Insurance 101

If your specific question is not answered in the Insurance 101 section, you can submit a question to the Perimeter Group’s Experts and get an answer from a licensed agent.

1. How much home insurance do I need?

Asset Protection: More coverage generally means you will have less to pay out of your own pocket if disaster strikes. You must determine the amount you can financially afford to lose. Depending upon your determination, more insurance may be the answer. You should insure your property to the value you believe your home is worth to obtain maximum protection. You need enough liability coverage to protect yourself from lawsuits resulting from your possible negligence.

Lender Requirements: Your lender may require you to cover the house for at least the amount of the mortgage. This may be too little or too much for your individual circumstances. You are not required to purchase insurance from the insurer recommended by your lender.

Policy Requirements:Insurers may impose some conditions for replacement cost protection, to include your insuring the property to value.

2. What affects home insurance prices?

Type of Construction: Frame houses usually cost more to insure than brick.
Age of House:New homes may qualify for discounts. Some insurance companies offer limited coverage or may not insure older homes.
Local Fire Protection: The number of fire hydrants and fire departments and the availability of water are just some factors which determine your area’s fire protection class. If you reside in an area without fire protection, you will pay more for fire insurance.

3. What deductible should I choose?

The deductible applies only to coverages on your house and personal property. It is the amount you have to pay out of your pocket on each claim. Insurance only attaches once the deductible amount is exceeded. A policy with a $100 deductible will cost more than one with a $250 deductible. Higher deductibles may be available at a reduced price, but purchasing, for example, a $250 deductible in lieu of a $100 deductible will mean you will normally pay $150 more out of your pocket at the time of a loss.

4. What does “property damage” cover?

Property damage coverage helps pay for damage to your home and personal property caused by such perils as fire, lightning, windstorm or hail. The perils of flood and earthquake are not covered. If you believe you need flood insurance and your insurance company will not provide it, you may obtain coverage through the Federal government’s National Flood Program (“NFP”). To learn more about the NFP you can contact an insurance agent. You should carefully read your policy before you have a loss to determine exactly what types of losses will be covered.

5. What does “contents insurance” coverage include?

In general, the contents of your home and other personal belongings owned by you or family members who live with you will be covered under the policy in an amount equal to 50% of the limit of liability carried on your dwelling. However, high valued personal property such as jewelry and cameras should be scheduled on the policy so that you are adequately protected to avoid the possibility of these items not being fully covered at the time of loss.

6. What does “additional living expense” or “loss of use” cover?

Most home insurance policies provide for the necessary increase in expenses you incur if your home is damaged by an insured event and you cannot live there while repairs are being made or if you are denied access to your home by government order. The coverage is generally subject to duration limits and commonly covers any expense incurred by you so that your household can maintain its normal standard of living. In some instances, this coverage may include the costs of a motel, eating in a restaurant, or storing some of your property.

7. What Is “personal liability insurance” coverage?

Personal Liability Coverage protects you and all family members who live with you against a claim or lawsuit resulting from (non-auto and non-business) bodily injury or property damage to others and for which you become legally obligated to pay. Defense costs are included, but the insurance company has no duty to defend you after the limit of liability on the policy has been exhausted.

8. What does “medical payments insurance” cover?

Regardless of who is at fault, this coverage pays the reasonable expenses for others accidentally injured on your premises or the areas immediately adjoining your property such as sidewalks or alleys. Medical Payments Coverage does not apply to your own injuries or those of family members living with you or injuries arising out of activities involving a business that you operate out of your home, your intentional acts, or arising out of the rental of your premises.

9. What is “replacement cost”?

Replacement Cost is the amount necessary to replace or rebuild your home or repair damages with materials of similar kind and quality without deducting for depreciation. (Depreciation is the decrease in the home’s value since the time it was built because of age or wear and tear.)

10. What is “actual cash value”?

Actual Cash Value usually means the sum of money required at the time of the loss to repair or replace the property destroyed, less an amount for depreciation. Actual Cash Value equals the replacement cost less depreciation. Most standard home insurance policies cover the contents of your home (i.e., personal belongings) on an actual cash value basis, but it is possible to purchase replacement cost.

11. What if I’m found liable for injuring another person?

As long as the injury was due to your negligence and was not intentional, your homeowner’s policy should cover any medical bills and legal expenses, up to the liability policy limits.

12. What kinds of damage does a basic homeowner’s policy cover?

Most basic policies protect against damage from: Fire and lightning, windstorm and hail, explosion, riot and civil commotion, aircraft, vehicles, smoke, vandalism and malicious mischief, theft, damage by glass or glazing material that is part of a building, and volcanic eruption.
You can also step up coverage to include: Falling objects, weight of ice, snow, and sleet, water-related damage from home utilities or appliances, electrical surge damage. Before any loss call your insurance agent. Protection is subject to policy limits and deductibles can vary.

13. What damage to my house would not be covered by my homeowner’s policy?

It depends on the type of policy you own. But in general,unless you buy additional coverage, you won’t be compensated for losses due to floods, earthquakes, nuclear accidents, wars, intentional damage, and normal wear and tear. Call your insurance agent, other exclusions may also apply.

14. If my home is destroyed by a fire, how much money would the insurance company give me?

Insurance companies normally use one of two methods to figure how much you will be reimbursed for a loss if the amount is less than your coverage limits. The most common calculation is the actual cash value, which is the replacement value minus depreciation. The second calculation is simply the replacement cost of the lost property with no depreciation, but usually with a maximum value. Also, don’t forget that the company will subtract the amount of your deductible from the settlement.

15. How will I be able to recall the contents of my home if it is destroyed?

It’s wise to generate a detailed list of your possessions. Making a video or photographic record of your possessions is advisable, as well. You may want to consider storing your inventory in a safe-deposit box off your property, or at least in a lockable fireproof storage box in your home. Not only will a record of your possessions take most of the guesswork out of filing a claim, police say such documentation can help you prove ownership in case your belongings are recovered from a thief. Also, you may want to videotape or photograph the mess after a disaster and before you begin the cleanup. This can help you prove the extent of damage without having to wait to get your life back in order. Always contact your insurance agent and your insurance carrier before any claim is filed and before any clean-up is performed.

16. What can I do about expensive possessions, like jewelry and camera equipment, that are far more valuable than the coverage limits of my homeowner’s policy?

You can purchase additional coverage, through an endorsement to your existing policy or with a separate policy, to extend the limits of coverage for specific items. Talk with your insurance agent.

17. I want to buy a condominium. Will my homeowner’s policy be different from the one I had when I owned a house?

Insuring a condominium is different from insuring a house because of the way ownership is structured. A homeowner’s policy covers against losses, and you can only suffer a loss if you have ownership. Because there are areas of common ownership in a condominium complex, your homeowners association may have a master policy. The extent of the coverage you buy will depend on what the master policy covers. The standard homeowner’s policy for condominiums is called HO-6. It will likely cover your personal property, shield you and your family from some types of liability, plus pay to repair any portion of the unit you own under the terms of the condominium or cooperative documents.

18. I’m renting an apartment. Will my landlord’s insurance cover my belongings if the building burns down?

If you rent an apartment or a house, the building owner is responsible for any perils that befall the property. Rest assured, if the place burns down, your landlord’s insurance is responsible to compensate him for damage to the structure. But if your personal belongings – your furniture, your stereo, your clothing – are destroyed, it’s you who loses, unless you have renter’s insurance. Renter’s insurance is a kind of homeowner’s policy for non-homeowners. It contains most of the same provisions of a basic homeowner’s policy, except the part that covers the home itself. Up to certain limits, a renter’s policy covers your personal belongings against destruction or theft, and protects you against claims of liability if you cause injury to someone or an individual’s property.

19. Besides me, who else is covered under my homeowner’s policy?

In general, a homeowner’s policy will have a named insured, which is usually the owner or tenant named on the deed or lease. The named insured’s spouse is covered as well, even if he or she is not named on the policy declaration. Other users and residents also may be covered to a lesser extent by the personal property and liability provisions in the policy. For instance, the insured’s children or someone under 21 in the insured’s care would likely be covered. Employees such as gardeners or housekeepers may also be covered against loss of personal property on the premises. And you may also extend coverage to your guests if you make a request to your insurance company in advance.

1. Will my personal auto policy provide coverage if I use my vehicle for business purposes?

Some insurers may provide coverage for business use vehicles depending upon the type of vehicle and its particular use in business, but you may need to purchase a commercial auto policy to receive the coverage you need. You should consult with an insurer or insurance agent or producer to determine the proper policy needed.

2. If I go on vacation and rent a vehicle, will my auto policy provide coverage while I am driving the rental vehicle or must I purchase coverage from the rental company?

If you vacation within the United States (and in many cases Canada), for liability coverage, the policy carried by the rental company will be primary (pay first), and your policy will be excess (pay second) if the rental company’s limits are not enough to pay for the injuries or property damages you cause. For physical damage to the rental vehicle, some companies insurance allow the coverages you have under your comprehensive and collisions coverages to apply to the rental vehicle, subject to the deductible stated in your policy. Before renting, check with your insurance agent to determine if your coverage applies to the rental vehicle.

3. What is typically covered under Comprehensive coverage?

Some of the coverages provided under Comprehensive include theft of all or part of the vehicle, glass breakage, and damage due to fire, windstorm, hail, water, falling objects, vandalism, explosion, or hitting a bird or animal.

4. What is covered under Collision coverage?

Collision coverage pays if your auto collides with an object, including another car, or if it overturns. Your insurer will pay to repair these damages even if the collision is your fault.

5. I have an older vehicle which I do not care to insure for comprehensive and collisions coverages. Is there any reason why I should carry higher than minimum liability limits?

If you have assets you need to protect, you may want to carry higher than minimum liability limits to protect yourself from lawsuits by a person or persons you may injure in an accident.

6. What is covered under Bodily Injury coverage?

Bodily Injury pays for bodily injury to others for which you become legally responsible due to an auto accident in which you were involved. It does not pay for bodily injury you may sustain. You would need to have Medical Payments coverage in order to have the injuries you sustain in an auto accident covered under an auto policy.

7. Does Property Damage coverage provide coverage to fix my vehicle if the other driver is at fault and has no insurance?

No. Property Damage coverage protects you for damage you may cause to the vehicles or property of others. You would need to have Collision coverage on your auto policy in order to have coverage to fix or replace your vehicle in this situation.

8. How is the deductible for Comprehensive or Collision coverage applied?

The deductible for Comprehensive or Collision applies to each loss that occurs to your vehicle. A deductible is the dollar amount you will have to pay toward the loss before the insurer begins to make payments on the loss.

9. What is covered under Medical Payments coverage and to whom does the coverage apply?

You will need to read your policy for a complete description of the coverage provided. Basically, Medical Payments coverage provides coverage for necessary and reasonable medical and funeral expenses incurred as the result of an automobile accident up to the limit stated in the policy for you or passengers in your vehicle.

10. If I already have health insurance, do I need to carry Medical Payments insurance on my auto policy?

Even though you have major medical insurance, you may still wish to carry some medical payments insurance to cover deductibles and co-payments which are not covered by your health insurance plan.

11. What is the difference between Uninsured and Underinsured Motorist coverages?

Uninsured Motorist coverage protects you or passengers in your vehicle for bodily injury you or your passengers sustain in an accident involving a driver who has no liability coverage. Underinsured Motorist coverage protects you or passengers in your vehicle for bodily injury you or your passengers sustain in an accident involving a driver who has insufficient insurance to cover the injuries of you or your passengers.

12. If everyone is required to purchase liability coverage, why do I need Uninsured Motorist coverage?

Even though the law requires all motorists to carry liability insurance, not all motorists have liability coverage in force. Also, motorists may come from other states or countries and not have liability coverage on their vehicles.

13. What does Rental Reimbursement coverage provide, and does it provide coverage if I take my vehicle to a shop for mechanical repairs?

Rental Reimbursement coverage provides a specified amount for you to rent a vehicle while your covered auto is being repaired or replaced after it has been damaged because of a loss covered under Comprehensive or Collision. It does not provide coverage for mechanical repairs that result from mechanical breakdown that are not related to a comprehensive or collision loss.

14. If I borrow a car from a friend or relative, will my policy cover me while I am driving the borrowed car?

The policy covering the vehicle would be primary and in most cases, your policy would cover the vehicle on an excess basis. If no policy covers the borrowed car, most companies will treat your policy as the primary coverage for the borrowed car. (Primary means that policy will provide coverage first, and excess means that policy will provide coverage after the limits of the primary policy have been exhausted.)

15. What should I do if I have an accident?

First, discuss with your insurance agent what steps they recommend. You may also wish to refer to your insurance identification card, as the steps you need to follow may be listed on the card.

Generally you should first notify the police. Then write down the names, addresses, telephone numbers and license numbers of persons involved and of witnesses. Also write down the license plate number and state of each vehicle involved. You may even want to keep a disposable camera in your glove compartment to take photos of the accident. Do not admit fault, and do not discuss the accident with anyone except your insurer representative or insurance agent or producer, or the police. Notify your insurance agent or producer promptly. Cooperate and answer all questions fully. Take notes whenever you talk with insurer employees, your insurance agent, lawyers, police or others about the accident. Write down the date, times, names and subjects you talked about and include all decisions or promises made. Save your receipts for such items as car rental or a hotel room if the accident happens out of town, and save copies of all documents you send or receive.

16. I have not had any accidents or violations, so why do my auto insurance premiums continue to increase?

An insurer’s premium increases are a direct reflection of the countrywide or statewide pool of losses that the insurer experiences. The losses of the few within the insurer’s pool of policyholders are paid for by all policyholders within the pool. This is the basic premise upon which the concept of insurance is based and without which no insurance would be available. This does not mean that your own favorable loss experience cannot be recognized. Various insurers give numerous discounts to policyholders which recognize their excellent driving records. (See next question for type of discounts.) Other reasons for the increase in the cost of auto insurance are attributable to the costs to settle losses such as the costs to repair vehicles and the medical costs for injured persons which continue to rise. The increase in lawsuits is also a major factor in insurer rate increases.

17. Is there any way that I can reduce my premiums?

First, make sure you are taking advantage of the discounts offered by your insurer. Most insurers provide discounts for at least some of the following: accident free drivers discount; a package discount for insuring your home and auto with the same insurer; multiple auto discount; good student discount; nonsmokers discount; and passive restraint discount (for vehicles with air bags or automatic seat belts). Talk with your insurance agent for detail regarding your policy.

Second, drive safely. Avoid tickets and accidents. Don’t drink and drive. A poor driving record adversely affects your rates.

Third, drive a safe reliable vehicle. Before purchasing a new vehicle consider the cost of insurance. Some vehicles such as sports cars, SUV’s, and other high-profile vehicles cost more to insure.

Fourth, discuss with your insurance agent to make sure that you have appropriate coverages for you and your vehicle. You may consider higher deductibles for your comprehensive and collision coverages.

Finally, be pro-active regarding your credit or insurance score. Many insurers offer discounts for good credit. Understanding and maintaining a good credit score may significantly reduce your premiums in the future.

18. What if my insurance lapses and I drive without insurance?

If you are un-insured you may be ticketed and fined, your vehicle registration may be suspended, your drivers’ license could be suspended and your vehicle could be impounded. If you cause an accident you (and your parents if you are living at home) could be sued. When you apply for insurance again you typically will pay more for your insurance because most insurance companies charge higher rates for previously uninsured drivers.

1. What is General Liability Insurance?

This insurance provides protection arising out of the legal liability a company has with regard to events that occur on their premises, during operations, and completed products. The three core coverage areas in a General Liability policy include:

Bodily Injury and Property Damage
This involves injury to people and/or their property caused by event related to your business
Personal Injury and Advertising Injury
Affords protection against false arrest, imprisonment, malicious prosecution, wrongful eviction, and advertising programs that cause slander or libel, rights of privacy, or infringement of copyrights
Medical Payments
Bodily injury accidents regardless of fault that occur on the business premises or due to your business operations

Defense costs are paid by the insurance company and do not reduce the limit of your insurance coverage included in the policy.

2. What coverage amount should I consider for my company?

More and more companies are requiring vendors, sub contactors and leasees to carry a minimum of $1,000,000 in liability coverage per occurrence with $2,000,000 in General Aggregate. While, lower amounts are available the minimal cost savings and external requirements usually have companies selecting $1,000,000/$2,000,000 in liability coverage. Carriers usually limit the amount of liability coverage in a base policy to $2,000,000/$4,000,000. To get higher liability limits necessitates getting an Excess or Commercial Umbrella policy.

3. What Premium should I expect to pay for a Liability policy?

Most carriers now charge a minimum of $500 for a Commercial Liability policy. The rate you pay depends on a number of factors: 1) the class designation of your business, 2) total annual payroll and number of employees, 3) use of sub-contractors, 4) gross annual sales, and 5) premises type and location of business.

4. I’ve heard that my policy could be subject to annual audits that could impact my premium?

Yes, carriers often require companies to complete an annual audit questionnaire to determine if significant changes have occurred at a company that warrant changes to the premium charged. This could increase or decrease the amount of premium charge by the carrier. Thus, it is important to provide accurate information in the original policy to guard against very expensive increases. Most increases are due to strong growth in sales or hiring at a company. If this occurs, it is probably wise to contact your agent and make adjustments to the policy. Similarly, if major layoffs have happened or are anticipated you can lower your insurance costs by making adjustment to your policy.

5. My company hires a number of subcontractors throughout the year, does this impact my premium?

Yes, having sub-contractors usually increases the liability and the thus cost of your liability insurance. One way to minimize this cost is to require ALL of your subcontractors to provide you with a Certificate of Liability that they carry their own liability insurance. If they don’t have their own coverage you will have to assume the liability cost and increase your premiums accordingly.

6. Is it best to consider obtaining a Business Owner Policy (BOP) instead of just a General Liability policy?

Many times the answer to this is yes, if your business needs not only liability protect but coverage for business personal property and inventory. The BOP policy is a “package policy” that includes not only liability and property protection but also business interruption, inland marine, crime, limited business auto coverage and other industry specific coverage options. They usually have discounted rates because the coverages are bundled into one policy. One of the strong advantages of a BOP policy is the ability to “tailor” the coverages to fit the business insurance needs. BOPs, however, do not cover Professional Liability, complete commercial auto protection, worker’s compensation or health and disability insurance.

7. I just started my business will I be able to obtain insurance coverage?

Yes, but there might be a slight “experience penalty” charge. If you have three years of experience in the field of your business carriers usually will remove this penalty. What is important is you get coverage. Many states and jurisdictions require you have insurance coverage to start an operation. The same is usually mandated by a commercial landlord. Plus, if a fledgling company is without coverage and a major loss occurs that is a strong likelihood the business could not withstand the monetary and legal consequences.

8. Should I get Equipment Breakdown coverage for my company?

It is strongly recommended that companies include this coverage in their BOP policy and review if the amount of coverage provided in the base policy is sufficient for their company. This insurance provides protection against sudden and accidental breakdown of machinery or equipment, including computer systems and telephone/communication systems. Coverage usually includes reimbursement for property damage, expediting expenses and business interruption losses.

9. What is Commercial Crime coverage and what does it cover?

This critical coverage provides protection for money and securities, stock and fixtures against theft, burglary and robbery both on and off premises and from both employees and outsiders.

10. How do I determine how much my business property is worth?

Businesses have three options on how to determine the value of their property in determining the amount and cost of coverage. They are:

Actual Cash Value – The actual value of your property at the time of the loss, i.e., the Replacement cost of the item less depreciation. Thus, if you paid $1,000 for an item and it depreciated 70% you would get $300 in the settlement.
Replacement Coverage – The cost of replacing a “like-item” without any depreciation. Thus, if it costs $1000 to replace an item that cost you $500 you would get $1000 in the settlement. Likewise, if it costs $1000 to replace an item with the same features that cost you $5000 five years ago you would get $1000 to purchase a like item.
Agreed Amount – Art objects, antiques and very unique items are insured at an agreed amount between the policyholder and the carrier. An appraiser is usually used to determine the value of the item.

11. Should I consider getting Professional Liability Insurance?

When you operate a business where your expertise is paramount in why a customer/client would choose working with your company it probably wise to have Professional Liability Insurance. This specialty insurance coverage is a stand- alone policy not found in a BOP or General Liability policy that protects against potential lawsuits directed at a business owner. Professionals like lawyers, accountants, financial planners, insurance agents and real estate agents are expected have extensive knowledge or training in a particular area that could lead to “Errors & Omissions” in executing the duties they were hired to perform. If they fail to use the skills expected of them, they can be held responsible for any harm they cause to a person or business. An E&O policy protects against acts they could be held responsible for.

12. Do I need to have a commercial auto policy for my business?

If you have vehicles that are used mainly for the business you own, these vehicles should be titled in the company name and covered by a commercial auto policy. This policy will help protect the company and allows the company to include all the employees using a particular vehicle. A commercial policy also allow for coverage for different classification of vehicles not allowed on a personal auto policy. You should consult your insurance agent to determine if a commercial auto policy is right for your business or if an endorsement can be added to a personal auto policy.

13. Is business interruption insurance worthwhile?

Absolutely. Often times business owners do not take into account what happens in the event of a fire or other major disaster that closes down a business for an extended period of time. Damages to the business premises for all intents and purposes shut down the ability to earn income for the business. Without having business interruption insurance a business loses the ability to generate revenue and income.

Business interruption insurance compensates you for lost income because of having to vacate the premises for an extended period of time. This insurance covers the profits you would have earned based on historical records if the disaster had not occurred. It also covers operating expenses even though business activities cannot be performed by your company. It is important to provide coverage for an extended period of time to protect against the lengthy time to get up and running again.

14. When is it necessary to have Workers Compensation Insurance?

In most states, Workers Compensation insurance is required when you have one or more employees. Workers Compensation insurance pays for the rehabilitation, recovery and medical bills of employee work-related injuries. It also pays for lost time wages when the employee is unable to work because of the injury. The cost of Workers Compensation is based on these factors – the employee payroll, the number of employees, job classification of the employee, part-time versus full-time, classification of the business and the past loss experience of the company. There are some ways to lessen the cost of workers compensation insurance your insurance agent can assist you with.

15. What is Employment Practices Liability insurance?

Employment practices liability insurance (EPL) is coverage to protect against employee claims of sexual harassment, discrimination, wrongful termination, invasion of privacy, workplace grievances and other litigated issues. This is an ever increasing issue and one that every business should have included in their BOP policy or as a stand-alone policy. The cost to defend these claims is approaching $200,000 per claim with awards averaging over $250,000. Premiums for this coverage is low in comparison to the high cost of a successful claim made against a company.

16. Is special coverage for liquor liability necessary in today’s strict DUI environment?

There are many civil and legal responsibilities for any person or business that sells or furnishes alcohol to an individual. Any business that makes money selling alcoholic beverages (including beer and wine) requires specific insurance coverage for liquor liability. This can be added as an endorsement to an existing BOP policy or as a stand-alone policy. Three areas where liability coverage is provided where alcohol is served are:

Personally hosted parities – The liability here is provided as part of a homeowners, Condo or Tenant policy up to the liability limit of the policy.

Business (Office) Parties – The business and you personally would be covered under a General Liability or endorsement found in a BOP policy to the liability limit of the policy.

Special Events Liability – If you are hosting an event off-site you should have coverage in you General Liability or BOP policy. You will need to add the location as an Additional Insured to extend liability coverage to them. Check your policy to see if any restrictions apply.

17. Is my business a candidate for Cyber or Data Breach Liability Insurance?

Identity theft is becoming an ever-increasing problem for the business community. No matter the size of your company federal law require you to immediately notify every person affected by a data breach of information from your company records. You also need to pay for computer forensic services to identify the extent of the breach and make the necessary changes to repair and prevent another breach. You will also need to pay for all individual and class action lawsuits. In addition, public relations expenses to repair your company image will be incurred for a period of time.

Current General Liability and BOP policies do not cover the economic damages caused from the failure to protect personal information held by an insured. To fill this void carriers have recently introduced Cyber Protection policies and endorsements to BOPs to protect companies from the severe penalties and costs associated with a data breach. If your company keeps any sensitive records of clients or processes credit card payments it is a MUST to have Cyber/Data Breach Insurance.

This coverage protects against hacking, employee theft, computer hardware theft, employee deception and misrepresentation, improper disposal of date, software malware and many other computer related activities.