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General
FAQs
Auto FAQs
Homeowner FAQs
Life FAQs
Renters FAQs
Umbrella FAQs
General
FAQs
Q:
What
kinds of questions should I be expected to answer when I am applying
for an insurance policy? Why do insurers need so much information?
A:
When you
apply for an insurance policy, you will be asked a number of
questions. For example, the agent might ask you your name, age,
gender, address, etc. In addition, you will be asked a number of other
questions which will be used to determine how likely you are to make a
claim.
When an insurance company is deciding whether or not to offer
automobile insurance to a potential customer, it will want to know
about the person's previous driving record, whether they have any
recent accidents or tickets, and what type of car is to be insured.
Insurance companies have different programs for different
customers. Adults with good driving records will generally pay less
for auto insurance than will a young driver with traffic tickets. In
order to determine which program you qualify for, an insurance company
needs basic information about you.
In addition to your age, gender and driving experience, information
about the vehicle you drive, and how you drive it, is also needed to
determine a fair price. For example, a large luxury car costs more to
repair or replace than a sub-compact; and, someone who commutes 30
miles each way is more likely to be in an accident than someone who
rides the bus to work and drives only on weekends.
Q:
What are
the advantages to using an agent to purchase insurance?
A:
By using an
agent to purchase insurance, the policyholder receives more personal
service. An agent with whom there is direct contact can be vital when
purchasing a product and absolutely necessary when filing a claim. A
local, independent agent is able to deliver quality insurance with
competitive pricing and local personalized service.
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Auto FAQs
Q:
What should I consider when purchasing automobile insurance?
A:
There are a number of factors you should consider when purchasing any
product or service, and insurance is no different. Here is a checklist
of things you should consider when purchasing automobile insurance.
- Don't base your decision on price alone. Base your decision on
value - what you get for what you pay. Consider the quality of the
company's claims service and consumer education.
- Purchase the amount of liability coverage which makes sense for
you.
- You should decide which optional coverage you want. For
example, do you want optional physical damage coverage or is the
market value of your car too low to warrant purchasing them.
- Once you have decided what you want in your automobile insurance
policy, you can now decide from whom you would like to purchase
the insurance. For example, you may decide you like the idea of
purchasing insurance from a mutual company rather than a stock
company.
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Q:
What are some practical things I can do to lower my automobile
insurance rates?
A:
There are a number of things you can do to lower the cost of your
automobile insurance. The easiest thing to do is to shop around.
It is not surprising to find quotes on automobile insurance that
can vary by hundreds of dollars for the same coverage on the same car.
When you shop, be careful to make sure each insurer is offering the
same coverage. Many insurers use the ISO policy forms, but this is not
always the case.
Another way to lower the cost of your automobile insurance is to
look for any discounts that you may qualify for. For example, many
insurers will offer you a discount if you insure multiple cars under
the same policy, or if you have had a driver education class in the
last five years. Be sure to ask your agent or your company about their
discount plans.
Another easy way to lower the cost of your automobile insurance is
to increase the deductible. Simply raising your deductible from $250
to $500 can lower your premium sometimes by as much as five or ten
percent. However, you should be careful to make sure that you have the
financial resources necessary to handle the larger deductible.
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Q:
I have an older car whose current market value is very low - do I
really need to purchase automobile insurance?
A:
Most states have enacted compulsory insurance laws that require
drivers to have at least some automobile liability insurance. These
laws were enacted to ensure that victims of automobile accidents
receive compensation when their losses are caused by the actions of
another individual who was negligent.
Except for the minimum liability coverage that you may be required
to purchase, many people with older cars decide not to purchase any of
the physical damage coverage. It is often the case that the cost of
repairing the damages to an older car is greater than its value. In
these cases, your insurer will usually just "total" the car
and give you a check for the car's market value less the deductible.
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Q:
Suppose I lend my car to a friend, is he/she covered under my
automobile insurance policy?
A:
Whenever you knowingly loan your car to a friend or an associate, he
or she will be covered under your automobile insurance policy. In
fact, even if you do not give explicit permission each time a person
borrows your car, they are still covered under your automobile
insurance policy as long they had a reasonable belief that you would
have given them permission to drive the car.
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Q:
What is the difference between collision physical damage coverage and
comprehensive physical damage coverage?
A:
Collision is defined as losses you incur when your automobile collides
with another car or object. For example, if you hit a car in a parking
lot, the damages to your car will be paid under your collision
coverage.
Comprehensive provides coverage for most other direct physical
damage losses you could incur. For example, damage to your car from a
hailstorm will be covered under your comprehensive coverage.
It is important to know the differences between the collision and
comprehensive coverage for a couple of reasons.
- In order to make an informed purchasing decision about these
optional coverage, you need to know the difference between them.
- The deductibles under the collision and comprehensive coverage
are often different in amount.
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Q:
What factors can affect the cost of my automobile insurance?
A:
A number of factors can affect the cost of your automobile insurance -
some of which you can control and some which are beyond your control.
The type of car you drive, the purpose the car serves, your driving
record, and where you live can all affect how much your automobile
insurance will cost you.
Even your marital status can affect your cost of insurance.
Statistics show that married people tend to have fewer and less costly
accidents than do single people.
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Homeowner FAQs
Q:
What is homeowners insurance and who should buy this type of coverage?
A:
Homeowners insurance is one of the most popular forms of personal
lines insurance on the market today. The typical homeowners policy has
two main sections: Section I covers the property of the insured and
Section II provides personal liability coverage to the insured. Almost
anyone who owns or leases property has a need for this type of
insurance. And many times, homeowners insurance is required by the
lender as part of the requirements in obtaining a mortgage.
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Q:
What is the difference between "actual cash value" and
"replacement cost"?
A:
Covered losses under a homeowners policy can be paid on either an
actual cash value basis or on a replacement cost basis. When
"actual cash value" is used, the policy owner is entitled to
the depreciated value of the damaged property. Under the
"replacement cost" coverage, the policy owner is reimbursed
an amount necessary to replace the article with one of similar type
and quality at current prices.
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Q:
What factors should I consider when purchasing homeowners insurance?
A:
There are a number of factors you should consider when purchasing any
product or service, and insurance is no different.
Here is a checklist of things you should consider when you purchase
homeowners insurance.
- First and foremost, purchase the amount and type of insurance
that you need. Remember that if your policy limit is less than 80%
of the replacement cost of your home, any loss payment from your
insurance company will be subject to a coinsurance penalty. Also,
determine the amount of personal property insurance and personal
liability coverage that you need.
- Second, determine which, if any, additional endorsements you
want to add to your policy. For example, do you want the personal
property replacement cost endorsement or the earthquake
endorsement?
- Finally, once you have decided on the coverage you want in your
homeowners insurance policy, you can now decide which insurer you
would like to purchase the insurance from.
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Q:
What are some practical things I can do to lower the cost of my
homeowners insurance?
A:
There are a number of things you can do to lower the cost of your
homeowners insurance. The best thing to do is to shop around.
It is not surprising to find quotes on homeowners insurance that
vary by hundreds of dollars for the same coverage on the same home.
When you shop, be careful to make sure each insurer is offering the
same coverage. Many insurers use the ISO policy forms, but this is not
always the case.
Another way to lower the cost of your homeowners insurance is to
look for any discounts that you may qualify for. For example, many
insurers will offer a discount when you place both your automobile and
homeowners insurance with the them. Other times, insurers offer
discounts if there are deadbolt exterior locks on all your doors, or
if your home has a security system. Be sure to ask your agent or
company about discounts any that you may qualify for.
Another easy way to lower the cost of your homeowners insurance is
to raise your deductible. Increasing your deductible from $250 to $500
will lower your premium, sometimes by as much as five or ten percent.
However, be careful to make sure that you have the financial resources
necessary to handle the larger deductible.
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Q:
What are the policy limits (i.e., coverage limits) in the standard
homeowners policy?
A:
[Note: this answer is based on the Insurance Services Office's HO-3
policy.]
Coverage A and B provide protection to the dwelling and other
structures on the premises on an "all risks" basis up to the
policy limits. The policy limit for Coverage A is set by the policy owner at the time the insurance is purchased. The policy limit
for Coverage B is usually equal to 10% of the policy limit on Coverage
A. Coverage C covers losses to the insured's personal property on a
named perils basis. The policy limit on Coverage C is equal to 50% of
the policy limit on Coverage A. Coverage D covers the additional
expenses that the policy owner may incur when the residence cannot be
used because of an insured loss. The policy limit for Coverage D is
equal to 20% of the policy limit on Coverage A. The coverage limit on
Coverage E - Personal Liability - is determined by the policy owner at
the time the policy is issued. The coverage limit on Coverage F -
Medical Payments to Others - is usually set at $1000 per injured
person.
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Q:
Where and when is my personal property covered?
A:
Coverage C, which provides named perils coverage, applies to all your
personal property (except property that is specifically excluded)
anywhere in the world. For example, suppose that while traveling, you
purchased a dresser and you want to ship it home. Your homeowners
policy would provide coverage for the named perils while the dresser
is in transit - even though the dresser has never been in your home
before.
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Q:
Do I need earthquake coverage? How can I get it?
A:
Direct damages due to earthquakes are not covered under the standard
homeowners insurance policy. However, unless you live in an area that
is prone to earthquakes, you probably do not need this coverage. If
you do live in a part of the country with high earthquake activity you
may want to consider adding an earthquake endorsement to your
homeowners insurance policy. This endorsement will cover damages due
to earthquakes, landslides, volcanic eruptions and other earth
movements.
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Life FAQs
Q:
How much life insurance should an individual own?
A:
Rough "rules of thumb" suggest an amount of life insurance
equal to 6 to 8 times annual earnings. However, many factors should be
taken into account in determining an estimate of the amount of life
insurance needed.
Important factors include:
- Income sources (and amounts) other than salary/earnings
- Whether or not the individual is married and, if so, what is the
spouse's earning capacity
- The number of individuals who are financially dependent on the
insured
- The amount of death benefits payable from Social Security and
from an employer sponsored life insurance policy
- Whether any special life insurance needs exist (e.g., mortgage
repayment, education fund, estate planning need), etc.
It is recommended that a person's insurance representative be
contacted for a calculation of how much life insurance is needed.
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Q:
What about purchasing life insurance on a spouse and on children?
A:
In certain circumstances, it may be advisable to purchase life
insurance on children; generally, however, such purchases should not
be made in lieu of purchasing appropriate amounts of life insurance on
the family breadwinner(s). It is of utmost importance that the income
earning capacity of the primary breadwinner be fully protected, if
possible, through the purchase of the required amount of life
insurance before contemplating the purchase of life insurance on
children or on a non-wage earning spouse. In a dual-earning household,
it is important to protect the income earning capacity of both
spouses. Life insurance on a non-wage earning spouse is often
recommended for the purpose of paying for household services lost at
this individual's death.
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Q:
Should term insurance or cash value life insurance be purchased?
A:
Although a difficult question--one whose answer will vary depending on
circumstances--several principles should be followed in addressing
this issue.
It must first be recognized that in any life insurance purchasing
decision, there are at least two basic questions that must be
answered:
- "How much life insurance should I buy?" and
- "What type of life insurance policy should I buy?"
The question contained in (1) involves an "insurance"
decision and the question contained in (2) requires a
"financial" decision.
The "insurance" question should always be resolved first.
For example, the amount of life insurance that you need may be so
large that the only way in which this needed amount of insurance can
be afforded is through the purchase of term insurance with its lower
premium.
If your ability (and willingness) to pay life insurance premiums is
such that you can afford the desired amount of life insurance under
either type of policy, it is then appropriate to consider the
"financial" decision--which type of policy to buy. Important
factors affecting the "financial" decision include your
income tax bracket, whether the need for life insurance is short-term
or long-term (e.g., 20 years or longer), and the rate of return on
alternative investments possessing similar risk.
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Q:
How does mortgage protection term insurance differ from other types of
term life insurance?
A:
The face amount under mortgage protection term insurance decreases
over time, consistent with the projected annual decreases in the
outstanding balance of a mortgage loan. Mortgage protection policies
are generally available to cover a range of mortgage repayment
periods, e.g., 15, 20, 25 or 30 years. Although the face amount
decreases over time, the premium is usually level in amount. Further,
the premium payment period often is shorter than the maximum period of
insurance coverage--for example, a 20-year mortgage protection policy
might require that level premiums be paid over the first 17 years.
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Q:
Can an existing life insurance policy be used to provide for the
repayment of an outstanding mortgage loan?
A:
Yes; the purchase of a new mortgage protection term insurance policy
is usually not required by the lender. An existing policy, either term
or cash-value life insurance, can be used for many purposes, including
paying off an outstanding mortgage loan balance in the event of the
insured's death.
Credit life insurance is frequently recommended in conjunction with
the taking out of an installment loan when purchasing expensive
appliances or a new car, or for debt consolidation. Is credit life
insurance a good buy?
Credit life insurance is frequently more expensive than traditional
term life insurance. Further, if you already own a sufficient amount
of life insurance to cover your financial needs, including debt
repayment, the purchase of credit life insurance is normally not
advisable due to its relatively high cost.
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Renters FAQs
Q:
Why would I want to buy renters insurance?
A:
If you live in an apartment or a rented house, renters insurance
provides important coverage for both you and your possessions. A
standard renters policy protects your personal property in many
certain cases of theft or damage and may pay for temporary living
expenses if your rental is damaged. (including loss of use). It can
also shield you from personal liability. Anyone who leases a house or
apartment needs should consider this type of coverage.
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Q:
How does a renters policy protect my personal property?
A:
A renters policy provides named perils coverage. This means your
property is protected from all the perils that are specifically listed
on your policy. These usually include:
- Fire or lightning
- Windstorm or hail
- Explosions
- Riots
- Aircraft
- Vehicles
- Smoke
- Vandalism or malicious mischief
- Theft
- Falling objects
- Weight of ice, snow, or sleet
- Accidental discharge or overflow of water or steam
- Sudden and accidental tearing apart, cracking, burning, or
bulging
- Freezing
- Sudden and accidental damage from artificially generated
electrical current
- Volcanic eruptions (but this doesn't include earthquake or
tremors)
Renters coverage applies to your personal property no matter where
you are in the world. This means you're covered when you are on
vacation as well as at home.
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Q:
Why do some apartment complexes require tenants to have renters
insurance?
A:
The owners of these apartment complexes require their tenants to have
renters insurance to ensure that they have personal liability
coverage. Owners of apartment complexes carry property insurance to
protect themselves in the event that the apartment building is
damaged. However, if a negligent tenant causes damage, the owner's
insurer will sue the responsible tenant for the amount of damage they
caused. The owner wants to make sure that the tenant has insurance
coverage that will protect him or her in this event.
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Q:
What if I share my apartment with a roommate? Do we both need to have
renters insurance?
A:
Standard renters policies cover only you and relatives that live with
you. If your roommate is not a relative, each of you will need your
own renters policy to cover your own property and to provide you
liability coverage for your own actions.
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Umbrella FAQs
Q:
What is a personal umbrella liability policy?
A:
The personal umbrella liability policy is an insurance contract
designed to accomplish two goals.
- First, it increases the liability protection beyond what the
policy owner already has in his or her homeowners and automobile
insurance policies.
- Second, the personal umbrella policy is designed to fill in the
gaps in a policy owner's liability coverage since several types of
liability exposures exist that are not covered by automobile and
homeowners policies.
Together with homeowners and automobile insurance policies, broad
personal liability protection is attained through the purchase of a
personal umbrella policy.
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Q:
How do I know if I need a personal umbrella liability policy?
A:
It used to be that the only people who needed personal umbrella
liability policies were wealthy individuals who had sizable amounts of
personal assets that would be at risk in a lawsuit.
However, in our very litigious society, many people are realizing
that they have a need for more liability insurance than what is
provided under their homeowners and automobile insurance policies. The
personal umbrella policy is ideally suited to provide this protection.
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