Phelps Insurance answers your most frequently asked questions.
While the information provided below is not meant to replace the personalized guidance of our knowledgeable insurance agents, it is an excellent reference guide that you can return to again and again, whenever you need to. Please don’t hesitate to contact us if you need further explanation or have additional questions. It is our pleasure to assist you.
Q: What exactly does a homeowners policy cover?
A: “Exact” coverage is impossible to define because there are different policies and about 900 insurance companies writing property/casualty business in the United States. However, 80% of homeowners policies are based on a standard form. All homeowners policies cover two important areas: property and liability. Property insurance covers your structures and possessions. Personal liability, as its name implies, means you’re legally obligated to pay money to another person for actions caused by you, your family, or your property. That liability extends to medical payments to others for injuries caused by you or your family.
Q: What do I need to know when purchasing homeowners insurance?
A: This is a three-part answer:
- Get the amount and type of insurance that you need.
- Determine the amount of personal property insurance and personal liability coverage that you need.
- Select any additional endorsements you want to add to your policy. For example, do you want the personal property replacement cost endorsement?
Q: What is “actual cash value”?
A: When “actual cash value” is used in a policy, a policy owner is entitled to the depreciated value of the damaged property.
Q: What is “replacement cost”?
A: When “replacement cost” coverage is used in a policy, a policy owner is reimbursed an amount necessary to replace the article with one of similar type and quality at current prices.
Q: Where and when is my personal property covered?
A: Coverage C of a homeowners policy provides named perils coverage. This applies to all your personal property (except property that is specifically excluded). Personal property is covered anywhere in the world.
Q: Are floods, earthquakes, and other natural disasters covered?
A: Most catastrophes are covered. Flood and earthquake damage, however, are not covered by a standard policy and both perils are more common than many people realize. We can advise you on such normally excluded conditions as floods and earthquakes and arrange coverage as needed.
Q: I recently purchased a $3,000.00 piece of jewelry. Is it covered under my homeowners policy?
A: The homeowners policy does provide coverage, but with a limit of $1,000.00 and only for theft. To insure the item for its full value and all risk coverage, it is necessary to provide an up-to-date appraisal. Scheduled items are not subject to the homeowners deductible.
Q: Am I protected from Identity Theft?
A: Identity fraud expense coverage is available for an additional yearly premium of approximately $35.00. Identity fraud is the fastest growing white-collar crime and this coverage will cover expenses incurred as a direct result of identity fraud during the policy period. We strongly recommend this coverage.
Q: Are there exclusions I should know about?
A: Exclusions listed and defined in your policy might include neglect, intentional loss, “earth movement,” general power failure, and even damage caused by war. If you fail to take care of your property (e.g., a leaky roof), you might not be covered. Obviously, if you intend to lose an object or damage your property, there’s no coverage. One other exclusion that can be costly is the Ordinance or Law exclusion. Building codes established by governmental bodies that drive up the cost of rebuilding or repairing after a loss occurs might not be covered by your insurance policy. Thus, if you discover when replacing damaged property that current law demands higher grade or more expensive materials than those you’re replacing, the new materials might not be covered fully.
Q: How expensive is renters insurance?
A: Renters insurance is typically available for as little as $150.00 a year, but the cost is directly related to the amount of insurance protection that you need.
Q: Does my landlord’s insurance protect me?
A: Generally, no. The property owner’s insurance covers the building itself and seldom a tenant’s possessions or liability. Clarify this with your landlord before signing a lease.
Q: When purchasing auto insurance what should I consider?
A: There are several things you should consider when purchasing auto insurance that your independent agent will help you with. Here are a few:
- Purchase the amount of liability coverage that makes sense for you
- Select the optional coverages you want
- Decide which company to purchase insurance from
- Don’t base your decision solely on price; other factors like service and claim response are extremely important in selecting the right insurance
Q: What is collision physical damage coverage?
A: Collision is the loss you incur when your auto collides with another vehicle or object like a telephone pole.
Q: What is comprehensive physical damage coverage?
A: Comprehensive provides coverage for direct physical damage losses you might incur to your car, truck or other vehicle from something like a hailstorm.
Q: What happens when I loan my car to someone? Is that person covered by my policy? Am I still covered?
A: Yes. Liability and coverage for physical damage (i.e. Comprehensive and Collision) always follow your car if permission to use the vehicle was given. Plus, if the driver of your car is insured, his/her policy will also be available to cover the cost of damages and injuries. The same rules apply when you borrow someone else’s vehicle; your own insurance follows you no matter whose car you’re driving. However, this only applies if it is a substitute vehicle, not one you use regularly. The vehicle owner’s policy is the key coverage in the event of an accident and your policy would be excess.
Q: My child received a learner’s permit to drive today. Can I add him or her as a new driver on my auto policy?
A: No, the insurance company will not add a driver to a policy until they have an actual driver’s license. However, your child will be covered while driving on a permit as long as he or she is driving with an operator who has been licensed for over one year.
Q: I recently moved to Massachusetts and obtained a new driver’s license. Will I get credit for my good driving record from my previous license?
A: If you have been driving for more than six years you can get credit for your good driving record. You must provide your insurance agent with your driving record (in English) from your previous residence (either state or country). The insurance company will then adjust your SDIP rating accordingly.
Q: While on vacation in Florida, I will be renting a car. Does my auto insurance policy provide coverage?
A: Yes, as long as you are in the United States, their territories, and Canada. However, you are limited to the coverage (liability and physical damage) of your own vehicle, not the vehicle you are renting. For example, if you own a 1990 Ford Escort and you rent a Porsche, you will be covered for the value of your Escort, not the Porsche in the event of a collision or comprehensive loss. Please note that you are not covered while renting a vehicle in a location other than stated above.
Q: How does where I live affect my premium?
A: Where you keep your car directly affects your chances of having an accident or becoming a victim of theft or vandalism. The likelihood of encountering these problems increases in larger, more densely populated cities, while such incidents remain relatively low in rural areas. Additionally, the time and efficiency of police response and law enforcement, local road and traffic conditions, and the quality of local medical services can affect regional insurance rates. Some insurers even factor in the litigation rates in a given area (how many lawsuits are filed, go to trial, out of court settlements, and their amounts).
Q: Am I covered for natural disasters or “Acts of God”?
A: Comprehensive insurance, which covers you for fire and theft, generally covers you against damage by flood, earthquake, hail, and other natural perils, except when your car is overturned (which is technically considered a collision). If you have specific concerns about the safety of your vehicle in natural disasters, contact us for information on catastrophic coverage.
Q: How can I challenge my insurers if they refuse to cover a claim?
A: Usually, insurers that refuse to cover a claim have a strong legal reason for doing so — even if you disagree. First, contact us if you feel you’re being treated unfairly. Your agent is your strongest advocate in insurance matters. But if it’s a legal problem, you might have to hire a lawyer.
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 a more precise 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 plan
- 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 advisor be contacted for a precise calculation of how much life insurance is needed.
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.
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.
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.
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.
Q: I’m just getting my business started. Do I need insurance immediately?
A: Yes. Your chance of suffering a loss begins with the first day of business. If you suffer a loss and have no insurance or have improper or insufficient coverage, your insurance agent can do little, if anything, to help you. Also, many states and local jurisdictions require businesses to have insurance to begin operating. And if you rent space for your business, your landlord probably requires you to obtain adequate insurance.
Q: What is fire legal coverage?
A: Fire legal coverage provides coverage for you if you rent a business space and are held responsible for fire damages to that rented space. It does not apply to all business risks.
Q: What is the difference between Replacement Cost (RC) and Actual Cash Value (ACV)?
A: Replacement Cost is the current cost to replace property. Actual Cash Value is the replacement cost less depreciation.
Q: What does 80% co-insurance mean?
A: Insurance carriers require that an insured party insure at least 80% of the property’s value in order to collect a partial loss in full. This is the way the insurance company encourages an insured party to adequately insure their property in relation to others.
Q: Does my policy cover physical damage to a vehicle I rent?
A: This damage will be covered only if that type of coverage is purchased.
Q: Can other people drive my business vehicle?
A: Other people may drive your vehicle with your permission. It is important that they be listed on your policy if they are regular drivers of the vehicle.
Q: Am I insured if I run a business from my home?
A: The homeowners policy clearly excludes liability coverage arising out of business activity. Any particular claim would be investigated independently but if you are operating a standing business for monetary gain from your home you should not be looking towards your homeowners policy for coverage with respect to liability claims.
Q: How does an audit work?
A: At the end of the policy term, the insurance company will review the policy and either charge or credit the policyholder based upon an audit of estimated figures. Examples of estimated auditable items include sales and payroll. Audits can be performed onsite by an auditor or via mail or telephone. A premium is charged for audit estimations.
Q: Why do I need certificates of insurance from sub-contractors?
A: An audit may require you to show proof that sub-contractors had their own insurance coverage. The sub-contractors’ certificates of insurance will prevent you from being charged for their exposure.
Q: What is General Liability?
A: General Liability provides coverage if you are liable for damages to other individuals arising from your premises, general operations (ongoing and after completion) and products manufactured or sold.
Q: What does Products/Completed Operations mean?
A: Products/Completed Operations refers to the liability coverage for damages caused by your operation or products after the point at which you no longer have control of them.
Q: What is Business Interruption/Extra Expense coverage?
A: Business Interruption/Extra Expense coverage provides coverage for income loss and the expense of establishing a temporary site during repairs due to damages related to a fire or compensable loss.
Q: What is the difference between “Named Insured”, “First Named Insured” and “Additional Insured?”
A: A Named Insured is listed by name in the relevant block of the policy’s declaration page. Although the named insured is commonly one person, partnership, corporation or other entity with insurable interests, multiple named insured parties may be included. First Named Insured is the first “named insured” listed on the policy declarations (front page of the policy). This insured acts as the legal agent for all named insured parties in initiating cancellation, requesting policy changes or accepting any return premiums. The first named insured may also be responsible for payment of the premiums. Additional Insured is an entity to which a policy’s coverage is extended. An additional insured must be added to the policy prior to a claim being paid. There must be a tie to or relationship between the additional insured and named insured. Being an additional insured on another’s policy does not eliminate the need for someone to have his/her own Commercial General Liability policy.
Q: I don’t have any major business assets. Why do I need insurance?
A: Every business has some property. When you think about it, your business is your property. Just like your home and your car, your business needs to be protected from loss, damage, and liability. In addition, your business is your source of income, so you need protection from the potential loss of that income.
Q: Does insurance coverage vary for different businesses?
A: It can. Many small businesses opt for package policies that cover the major property and liability exposures as well as for a loss of income. A common package policy used by many small businesses is called the Business Owners Policy (BOP). Generally, BOPs provide more complete coverage at a lower price than separate policies for each type of insurance needed. We can help you decide which policy or policies are right for your business. You can also purchase additional coverage for perils or conditions otherwise excluded (e.g., flood protection) as endorsements to a standard policy or as a separate, second policy called a Difference in Conditions (DIC) policy. We can advise you of the best policy (or policies) to protect you and your business.