Part 1: Shopping for your home
This post is part 1 of a 2 part series. Part 2, when posted, will cover the closing process.
So, you are shopping for a home! This is a very exciting point in your life, and there is much to consider in making your choice. While I know that there will be many other important factors that influence your decision on what home to buy, I thought it might be helpful to provide some tips on what you can look for from an insurance perspective. Insurance costs can be quite different from one home to the next, and some homes may be difficult to fully cover – or even to insure at all. There are a number of things you can look for when you are touring houses.
One of the most important things to look at from an insurance perspective is the exterior condition of the home you are considering. Insurance companies are most concerned about the exterior, because it defends the home against the elements of nature. First and foremost, step away from the home and look at the roof on all sides. Do the shingles look fresh and new, or do they look old and worn out or (worse yet) are they covered with moss or lichen, curling, lifting or even broken off or missing? Also look at the siding, fascia and trim. For wood products, is the paint in good condition, or is it peeling, flaking or even rotting? Don’t forget to also look at the condition of any outbuildings, as these also affect the insurability of the home. How condition issues can affect insurance.
Many home buyers prefer a home with an updated kitchen, windows, etc. However, there are other updates you might not otherwise consider that are equally or even more important – both from an insurance standpoint and also because of what future expenses may be right down the road. As mentioned above, ask about the age of the roof. Most roofs installed over 20 years ago need to be replaced, and they are also harder to insure. Another important question is the age of the furnace – newer being better. Lastly, if the home was built before the 1970s, is the plumbing and electrical fully modern? For a further discussion of updates, see this separate post.
There are certain types homes that may be more expensive to insure. For example, many insurance companies won’t insure log homes. Having said that, log homes are beautiful, so you may well be willing to pay a little extra (if necessary) to insure with a carrier who will cover log construction. Also, manufactured homes (singlewides and doublewides), while less expensive to buy, will generally cost more to insure – even if they were installed on a permanent foundation. Also, flat roofs are harder to insure, as there are many insurance companies don't like them.
First, the good news is that you don't need to worry too much about a built-in fireplace, as these typically aren’t a problem for most carriers. However, a woodstove may limit your options and cost more to insure, and you will likely face a challenge if the stove isn't installed properly or isn't UL approved. An even bigger problem is wood heat in a detached garage - quite common in the Northwoods but unfortunately unacceptable with most insurance companies. So if you are thinking about buying a home with a woodstove in an outbuilding, keep in mind that your options will be to remove it, possibly not cover the building at all or to take what you can get from one of the small selection of companies willing to insure it. Outdoor wood boilers are not always as large of an issue, but read my post about insuring these.
Insurance companies worry about safety hazards, because your Homeowners policy will cover your liability if someone gets hurt on your premises. One common hazard is missing railings on exterior steps, decks or porches. Generally, insurance companies want to see railings if the height of the deck or porch is more than 30-36 inches off the ground or if there are more than two or three steps. The good news is that this can often be a fairly easy fix, especially for smaller decks or a short flight of steps. Also, if the home you’re viewing is one of the few in the area that come with either a swimming pool, be advised that most insurance companies want to see a six-foot fence with a self-locking gate – a rarity in the Bemidji area.
Whether your goal is to be as far back in the woods as possible or as near to schools or work as you can get, or even in a particular neighborhood or on a specific lake, I’m sure location will be an important factor in your decision. Keep in mind that distance from the fire department will be a factor in your insurance cost. Within five miles is best, and over ten miles away is least preferred. While remote homes are certainly insurable, you will likely pay 20-80 percent more to insure a home more than five miles away from fire service. This may well be a price you are willing to pay for the location you desire, but it is something to keep in mind.
In summary, whether you are a first time home buyer or a seasoned pro, you have a big decision ahead of you. I hope that this insurance information is helpful to at least carry in the back of your mind as you choose your next home. If I can answer any questions, please contact me. Good luck!
In an upcoming Part 2 of this series, we’ll guide you through the insurance aspects of the closing process, from the point that you sign the purchase agreement through the day you close. Stay tuned!
As one of many local businesses sponsoring the Beltrami County Relay for life happening tomorrow, we are pleased to display purple in our storefront this week. The annual Relay for Life will be held tomorrow, Saturday, July 8, at the Sanford Center, from 11am to 11pm. The event is loaded with fun and wonderful family friendly activities, food and inspirational ceremonies. You don’t have to be on a team in order to attend and participate; everyone is welcome!
The Beltrami County Relay for Life is an important local fundraiser for the American Cancer Society, whose mission is to free the world from cancer. Until this ultimate goal is realized, they fund and conduct research, share expert information, support patients and spread the word about prevention.
All of us know someone who has been through the terrible ordeal of cancer. Together we can make a difference! Join us in supporting this worthy cause.
Earlier this week, a first-time homebuyer called me for an insurance quote. After I asked him the questions necessary to prepare his proposal, I asked if he had any questions for me. He did have one and asked, "What questions would you recommend that I ask other agents that I talk to?” I thought that was a great question - one that is worth answering for others as well.
Choosing an agent to develop a relationship with is an important decision. Most insurance consumers rely heavily on their agent for insurance knowledge and advice and to be there for them when they need help. Unfortunately, too often the only question insurance consumer actually ask prospective agents is how much the premium will be. While it’s certainly important to find an affordable insurance price, there are many other relevant questions to ask before hiring your personal insurance agent. So I’ve put together a list of interview questions that I hope you will find helpful.
Questions to ask your prospective new agent:
As you can see, the insurance agent hiring decision is about much more than just bottom line on each quote you are provided. Rates will change over time, but a good agent will see you through life’s changes, while the wrong agent may not deliver on your expectations. I hope this list of questions is helpful in your interview process. By the way, I plan to provide my own personal answers to these questions in a future post; so stay tuned.
Occasionally I become involved in a conversation where a client mentions a fact and then indicates that they'd prefer I not to share it with their insurance company. In some cases, a client has implied that they expect me to treat this information with a “wink and a nod” – also known as the “I didn’t hear you say that” response.
I can recall times where I’ve asked a current or prospective client a question and they’ve replied by asking me to advise them what the “correct” answer is. For example, perhaps I need to know which vehicle Junior is usually driving and they answer by asking, “Which vehicle is least expensive to say Junior is usually driving?” (While many clients want pricing information to use in making decisions, there are certain cases I've felt a client was simply asking for coaching on how to answer a question.)
Here’s one I found very tough. I’ve had two different cases where I became aware that clients (who were also personal friends) were using their personal pickup truck to plow snow for others for pay. (They may not have known this, but plowing for compensation is strictly unacceptable on any personal Auto policy.) In one case, my friend and client offered his services on Facebook after a storm, and in another case a friend and client offered to add me to his post-snowstorm plowing rounds. Now that I as their agent was inadvertently made aware, what was I to do now?
Which brings me to the ethical dilemma: what is appropriate for me, as an agent, to do when I become aware of relevant undisclosed information? Or how about when my client asks me to coach them on how to answer a question? And, secondly, what ethical standards should insurance consumers meet, when dealing with their insurance company?
Honesty as an agent
First, let me talk about the ethical implications for me, as an agent. You may not realize this, but your insurance agent (whoever that might be) is technically not “your agent” at all. Rather, he or she is an agent of your insurance company. Legally speaking, an agent is someone who represents and acts on behalf of another. Because “your agent” is a legal representative of your insurance company, he/she can accept your application for coverage and your payment and bind the insurance company to cover you.
The fact that I legally represent the insurance company places certain legal obligations on me, to do nothing to harm their interests as their representative and pass on all relevant information to them.
Let’s also examine the practical side of this ethical question. As an agent, I have two primary stakeholder groups that are counting on me to do the right thing and be honest and forthcoming with them. These two stakeholder groups are my clients and my insurance companies. I owe the same debt of honesty and good faith to both.
When it comes down to it, my business relies on the currency of trust. Let me explain. When you stop by the grocery store, you come home with a loaf of bread or a gallon of milk. When you visit your dealer and purchase a car, you come home with an automobile. When you visit my office and buy insurance, all you come home with is contract of thirty or forty pages that is often simply file away without reading past the first page. If you don’t have a basis to trust me as your agent, why would you ever agree to this transaction?
Some consumers might think they’d prefer an agent willing to practice the “wink and nod” method in withholding information from their carrier so as to provide them with more favorable rates. However, if your agent is willing to be deceitful with the insurance company he or she is legally required to represent, why would you trust your agent to always be honest with you?
Honesty as an insurance consumer
Let’s now consider this question from the standpoint of the consumer. The average consumer may not think of his or her insurance carrier as a stakeholder deserving their goodwill. Indeed, many consumers see their insurance company as a big corporation with plenty of money who doesn’t deserve any special care or concern from them. But this way of thinking may be a little shortsighted.
First, there is the issue of material misrepresentation. If you knowingly lie or withhold requested information from your insurance company or their agent, it is possible that this act could lead to your claim being denied in the future. For example, if you lie and say you don’t have wood heat and then a chimney fire causes your home to burn down, this could be a basis to deny your claim, potentially leaving you homeless and destitute.
Putting aside the possibility of material misrepresentation, I really don’t believe that practicing deception for perceived financial benefit is an ingredient you’ll find in the recipe for a happy and prosperous life. I have observed a number of individuals over the years that are always trying to “beat the system” and my impression of most of them is that they often seem to go from one self-induced calamity to the next.
It is often said that honesty is the best policy and that your own word is the most valuable possession that you have. Once you surrender your integrity in one arena (such as the financial transaction of insurance) you will continue to do so in other aspects of your life. A lack of honesty in your dealings with others will lead to a multitude of problems on many levels and won’t bring either inner peace or personal wealth.
As I’ve alluded to already, the insurance transaction is all about good faith. Good faith on the part of the insurance company that both their agent and policyholder has disclosed accurate and complete information. Good faith on your part that the insurance company will protect you according to the terms of the contract, should a loss occur and that your agent has your best interest in mind and will be there for you if and when you need him or her.
Now I’m nearly positive that you’ve heard of at least one example in which an insurance agent or carrier acted horribly in bad faith. But witnessing such behavior in others should not be relied on as an excuse to follow their lead; rather we should all take it upon ourselves to exemplify a higher standard for others to emulate. Honesty is indeed the best policy, and if you expect good faith from others you should first offer it to them.
We thought it might be helpful to assemble a list of the Home and Auto insurance agencies available to you as an insurance consumer in the Bemidji area. Obviously, we hope you will buy your insurance through us, but we also feel that you would appreciate an open and objective discussion of your options. Competition is a good thing, as it provides you the consumer the opportunity to review and decide who deserves your business. We encourage you to evaluate your options on the three aspects of good insurance value: price, coverage and relationship.
Local independent agencies
Independent insurance agencies have a great deal of flexibility in finding the best solution for your insurance needs, because we represent a number of different insurance companies. This allows the agency to deliver on price (by shopping among their carriers for you), coverage (by picking carriers and products that meet your needs) and relationship (as you can keep your current agent even if your current carrier no longer meets your needs). Pine Country Insurance is an independent insurance agency; but let’s introduce you to the others in Bemidji.
Insure Forward is one of the older and easily the largest agency in town. They were previously known as Insurance Placement Service or simply IPS until their purchase by Bank Forward approximately ten years ago. With their multitude of carrier contracts, large staff and breadth of knowledge and experience, they have much to offer, including great options for midsize to larger local businesses or insurance consumers with hard-to-place needs. They are located on Paul Bunyan Drive within the Bank Forward building and can be reached at 218-751-2330 or www.bankforward.com.
Risk Management Services of Bemidji (aka RMS) was the brain-child of local entrepreneur Matt Sparby, who hired Dan Posner as the first agent around a dozen years ago. Since then RMS has grown by leaps and bounds and gained a sizable market share in commercial insurance, as well as a decent personal lines presence. Much of this growth was organic, but it was also helped along by the acquisition of the local agency Beltrami Insurance Group a few years after their founding. Like Insure Forward, RMS has the size and scope to be able to handle nearly any type of commercial or personal insurance need. RMS is located in the Sparby Financial building across from the hospital on Anne St and can be reached at 218-759-1201 or online at www.rmsinsurancebemidji.com.
Another independent agency worthy of special note is Northway Insurance, which has been a staple on Third Street in downtown Bemidji for many years. It was started in 1985 by Steve North, and he grew it to be one of the largest agencies for his primary carrier in the state. In 2001 North added a second location in Park Rapids when he purchased a local agency there, which he later sold. Steve sold the Bemidji Northway location to two of his long-time employees one year ago. Northway of Bemidji and its three staff members offer a broad array of personal and commercial insurance products and can be reached at 218-751-0821 or online at www.northwayinsurance.com.
There are a number of other local independent agencies. Among them are older agencies (Bemidji Insurance Plus and Dale Schmidt Agency), new independent agencies with older roots (Truinsure - formerly the Ken Stone Agency, Security Insurance - formerly Insure North of Blackduck and Farmers Union Insurance – now a hybrid but formerly an exclusive agency) and new offices which have sprung up locally in recent years (Greater Midwest Insurance, Headwaters Agency and Big Horn Insurance Services).
Local exclusive agencies
An exclusive agency is different from an independent agency in that it primarily represents just one insurance company. While this obviously narrows the agency’s breadth of offerings, it also enables the agent to dig deeper and become an expert in the offerings of the company he or she represents.
Probably the best known exclusive-agency carrier is State Farm, who also happens to be the largest Home & Auto insurer in America. Approximately ten years or so ago, Sara Labraaten took over a local State Farm agency from a retiring agent and has since grown it into the second ranked State Farm agency in the country. In a recent Minnesota trade publication, Sara stated that her keys to success are simply practiced the well-known basics of hiring the best staff, marketing extensively and treating customers the way she would want to be treated. The Sara Labraaten Agency is located on Bemidji Avenue just north of Library Park and can be reached at 218-444-2400 or online at www.sarahsagency.com. The other local State Farm agents are long-time agent Mark Gazelka and newer agent Jake Blumn.
Another well-known local exclusive agency brand is American Family. Shannon Miller took over for a retiring agent several years ago, and has since built his business to the point of receiving top countrywide honors among all American Family agents countrywide two times in the past eight months. Miller & Associates is located in front of the Paul Bunyan Mall and can be reached at 218-751-5351 or online at www.agent.amfam.com/mn/bemidji/shannon-miller/. Todd Gabrelcik is the other local American Family agent.
Other exclusive agencies in Bemidji include Farmers Insurance agents Jerry Downs and Brad Caspers, Country Financial agents Chris Lehman and Scott Turn, Federated Insurance agent Mike Anderson and AAA agent John Kovach.
We hope that you have found this post informative and helpful in your review of your local insurance agency options. We've tried to make this list comprehensive; so please let us know if we unintentionally missed anyone. As always, we welcome your questions and feedback.
These days, it is easy to spend between ten and twenty thousand dollars on a new ATV or UTV. With this kind of an investment, you will probably want to fully insure your new vehicle, just like you would with a car of the same value. Even if the value of your off road vehicle is much lower, it is still prudent to carry Liability along with some other basic injury coverage on it. So what is the price to insure such a vehicle?
First, if you are buying a brand new four wheeler or side-by-side, you can probably expect to spend between $100 and $400 a year in premium, if you an adult over age 25 in Minnesota with a good driving and claim record and average or better credit. If your machine is somewhat older, your cost to insure it will likely fall in the lower half of this range or maybe slightly less.
If your ATV isn’t worth too much, your main concern may be protection in case someone is injured. If you qualify for preferred rates, many carriers may offer basic Liability and/or injury coverage for $75 per year (the minimum premium on many policies). If you find a carrier willing to add the coverage to an Auto or Homeowners policy, your price might be even less.
Keep in mind that there are many factors that affect an insurance rate. I’d be happy to answer your questions and provide you with a personalized quote to protect your investment, as well as your peace of mind.
At Pine Country Insurance, we are proud to sponsor Loop the Lake again this year. This is fun, family-friendly activity consists of riding your bike around Lake Bemidji, with fun stops for food, music and more along the way.
The ride starts with a rolling start between 7:30 and 9:30am at the Sanford Center, where there is food and beverages, music, bike tune up assistance and much more. From there, bike over the Mississippi and along the Lakeside Trail past Paul and Babe and the BSU neighborhood and through Diamond Point Park. From there, you bike along lakeside roads around the northwest corner of the lake and into Lake Bemidji State Park. The last leg of the ride is on beautiful bike trails, through the scenic park and down the east side of Lake Bemidji.
Online registration is open through Wednesday, June 14 or at the event for an additional fee. Your registration includes all the food, music, beverages and fun!
One nice thing about this event is it is not a race, and you are free to ride at whatever speed you wish.
Whether you bring your family, a spouse or significant other, a friend or just yourself, plan to participate in this fun event coming up!
For more information and/or online registration, click here.
As a father of two teens currently learning to drive, I can personally attest that this process can be a little scary. But it is also quite rewarding to guide your children through the process of yet another step towards adulthood.
It probably won’t come as a surprise for me to tell you that adding a teenage driver is guaranteed to raise your rates. Insurance companies base their rates on statistical averages, and teenage drivers statistically have more accidents than older drivers. So your rates are going up; the only questions are how much and what can be done to lessen the impact on your pocketbook.
First, an idea that sounds plausible but doesn’t work. Sometimes parents ask me if it would be better to put Junior on his own policy when he gets his license. That way, they reason, Junior won’t increase the rates on their other vehicles. Unfortunately, this idea for “beating the system” usually won’t work. Insurance companies base their rates based on prior loss trends and statistics – and apparently, there are a lot more claims on young-driver-only-policies than there are on family policies. By insuring your new driver along with you, you also take advantage of many discounts that may not be available to them separately, such discounts for multiple vehicles, multiple policies, etc.
There are some things that can be done to keep your rates low, however. For example, most insurance companies provide a discount if your student is averaging a 3.0 GPA or better or is ranked in the top twenty percent of his or her class. The thinking is that good grades are a sign of responsibility that may translate over to how carefully a teen perform behind the wheel. If you have a child approaching driving age that is not quite making the GPA cut, now is the time to work with them to see if they can get over the hump, so to speak. The good news is that most carriers are willing to use either your last term GPA or your cumulative GPA, so working to qualify for that discount may not be as difficult as you may think.
Another thing that will affect your rates is the household vehicle situation. If your teen doesn’t have full-time access to a vehicle because there are fewer vehicles than drivers to drive them, you may be able to classify them under the “occasional driver” rate, which should be less expensive.
If you do plan to give your child their own vehicle to drive, you could consider an older vehicle with a value low enough that you feel comfortable not fully insuring it. The savings for assigning them to a “Liability only” vehicle are sometimes considerable and sometimes not, depending on how your carrier prices the policy. But this savings method does have its own downside: As mentioned above, your young driver is statistically more likely to get in an accident than you are, meaning the odds are higher that you might have to foot the bill for repairs or for a replacement vehicle if their car wasn’t fully insured.
So at what point in the licensing process will your insurance rates go up? The good news is that most carriers don’t raise rates when your child gets their permit. (This rule is not universal, you should confirm this with your insurance agent.) But when your child does get their license, they will have to be added to your policy immediately. Sometimes I hear from a parent that their child is getting a license now but they don’t want to insure them yet, because the plan is to wait for a few months before they are allowed to drive. If that is the plan, then I also suggest waiting before you sign off on their license, because if the state says your child is a driver, your insurance company is going to consider them to be a driver as well. Be sure to keep your insurance agent in the loop regarding the licensing progress and to let your agent know when the big day occurs.
I’m often asked whether a teenager’s vehicle should be titled to them or their parent(s). Some parents give their child a car as a graduation present, while some other teens save up and buy their own. If your child is old enough to take legal title (in Minnesota, usually 18, but 17 in some cases), the inclination may be to title the car in their name instead of yours. However, you need to understand that this could have insurance implications. Many insurance companies will only allow you to insure vehicles that are actually titled to you, based on the insurance principle of “insurable interest”. Titling the vehicle to only your teenager could result in having to buy them a separate policy, which could be up double or triple the cost of insuring them under your own policy. These rules and rates do vary from carrier to carrier; so be sure to check with your agent before you finalize the purchase of the vehicle. (Here’s an idea: Consider “co-titling” the car to both you and your child; this can be a great solution in many of these cases.)
Many parents ask how long their child can stay on the family policy. This often comes down to two issues: vehicle ownership and residency. As discussed above, your name may need to stay on the title of their car in order to keep them on your policy. But once your child moves out and onto their own, they are probably going to need their own policy. (Many carriers will require this, and even if not, it is advisable so that they keep well-rounded coverage in place, and you may wish to get off their title for liability reasons anyway.) Keep in mind, however, that going off to college is not usually the same as moving out. As long as your child doesn’t establish a permanent residence, if they lived with you before moving into temporary student housing, they are still considered a resident of your household.
Before I close out this post, I’d like to take a moment to talk “big picture”. The big picture is that your teenager learning to drive is another milestone in their journey towards the responsibilities of adulthood. As parents, it is our role to teach them what these responsibilities mean. When I started driving, my parents required that I first have a job and reimburse them for their increased insurance costs. I knew that if I got in an accident or received a ticket, I’d have to pay even more. Conversely, if I kept my grades up, I knew I’d pay less. I suppose that this approach might seem harsh to some, but for me it was an important lesson in learning how life works. While you’ll need to personalize your own game plan with your teen driver, I encourage you look for opportunities to weave the valuable lessons of responsibility into it.
If you are a first-time home buyer, you may be hearing the term “escrow account” for the first time and wonder what it means. An escrow account is bank account held in your name and for your benefit by your mortgage company. Every month when you make your mortgage payment, part of that payment is deposited into your escrow account. The escrow account is then used to pay your Homeowners insurance and your property taxes when each become due.
An escrow account is first established when you close on your mortgage. At this point, part of your closing costs will be to pay for the first year of insurance, unless you pre-paid that premium. Added to closing costs will also be a reserve that is deposited into your escrow account, partially for the next property tax payment that is due and partially to provide a buffer in case taxes or insurance rates rise.
Starting with your first mortgage payment on your new home, you will be paying one-twelfth of your annual insurance premium, which will then sit in your escrow account until your policy renews a year later. In this manner, basically you are always paying your Homeowners insurance one year ahead. Similarly, your monthly payment also includes one-twelfth of your annual property tax bill, which will also be held in your escrow account until the next tax due date.
It is very important to understand that while your monthly principal and interest payment may be fixed for the life of your loan (as long as you continue to pay on time), the additional amount going to your escrow account is very likely to change down the road. This is because property taxes and Homeowners insurance rates do change over time – unfortunately going up more often than they go down. If amount due changes for either, your mortgage company will have to also adjust the monthly amount they collect from you. This means that your total monthly mortgage payment will not always stay the same as time goes on.
While an escrow account is not required for every mortgage, many special mortgage programs do require it, including programs often utilized by first time homebuyers. If you are not using a special mortgage program then your relative level of risk will determine if the escrow account is mandatory. For example, an escrow account is usually required when paying less than twenty percent down.
Why do mortgage companies want an escrow account? It’s because your home is the collateral for the loan they make you. Meaning that if you don’t continue paying they can recoup their loss by foreclosing and then selling your home. But if they had to foreclose and then found that that the home was damaged and you didn’t have insurance in force - or they found a tax lien against your home because you didn’t pay your property taxes when due - this would affect their ability to recoup their loss after foreclosure.
If an escrow account is not required by your mortgage company, you may have the choice to opt in or opt out. Many people do voluntarily opt in as a matter of convenience, to avoid having to come up with large chunks of money two or three times a year when taxes and/or insurance become due. (While most Homeowners policies do provide a monthly payment option, property taxes are typically due in the two installments in the spring and fall.)
Never forget that the funds in the escrow account belong to you. If you pay off your mortgage, any balance in the account will be refunded to you.
One final word: Although your mortgage company may stay in control of paying for your insurance, you are still in control of selecting insurance; you get to choose your carrier, coverages and deductible, subject to their basic requirements. You also have the right to change your insurance provider down the road if you so choose.
If you own a boat, four wheeler, motorcycle, camper, snowmobile, motorhome or jet ski, I hope that you have purchased insurance to cover your investment. But how well is your vehicle actually covered if there is a total loss?
There are basically four types of total loss settlement options offered in the insurance industry for specialty vehicles. Keep in mind that some of these options may be offered for some types of vehicles and not others. I’m presenting these options from most coverage to least coverage:
1. Replacement Coverage.
This is typically the best option, if you can get it. There are a number of variations of this coverage, but the basic premise is that if your vehicle suffers a total loss, your insurance carrier will pay to replace it with a brand new, current model year vehicle that resembles what you had as closely as possible. This means that you may receive more than what you originally paid for your vehicle. This option is typically only offered when buying the vehicle new, and it will usually age off your policy after a few years. In many cases, you may be asked for documentation for how much you paid new for your vehicle, which is then used to determine your physical damage premium.
2. Agreed Value
It may not be as good as a replacement guarantee, but Agreed Value still protects you from future depreciation, and this feature provides you the confidence of not having to wonder how much you would receive in a total loss. In some cases, you may be asked for documentation such as a bill of sale. In other situations, you may simply specify a value and if the insurance company agrees by issuing the coverage at that amount, then you are good to go. This agreed value is normally used to determine your physical damage premium. Depending on the type of vehicle and the carrier, Agreed Value may be available on vehicles of any age, vehicles up to a certain age or not at all. In some cases, it may age off (or require you to reset the value) after a certain number of years.
3. Actual Cash Value
With pure Actual Cash Value coverage, there is no discussion of the value at all when insuring the vehicle. Instead, if there is a total loss, the insurance company will complete their own valuation or appraisal of what your vehicle was worth immediately prior to the loss. This involves looking at its age, condition and features and comparing it to what other similar models have sold for or been offered for sale for in your region. This is the same method used to insure nearly all personal autos. Since no value has been mentioned, your physical damage premium will be based either on the cost new of the vehicle or simply on the insurance company’s knowledge of what claim payments for this kind of vehicle average.
4. Stated Value
If Stated Value sounds better to you than Actual Cash Value, then read this paragraph closely. Stated Value will never pay more than Actual Cash Value, but it may pay less. With Stated Value, you normally tell the insurance company what desired physical damage limit you wish to carry. In a total loss, you will be paid the LESSOR of the Actual Cash Value (as appraised by the insurance company) and the limit you set. Your physical damage premium is based on this limit, this stated value. So all the risk rests on you: if you state a value too high, you are paying for a level of coverage you won’t receive; if you state the value too low to save premium, you may be underpaid in a total loss. While it may not sound overly attractive compared to the options further above, Stated Value is often a practical way to easily and inexpensively establish coverage for many vehicles; the important thing is that you understand that Stated Value is not the same as Agreed Value. You may also wish to periodically review the stated value and adjust it as your vehicle depreciates.
Which of these valuation methods apply on the policy insuring your specialty vehicle? I can tell you that if you added your vehicle to either your Auto or Homeowners policy, it’s almost never going to be insured for Replacement or Agreed Value. In addition, I know several of the largest insurance carriers rarely (if ever) offer these options on any of their policies.
If you want Replacement or Agreed Value, you’ll normally only find it on specialty vehicle policy, and often you may need to go to an independent agent like us to get one with these options. A specialty vehicle policy may cost more than adding the vehicle to your Homeowners or Auto insurance, but in many cases it actually costs less. It will almost always provide more and/or better-fitted coverages, and it also may protect your Homeowners or Auto policy from going up or being non-renewed due to claims you file for your specialty vehicle. A specialty vehicle policy may not offer Replacement or Agreed Value in all cases, however; so you’ll still need to talk to your agent about the options available to you.
Have questions? I look forward to hearing from you so I can answer them.
Ken Cobb is owner of Pine Country Insurance and has been active in the insurance industry for over 15 years. Meet Ken.
Coverage descriptions found in this blog are summaries provided for general educational purposes and cannot fully detail the terms, conditions, limitations or exclusions of a specific insurance policy. Please read your policy carefully.