary.
However, if the business has employees, even one employee, the business must carry workers compensation insurance. Failing to have workers’ compensation coverage is a criminal offense. Section 3700.5 of the California Labor Code makes it a misdemeanor punishable by either a fine of up to $10,000 or imprisonment in the county jail for up to one year, or both. Additionally, the state issues penalties of up to $100,000 against illegally uninsured employers.
If an employee gets hurt or sick because of work and the business does not have a valid workers compensation policy, the business is responsible for paying all bills related to the injury or illness. Having to pay the uninsured medical costs can be many times more expensive than the fines mentioned above.
You should be aware that if you are illegally uninsured and an employee gets sick or hurt because of work, that employee can file a civil action against you in addition to filing a workers’ compensation claim.
For the typical small business one uninsured work related injury can jeopardize its very survival.
How much would the typical business save by being illegally uninsured? Not too much. Often the premium expense for purchasing workers compensation insurance is much less than one would expect. We see minimum premiums in the $400 to $800 range depending on the type of business and number of employees. Is it worth to risk the survival of the business to save a few hundred or a few thousands of dollars? I would say no.
If you fail to pay required benefits you may also be contacted by the Uninsured Employers’ Benefit Trust Fund.
Contact the information and assistance officer at your local DWC office for further information.
Call Pacific Way at 909-599-1972 for free consultation and a no-obligation quote.
Do I need a commercial auto insurance policy?
Tuesday, December 29th, 2009 | Business Insurance | No Comments
December 29, 2009 - As a businessowner, 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.
Call Pacific Way at 909-599-1972 for a free no obligation quote.
What is covered by a basic auto policy?
Monday, December 7th, 2009 | Personal Lines | No Comments
December 7, 2009 – Your auto policy may include six coverages. Each coverage is priced separately.
1. Bodily Injury Liability
This coverage applies to injuries that 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 hit.
4. Collision
This coverage pays for damage to your car resulting from a collision with another car, 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.
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.
Underinsured motorist coverage comes into play when an at-fault driver has insufficient insurance to pay for your total loss. This coverage will also protect you if you are hit as a pedestrian.
What is auto insurance?
Monday, December 7th, 2009 | Personal Lines | No Comments
December 7, 2009 – 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. Most auto policies are for six months to a year. Your insurance company should notify you by mail when it’s time to renew the policy and to pay your premium.
What is in a standard homeowners insurance policy?
Monday, December 7th, 2009 | Personal Lines | No Comments
December 7, 2009 – A standard homeowners insurance policy includes four essential types of coverage. They include:
- Coverage for the structure of your home.
- Coverage for your personal belongings.
- Liability protection.
- Additional living expenses in the event you are temporarily unable to live in your home because of a fire or other insured disaster.
1. The structure of your house
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. If you need more coverage, talk to your insurance agent about purchasing more insurance.
2. 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 it’s 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 homeowners 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
Liability 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 a liability claim being filed 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
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, but for a limited amount of time.
If you rent out part of your house, this coverage also reimburses you for the rent that you would have collected from your tenant if your home had not been destroyed.
Can I get insurance if I rent my home?
Monday, December 7th, 2009 | Personal Lines | No Comments
December 7, 2009 – Renters insurance provides financial protection against the loss or destruction of your possessions when you rent a house or apartment. While your landlord may be sympathetic to a burglary you have experienced or a fire caused by your iron, destruction or loss of your possessions is not usually covered by your landlord’s insurance. Because in most cases, renters insurance covers only the value of your belongings, not the physical building, the premium is relatively inexpensive.
Renters insurance covers your additional living expenses if you are unable to live in your apartment because of a fire or other covered peril. Most policies will reimburse you the difference between your additional living expenses and your normal living expenses but still may set limits as to the amount they will pay.
There are two types of renters insurance policies you may purchase:
- Actual Cash Value – pays to replace your possessions minus a deduction for depreciation up to the limit of your policy
- Replacement Cost – pays the actual cost of replacing your possessions (no deduction for depreciation) up to the limit of your policy
With either policy, you may want to consider purchasing a floater. A standard renters policy offers only limited coverage for items such as jewelry, silver, furs, etc. If you own property that exceeds these limits, it is recommended that you supplement your policy with a floater. A floater is a separate policy that provides additional insurance for your valuables and covers them for perils not included in your policy such as accidental loss.