Frequently Asked Questions
Q. Aren't all insurance policies the same? Shouldn't I simply buy the cheapest policy?
A. No, all insurance policies are not the same. Different policies offer different coverage features so it makes sense to understand what you are buying. Some policies offer much broader coverage than others. In the event of a claim, this is important. It makes sense to find someone you trust who will answer all your questions on the policies.
Q. Why do insurance companies use the credit score to determine premium?
A. The goal of every insurance company is to correlate rates for insurance policies as closely as possible with the actual cost of claims. If insurers set rates too high they will lose market share to competitors who have more accurately matched rates to expected costs. If they set rates too low they will lose money. This continuous search for accuracy is good for consumers as well as insurance companies. The majority of consumers benefit because they are not subsidizing people who are worse insurance risks?people who are more likely to file claims than they are.
The computerization of data has brought more accuracy, speed and efficiency to businesses of all kinds. In the insurance arena, credit information has been used for decades to help underwriters decide whether to accept or reject applications for insurance. New advances in information technology have led to the development of insurance scores, which enable insurers to better assess the risk of future claims.
An insurance score is a numerical ranking based on a person's credit history. Actuarial studies show that how a person manages his or her financial affairs, which is what an insurance score indicates, is a good predictor of insurance claims. Insurance scores are used to help insurers differentiate between lower and higher insurance risks and thus charge a premium equal to the risk they are assuming. Statistically, people who have a poor insurance score are more likely to file a claim.
Insurance scores do not include data on race or income because insurers do not collect this information from applicants for insurance.
Q. Should I buy the extra coverage when renting a car?
A. Most auto insurance policies will transfer the existing coverage on your auto policy to the car you rent, with a few exceptions. Your auto coverage will transfer to the rental car so long as the rental car is within the coverage territory listed in the policy and the rental car is within the guidelines of a ?covered auto' on your auto policy.
Q. Should I buy the extra coverage from a moving company for my personal property while in transit?
A. Most property policies (ie. homeowner, condo, renter, etc.) will cover your personal property, up to limits shown in the policy, while in transit for a certain period of time. However, the perils listed in the policy (ie. theft, fire, windstorm) will apply. It's a good idea to ask the moving company what they will cover without buying the extra insurance from them and insure you are comfortable with the coverage on your property policy.
Q. What is uninsured/underinsured motorist coverage and do I need it?
A. Uninsured/underinsured motorist coverage (UIM) can be purchased as part of your auto policy. This coverage is designed to protect you should you be injured by an uninsured or underinsured motorist. The coverage also applies to passengers in your vehicle. Say you have two passengers in your vehicle and you are hit by an uninsured driver. How will you and your passengers be indemnified for your injuries and the damage to your vehicle? You can file a claim against the negligent driver but if he has no insurance and no assets how will you be compensated? The uninsured motorist coverage on the auto policies provides you with limits to cover your medical bills, lost wages, pain and suffering, legal defense costs, damage to your vehicle, etc. should you, and or your passengers, be injured by an uninsured and/or underinsured motorist.
Q. What is liability insurance?
A. Liability insurance is coverage you purchase to protect your assets in the event you cause damage to someone or something and a claim is brought against you. Package policies such as auto, homeowner, and business insurance typically include some liability insurance and there are various limits of coverage you can buy.
Q. What is an umbrella policy and do I need one?
A. An umbrella policy is a stand alone, excess liability policy that sits on top of your underlying policies such as home, auto, boat, business, etc. The umbrella policy provides an additional layer of liability protection should your underlying policy limits become exhausted. Umbrella policies are sold in million dollar increments and typically cost a few hundred dollars per year. In today's litigious society, you should consider an umbrella policy if you have assets to protect.
Q. How much life insurance should I have?
A. Industry analysts typically recommend between 10-12 times your annualized salary. However, this is painting everyone with the same brush. You should answer the questions to determine your specific needs. If I were to die today, how much money would I want to leave my loved ones? Would you want the house and any dept paid off? Would you want your children's college to be paid? Would you want your loved ones to continue to work or be able to live comfortably until they get back on their feet?
Q. I have life insurance through my work, why should I purchase an individual policy?
A. Because you could lose your job or switch employers. Life insurance rates are based on your age and health class. Each year you wait to purchase life insurance can end up costing you more, not to mention you may not be a healthy as you age compared and may not be eligible for life insurance in the future. If nothing else, you should consider an inexpensive term policy with a conversion feature, in addition to the life insurance through your employer. This way, you have a policy tied to you regardless to your employment position.
Q. Why do insurance companies charge different rates?
A. Insurance companies price their products based on their overall loss ratio (claims paid out versus premiums collected), the expense ratio (cost to run the business) and investment income (how much the investments earn or lose) in addition to other items. These primary figures are used by all companies to price their products.