There are a number of factors that insurance carriers take into consideration when setting the rate they will charge to insure your home. In this post, I’d like to explain how Homeowners insurance premiums are determined, in an effort to take some of the mystery out of how much you pay for your coverage.
The first and most obvious factor is how much your home will be insured for. The Dwelling limit on your policy determines the base rate that you pay, which is then adjusted based on other factors we will explore below. In most cases, the Dwelling limit is based on an estimate of what it would cost to rebuild the home if it suffered at total loss. Therefore, the size and features of the home drive how much it is insured for and how much you pay to insure it.
Another big factor is the deductible you choose. The average deductible these days is $1000, but there could be significant savings to raise your deductible with many carriers. For example, you might see an insurance company offer a fifteen percent discount to go to a $2500 deductible or a maybe thirty-five percent discount to move up to $5000.
Of course, it also matters what coverage options you choose. Coverages typically offered as optional for an additional premium include water backup, identity theft, open peril personal property, enhanced coverage for jewelry or firearms, increased coverage for outbuildings, mechanical breakdown, earthquake and many others.
Beyond the base rates for the coverage selections you choose, another important factor is whether or not you bundle your Homeowners and Auto insurance with the same company. Many insurance companies offer discounts ranging from ten to thirty percent or even more off your Homeowners insurance premium when you also buy your Auto insurance from them.
Almost all insurance carriers also use your credit history as a factor in determining your rates. This is because studies show that, statistically, home owners with favorable credit histories suffer fewer or less severe losses than average, and vice versa. Depending on the carrier, this might be a relatively minor factor or it could be huge. I’ve seen insurance companies price the difference between the best and worst credit history at around twenty-five percent. I’ve also seen cases where a carrier might charge the lowest credit score two to three times as much as the highest score.
Your distance from fire protection also can have a big impact on your rate. The lowest rates are reserved for homes within five miles of a fire department and one thousand feet of a fire hydrant. But many of us in northern Minnesota live further out from the fire station, which does increase insurance costs, because it is less likely our home could be saved if a fire started.
Beyond how far you live from town, another factor is the region where you live. Minnesotans pay a lot more to insure their homes then, for example, someone living in Idaho or Nevada, because we tend to experience more storm damage here than folks out west do. There are also differences in pricing within the state, also based on historical storm damage trends. The good news is that here in Bemidji, we are just within the wooded northeast region of Minnesota that tends to see the lowest insurance costs based on storm trends. I would say that in general, home owners living further north and east in the state pay less for insurance than those living further south or west.
Features of your home also come into play. Many insurance companies will provide discounts if your roof, heating systems, electrical and/or plumbing are new. If your home is older and these haven’t been updated recently, you will definitely pay more for your insurance than if your home was just built. You may pay less if you have a steel roof instead of shingles, as it is less likely to be damaged in a storm. Insurance carriers also usually provide small discounts for deadbolt locks, fire extinguishers and monitored alarm systems. Plan to pay more for coverage if you have a woodstove, due to the increased risk of fire. Less conventional construction types, such as manufactured homes and log homes, also often cost more to insure.
Last but certainly not least, insurance carriers look at your prior claim history. If you have filed a claim before, statistically you might be more likely to suffer another loss in the future. For this reason, most insurance companies add a surcharge if you have been paid for a non-weather claim in the past three years.
All of these factors and more are often specified with the rates that a given carrier files with the state of Minnesota. While the factors are complex, carriers must charge you premium that exactly reflects the rates that they filed with state.
To summarize, insurance pricing is based on the statistical likelihood of a future covered loss, combined with how much the carrier is likely to have to pay if such a loss does occur. While some insurance pricing factors can certainly be frustrating at times, the good news is that we have a competitive Homeowners insurance marketplace in which carriers are competing to offer you the best deal they can while still collecting enough premium to at least break even. If you are concerned that you might be paying too much, I’d suggest talking to an independent agent like me who can shop among their carriers within this competitive marketplace to find the best value.
Curious to see actual examples of home insurance costs in the Bemidji area? Click here to read what some of our other clients pay to insure their homes with us.
It is safe to say that the companionship of a dog is as much a part of our culture as baseball and apple pie. The good news is that by and large, insurance companies are comfortable insuring households with a canine member. The bad news is that there are exceptions in which man’s best friend can create some insurance issues.
When an insurance company is deciding whether your home is a good risk for them to insure, they’re looking to avoid factors that increase the likelihood of a future loss. A dog that they consider more risky than average is one of those factors.
Reports indicate that there are nearly one million dog bites per year requiring medical attention in America, and the average dog bite claim costs an insurance company more than $30,000. This explains why insurance companies want to evaluate the level of risk your dog poses.
It’s hard to know what dog might bite. Any dog can do it given the right circumstance. But insurance carriers do look at statistics that indicate that certain breeds tend to bite more often than others. For example, a recent study showed that over the last twelve years, pit bulls accounted for two thirds of all dog bite fatalities in the US.
So most carriers have a list of breeds they believe pose an above average statistical risk. All carriers are likely to list pit bulls, rottweilers and wolf hybrids as risky breeds. Beyond that, carriers lists vary, but a given list might include breeds such as Akita, Alaskan Malamute, Chow, Doberman, German Shepherd, Husky, Mastiff and Presa Canario. And insurance companies tend to be equally concerned whether the dog is full-bred or a mix that contains one of these breeds.
When you apply for Homeowners insurance, your insurance carrier will ask whether you have any pets or other animals. If you have a dog, they will ask what breed Rover is and whether he has ever bitten in the past. If your dog’s breed is on their concern list or if it has a bite history, many carriers are likely to decline to insure your home at all.
So the unfortunate reality is that owning certain dogs could make it more difficult for you to get Homeowners insurance. While some dog breeds might be unacceptable with one carrier but acceptable with others, there are some dogs that may be uninsurable by practically any carrier.
In some cases, your best option might be to find a carrier willing to exclude your dog. But be aware, this often comes as part of a broader exclusion for any other dogs you own or even any other animals that you own. Also, only a few companies are even willing to do this. Once you do find such a carrier, you are still in the uncomfortable position of being on the hook financially if your dog bites, or even if he or she runs out in the road and causes a car accident.
Of course, your other option would be to buy property-only insurance without any liability coverage at all. This leaves you even less protected and is definitely not something that I would recommend. Also, this is not likely to save you any money, as preferred-priced Homeowners policies build in liability coverage automatically; so non-standard policies where liability coverage is optional tend to be more expensive to begin with.
If you have a pet considered uninsurable, that doesn’t make them any less apart of your family. This could leave you quite frustrated as to what to do. My recommendation would be to talk to an independent agent. Unlike exclusive agents who represent just one carrier, independent agents like me have a number of companies available and can often find a solution for hard-to-insure situations.
Getting into an accident is no fun. It can certainly be a traumatic experience, and it’s almost always an inconvenience and disruption to your life. What’s even worse is when your insurance rates go up on top of all that. Unfortunately, it is the reality that Auto insurance rates are based on your statistical level of risk.
After an accident, when your next renewal arrives, your insurance company re-assesses your comparative level of risk as a driver and adjusts your rates accordingly. Auto policies are written for either a six or twelve-month term; so your next renewal could be anywhere from a month to a year down the road. When your next renewal does come, your rates are likely to go up because you are now statistically more likely to have a future loss than you were before.
So how much will your rates go up at renewal? Unfortunately, this can be difficult to predict. The rates you pay have been filed by your carrier with the state, but they are quite complex. I often see increases that range anywhere from fifteen to fifty percent after an accident. Obviously, that’s a big range, and I’ve definitely seen cases outside that range as well.
One thing worth mentioning is that the amount your premium increases is not based on the amount that was paid out on your claim. This is because your rates reflect your statistical likelihood of filing a claim in the future; it's not about recouping what was paid out in the past. (However, some carriers may not raise your rates if your claim was under a certain amount, such as $500 or $1000.)
Most insurance companies surcharge accidents for a three-year period. This means that at your next renewal after the accident’s third anniversary, typically you’ll see your rates go down. However, many carriers also have a safe driver discount that can look back as far as five years; so there could be some effect on your rates for up to five years.
But what about not-at-fault accidents? By and large, you shouldn’t see a big rate increase if the accident was someone else’s fault. Keep in mind, however, that if the insurance company pays a claim for collision damage to your vehicle and there weren’t any other drivers involved, the accident is automatically considered your fault. So, unfortunately, if you back into a tree, hit a parked car or slide into the ditch due to icy conditions, your rates will go up just as much as if you fall asleep at the wheel and cause a five-car pileup.
So is it a good plan to switch carriers after an accident to avoid the rate increase? If only it were that simple. Because insurance companies base their rates on your likelihood of having a loss in the future not as a means to recoup what they paid out in the past, any other carrier you ask for a quote is likely to surcharge your accident just the same as if your accident had been with them. This doesn’t mean that you can never find a better deal with another carrier, but it’s unlikely you’ll be able to avoid any increase in insurance cost.
You may have heard about a friend being non-renewed by their carrier after they have had an accident. The good news is that this doesn’t happen as much in Minnesota as in other states, because of Minnesota’s consumer protection laws. However, if you’ve already had other accidents or tickets in the past three years, it is possible that your most recent accident could be the straw that breaks the camel’s back and allows your carrier to legally non-renew you. In that case, you would have to move to a new carrier willing to accept your driving record, and unfortunately the rates you find might not be pleasant.
It’s worth noting that there are now a number of insurance carriers offering optional accident forgiveness, which means they won't surcharge your first accident. You have to pay extra to add this feature up front before your accident happens; it doesn’t apply to an accident you’ve already had. Typically, only your first accident in a three-year period is forgiven. In my office, two of my eight carriers offer this option.
When working with my clients, I realize that an accident is an unpleasant experience for my clients, and I try hard to help and guide them through the claim process and also dealing with the affect in their rates afterward. Sometimes I can find clients a better option with another carrier; or we can talk about other ways to cut costs if need be. If you’ve been in an accident and need assistance, let me know how I can help.
Here in northern Minnesota, many of us look for more ways to spend time outdoors during our long cold winters. One such opportunity many enjoy is to relax in an outdoor hot tube after a long hard day. As I write this post, fall is in the air and homeowners are contemplating a new hot tub purchase or are preparing their existing tub for the upcoming season.
Clients often call me to “add their new hot tub” or to make sure their hot tub is covered under their Homeowners policy. Good news! If you have a standard Homeowners policy, your hot tub is already covered; if it catches on fire, gets hit by a falling tree, is stolen or is damaged by hail or even vandalism, you should be good to go.
However, we should stop and ask: What is most likely to happen to your hot tub? Odds are that you’re not going to have a thief back up a flatbed and load it up using their forklift. It’s not even very likely that it will burn up in a fire. What is likely is that the water in your tub could freeze, destroying the shell, mechanics and/or plumbing beyond repair. I’ve had this happen to several clients, and the cause could be either a loss of power or a failure or breakdown of the heating system in the tub.
Now if knew about this right away, of course you would either quickly fix the issue or else drain the tub before the water cools enough to freeze. But what if you don’t realize there is an issue until it is already too late? If you use your tub every few days, that is plenty of time for something to have gone wrong since its last use and for the water in the tub to freeze.
So, if the worst happens and your hot tub is totaled by freezing, will your Homeowners policy cover its replacement? I wish this were a simple question; however, unfortunately it is not. What I have found in my research is that the answer to this question may depend on a) what exactly went wrong that resulted in the freeze; b) whether your carrier classifies the tub as part of your dwelling, a detached structure or personal property; c) what optional coverages your policy includes and d) how your carrier interprets several vague provisions contained in your policy.
I’m sorry if this doesn’t sound very re-assuring. The honest truth is that you probably aren’t going to be able to know in advance whether a potential freezing claim would be covered. However, there are a couple things you can do now to make an uncovered loss less likely.
First, an ounce of prevention is definitely worth of pound of cure. Talk to your hot tub dealer or an electrician about installing some kind of warning light or alarm that will let you know if you lose power to the tub. If you were able to install an alarm system that directly monitors the temperature of your water, that would be even better. If you have a way to be notified of a heating failure before your water freezes, you’ve reduced your need to worry about whether a resulting loss would be covered.
Secondly, contact your agent and ask them to check with your carrier as to a) whether your hot tub falls under your Dwelling, Other Structures or Personal Property coverage and b) once this is known, whether there are any optional coverages that can be added that make coverage more likely or more complete. For example, if your hot tub is considered personal property, make sure your personal property is covered at replacement cost coverage (you want this anyway) and consider beefing up your personal property coverage from Named Peril to Open Peril (aka, upgrade your HO3 to an HO5). Also, make sure that your applicable policy limit is high enough to factor in the added value of the hot tub.
Any hot tub coverage discussion would not be complete without mentioning the unthinkable risk of a small child drowning in your hot tub. While you might be careful to supervise children whenever they use the tub, what if a neighbor kid wandered over while you were gone and climbed in the tub? For this reason, I recommend installing a locking mechanism on your outdoor hot tub and making sure it is engaged when not in use. If the worst did happen, most Homeowners policies would cover your liability for this accident, but occasionally we see a policy that excludes or limits such coverage; so you should confirm your hot tub liability coverage by reviewing your policy and/or calling your agent or carrier.
We are privileged here in the North Country to have numerous beautiful log homes adorning our lake shores and wooded areas. You may have heard that these homes are harder to insure, and this can certainly be true. Many insurance companies aren’t willing to insure log homes, and when you find insurance, it may be more expensive than if you lived in a wood frame home of similar size.
First, a point of clarification. Not all homes that look like log homes are actually log homes. Log siding often creates a log home look but is not true log construction. An easy way to tell the difference with a casual glance is to look at the corners of the home. If it is a true log home, the logs will extend through the corners. If it is a frame home with log siding, you will see trim boards in the corners. In my experience, you shouldn’t have any issues insuring a frame home with log siding.
But, assuming you do have a true log home, why are many insurance companies unwilling to insure it? Some of it may have to do with the uncertainty of how much premium to charge. With a frame home, if a portion of an exterior wall is damaged, repair is often as simple as replacing a few studs and some pieces of siding. But with a log home, will all the logs on that side of the home have to replaced? Is that even possible without tearing down the home and rebuilding it? And will contractors skilled to work on log homes be a lot more expensive? And if the home does have to be rebuilt, how do they even estimate what that would cost? These are some of the questions that may make many insurance companies walk away.
A common misconception is that log homes are harder to insure because of their increased fire danger. From what I have read and heard, log homes really don’t pose an increased fire risk, especially those with larger sized logs. Common sense would say that it is more likely that a home with 2x4 or 2x6 wood studs will burn to the ground than at a home with logs of an eight to twelve inch diameter. Having said that, there are things in a log home that will burn, and most log homes tend to be located further from their fire department, which does makes them harder to insure.
Once you find an insurance company willing to insure a log home, you might have to pay more to cover it, for several reasons. One reason is that many times a lot of the most competitive carriers don’t insure log homes. Secondly, the distance from fire departments of the average log home also makes it more expensive to insure. A log home may be more likely to feature wood heat, which may also affect insurance cost. An insurance carrier may also not offer its biggest discounts for log homes, due to the perceived increased risk.
Another issue with the cost of coverage is the increased replacement cost. A log home will often cost more to rebuild than frame construction of a similar size. Because standard Homeowners policies largely base their premium on estimated replacement cost, this is going to affect how much it costs to insure the home.
If you own or are buying a log home and are struggling to find good insurance at a fair price, you should talk to an independent agent. Independent agents represent a number of different insurance companies and will normally have options to insure your log home. As an example, here at Pine Country Insurance I represent a handful of carriers who insure log homes and am can usually offer log home owners a reasonably priced policy.
Perhaps you find the insurance transaction to be a bit of a mystery. You may wonder what happens to the money you pay in premium and how the agent who services you gets compensated for his or her time.
Insurance agencies are normally compensated in the form of commissions received from the insurance company (or sometimes subtracted from the premium the agency forwards to the carrier). In Home & Auto insurance, this is usually a percentage of the premium, most often in the range of eight to fifteen percent. In Health insurance, commission is usually a set dollar amount per policy per month. Either way, this commission compensates the agency for its marketing costs, for assisting its clients in purchasing coverage and for providing continued service to the customer.
Beyond commission, the other common form of compensation is profit sharing. Profit sharing is basically an agreement between the insurance company and the agency that if the agency does a good job of screening and discretion in what policies it places with the carrier and if this performance leads to the insurance company turning a profit on the agency’s business in a given year, the insurance carrier will share some of this profit with its agency partner, recognizing and rewarding the agency’s role in creating this profit. Quite often there is a minimum amount of business that the agency must have with the carrier and there may also be growth requirements attached. Not all insurance companies pay profit sharing.
Some agencies are also paid via fees billed directly to the customer. These fees could be instead of commission or in addition to it, and they could be a set dollar amount for certain services or could be a percentage of premium paid. Fee assessment is probably more common in larger insurance agencies and brokerages than it is in local agencies. We don’t charge customers any fees at Pine Country Insurance.
Here’s an example of how an agency is paid and where premium dollars go. Let’s say that in January Kala purchases Auto insurance from First Street Agency and signs up for auto-pay. First Street Agency places her insurance with Gopher Mutual. Gopher Mutual takes $83 a month out of Susie’s checking account and pays First Street Agency $12 per month (14 percent) in commission.
At the end of the year, Kala had paid $1000 in premium to Gopher Mutual. Good news! It was a good year; there weren’t any major storms in the state and Gopher Mutual’s customers didn’t have too many major accidents. So, out of the $1000 Kala paid for the year, Gopher only had to use $430 to pay customer’s claims. It did also use $260 to pay its operating costs and it paid $140 to First Street Agency in commission. This left $170 in profit. Gopher shared $20 of this profit with First Street Agency and much of the rest it placed in reserve in case there are more storms or accidents next year.
While your actual insurance transactions will be different from the example above, I hope this post adds some transparency to the process of agency compensation and where your insurance premium dollar actually goes. I welcome any questions you might have!
Here in Minnesota lake country, many of us who live on water make a sizable investment in our boat lifts and docks, and of course we want to make sure that they are insured.
First, the good news: Your dock or boat lift which is on your residence premises would be covered by a standard Homeowners policy, either as a structure or as personal property, subject to the policy deductible. However, there are several important caveats; so keep reading.
First, your dock or lift is not going to be covered if damaged by waves. While Homeowners policies cover wind damage, they don’t cover damage caused by water, even if the water is being driven by the wind. So if wind-driven waves knock loose your dock or lift from its moorings, expect to be on your own for the cost of the damage. However, if the force of wind directly causes damage to the dock or lift, that loss should be covered.
Secondly, your dock or lift is also not covered against damage caused by ice. If you leave your dock in the water over the winter and moving ice shelves destroy it during spring thaw, your Homeowners carrier is likely to deny that claim. Or if you leave in your boat lift and the pressure from freezing or thawing of the ice around it causes damage, again, this is most likely not covered.
Beyond these two troublesome exclusions, there are many situations where coverage could hinge on whether your dock or lift is considered a structure or personal property. This can matter because policy coverage provisions for structures and personal property are often quite different. If your dock or lift is permanently set in place and attached to its location, it is almost certainly a structure. However, most Minnesota lake dwellers pull their docks and lifts out of the water in the fall to protect them from ice damage. Is a movable structure still a structure? The answer to this question may depend on which insurance company you ask. (This means you probably do need to ask.)
If your movable dock or boat lift is not considered a structure, then it would be considered personal property and typically covered against loss caused by one of the perils named in the policy. This gives you coverage if it is directly damaged by wind during a storm. It also covers fire, vandalism and falling objects, among other perils. The other good news is that, as personal property, your dock or lift is covered anywhere in the world, even if it’s not located where you live. Finally, as long as your Homeowners policy covers personal property on a Replacement Cost basis, then your dock or lift will be covered for its cost to replace or repair, without a deduction for depreciation (when actually replaced or repaired).
Things can get a bit more complicated if your dock or lift is considered a structure. First of all, most Homeowners policies only cover structures located on your “residence premises”. So if you own a dock or lift located at a resort or on a vacant lake lot and it’s considered a structure, then you are going to need to add special coverage for it. (Many insurance companies offer an option to add coverage for structures located elsewhere; however, if your carrier doesn’t make this option available, it could be more difficult to get it insured.)
Another problem could be that it may not be clear whether your dock or lift is on the “residence premises” or not. Perhaps you have a camper setup at a resort which you insure as a seasonal residence. If your policy includes coverage for Other Structures, will it cover your boat lift located elsewhere in the resort? Or what if you have a dock where you live but your legal boundary stops just short of where it sits?
Standard (ISO) Homeowners policies define your “residence premises” as including the structures and grounds at the location of your insured home. In the case of a dock at the edge of your land but just beyond your property’s legal boundaries, my opinion would be that it’s at the same location of your home and therefore should be covered. However, not everyone agrees with my opinion, leaving some doubt. In the case of the boat lift located across the resort from the lot you occupy, there may still be an argument to be made in favor of coverage, but coverage seems even less certain. Also, be careful here, as some non-standard policies might define “residence premises” even more narrowly.
Just like personal property, a boat lift or dock considered a structure will be covered against direct damage from wind, fire, vandalism, falling objects and more. Unfortunately, if considered a structure, it is probably not going to be covered on a Replacement Cost basis. Standard policies cover “structures which are not buildings” on an Actual Cash Value basis, meaning a deduction will apply for depreciation, based on the age and condition.
It would certainly be nice if coverage for boat lifts and docks wasn’t so complicated. But given the issues that I’ve raised, I recommend contacting your agent to explain your situation (including exactly where your dock or lift is located, whether it is movable, etc.) and to discuss how and whether coverage applies under your policy. If you don’t have a knowledgeable personal agent to call, maybe it’s time to call me!
If you’re not married but live with your significant other, there may be insurance limitations of which you are not aware. In this post, I’ll explain the insurance problems that often apply to domestic partners and what you can do about them.
If either of you carry a Homeowners or Renters policy, you might assume that the policy’s personal property and liability coverage will automatically extend to the other partner. Unfortunately, this is usually not the case. A standard Homeowners or Renters policy provides personal property and liability coverage to “insured persons”. Typically, an “insured person” is the policyholder and his or her resident relatives.
This means that if a policyholder has children, parents, siblings or a spouse who live with them, these individuals are covered – but not the policyholder’s unmarried domestic partner. And while your policy may give you the option of choosing to cover your domestic partner's personal property after a loss, no such option exists in the event of a liability claim against them.
No one really expects a future liability claim, but think about this. Imagine your partner accidentally leaves the stove on which starts a fire, causing thousands of dollars of damage. Your insurance company pays for the damage but then sues your partner as the negligent party causing the damage. Since your partner is not an "insured person" in your policy, your carrier is fully within its rights to seek reimbursement from the responsible party.
So what can be done to extend coverage on your home policy to the partner you live with? There are a couple potential solutions.
In some cases, you may be able to make your home insurance a joint policy. This would mean that you share ownership and control of the policy with your partner, and you also share all the coverage. Normally a joint policy won’t cost any more than a policy written in just one name. The problem is getting a joint policy often requires that you both own the home. Or if you are a renter, some carriers may require that you are both on the lease. Another thing to keep in mind with a joint policy is that you will probably both be named on any claim checks or refund checks, which perhaps may not appeal to you.
Another solution which might be better is to add your partner as an additional “insured person”. This coverage option is often called the “Other Members of your Household endorsement". As the sole policyholder, you still maintain exclusive control and ownership of your policy and your partner probably won’t be named on claim checks. You will, however, usually pay an extra charge for this (often $50 to $75 per year), and this option is not available with all insurance companies.
Depending on who you are insured with, it is certainly possible that neither of these options may be available to you. In that event, there may be no way to cover your partner on your existing home policy, and your best course of action (short of changing carriers) may be for your partner to buy their own Renters policy. He or she will be able to buy a Renters policy even if they don’t actually rent, and if they bundle it with their Auto insurance, it may not add much cost at all.
Speaking of Auto insurance, there might be coverage issues there as well. Now, if you each own and insure your vehicle under separate policies, there shouldn’t be any major concerns. Both of you are covered under your own insurance, and if you drive your partner’s vehicle with their permission, their policy will cover you. (If you do drive your partner’s vehicle, we recommend making sure their coverage limits are at least as high as yours.)
But what if only one of you carries an Auto policy? Sometimes one person will be sole owner of both vehicles in the household – perhaps because they have better credit or are otherwise better positioned to take out a loan. In this situation, what often happens is that the partner owning the vehicles insures carries the insurance for both and lists their significant other on the policy as a driver.
If your partner carries Auto insurance listing you as a driver, you probably think you are worry free. The insurance company knows about you; so you are covered, right? Yes and no. While you are covered to drive your partner’s listed vehicles with his or her permission, you are lacking important policy coverage for non-owned vehicles.
If your significant other who carries the Auto policy borrows a vehicle, his or her policy provides backup coverage in case the borrowed vehicle isn’t insured or its insurance limits are lower than their own.* And when they rent a car, their Minnesota Auto policy covers that as well. This coverage usually extends to any “insured person” on their policy, but, just like home insurance, you’re likely not an “insured person” being their unmarried domestic partner. So, in this situation, you are covered to drive vehicles listed on their policy with their permission, but you are not covered by their policy to rent or borrow a car.
If this is your situation, what can you do to resolve this coverage gap? Depending on your carrier, in some cases it may be possible to make the auto insurance a joint policy. As with a joint home policy, you then share ownership and control of the policy and will both be listed on claim or refund checks. Both of you enjoy all the policy coverage. But a certain percentage of insurance companies won’t write a joint policy unless there is a jointly titled vehicle.
At Pine Country Insurance, we represent multiple insurance companies, and our carriers’ rules pertaining to domestic partners vary. This choice of insurance carriers usually gives us the flexibility to get both individuals fully insured, if so requested. But we don’t always know when our clients living situation changes. So we advise calling your agent when things change to see if any insurance updates are needed.
*Coverage under standard Auto policies for a vehicle borrowed by an “insured person” typically applies as long as the vehicle is not furnished or available for the regular use of an “insured person”.
One of the most frequent questions clients ask is whether they need to buy the optional insurance coverage when they rent a car. The good news is that if you are insured under a Minnesota personal auto policy, your obligation for damage to a rental car is covered! In addition, your Minnesota policy will extend your third-party liability, Uninsured/Underinsured Motorist and Personal Injury Protection coverages while you are driving the rental car.
What this means is that you probably don’t need to buy the extra covered offered by the rental car agency. I’m sure this comes as good news, as this feature of your Minnesota policy can easily save you anywhere from ten to fifty dollars a day in extra costs and fees!
The key is that you must have a personal auto policy issued in Minnesota. Other states’ policies do not cover damage to a rental car under Liability coverage. Typically, in most states, rental car damage is only covered if you carry physical damage coverage on at least one of your vehicles. But because Minnesota policies cover rental car damage under your Liability protection, it doesn’t matter whether you fully insure your own vehicle or not. Another benefit in Minnesota is that no deductible applies to rental car damage and you’re also protected against loss of use assessments.
Was your policy issued in Minnesota? A quick check of your insurance card should tell you. Look for the words “Minnesota Auto Policy” at the top of the card.
While your policy must be issued in Minnesota to work this way, you don’t have to rent the car within the Land of Ten Thousand Lakes to be covered. As long as you are within your policy’s coverage territory (typically the United States and Canada but not Mexico), your Minnesota rental car coverage will come with you. I do recommend bringing your Auto insurance card along on your trip, as the rental car agency may ask to see it. Also, please note that the out of state car rental shop is not likely to know how your Minnesota coverage works and may tell you things about your insurance that aren’t true.
A word of caution regarding drivers. As the renter of the vehicle, you will be responsible for any damage to the rental car regardless of who is driving. First, be careful not to break your contract by allowing someone else to drive who you didn't list as a driver on the rental agreement. Secondly, I have heard that some policies may exclude damage caused by drivers not listed on your Auto policy; so it's probably best to restrict driving to people listed both on your Auto policy and your rental car contract.
So what is considered a rental car? State law defines a rental car as a private passenger vehicle, including a pickup truck or van (as defined by statute). Also included is a rented truck with a registered gross vehicle weight of 26,000 pounds or less. This means that if you are moving and rent a UHaul or other similar truck, your Minnesota personal auto policy may cover any damage to it, as long as it is within this weight limit. (To find out the registered gross vehicle weight of the truck you will be renting, call the truck rental agency or check their website. Getting this in writing is best!)
Another stipulation is that you must also be renting the vehicle for no more than one month. If either your rental agreement or your rate of payment is based on a period of longer than a single month, it is not considered a rental vehicle and is likely not covered under your policy at all. In addition, the rental contract cannot have a purchase or buyout option.
Let’s say you were planning to vacation in Hawaii for two or three months one winter and found a company online willing to rent you a car while you are there. Unfortunately, if you rent the same car on the same rental agreement for your entire stay, your auto policy likely provides no coverage at all.
Another very important requirement is that you must be an “insured person" under the policy in question in order for the rental car coverage to apply. An “insured person” typically includes the policyholder (aka the “named insured”) and his or her resident relatives. Unfortunately, just because you are listed on the policy as a driver does not necessarily make you an “insured person” when renting or driving other vehicles.
Here’s a couple examples of when rental car coverage wouldn’t apply. First, let’s say you live with your significant other but are not married and the auto policy is just in their name. Whether or not you are listed on their policy as a driver, you’re probably not an “insured person”. You may be covered to drive their vehicle with their permission, but you’re not covered to drive or rent anything else, because you are not related to the policyholder.
You must also be a resident of the policyholder’s household to be an “insured person”. Let’s say your 22-year-old child finally moves out into their own apartment. However, to save them money, you keep them on your Auto policy. Unfortunately, we’d probably have to presume that they are no longer a “resident relative” and therefore no longer an “insured person”. While they may still be shown on your policy as a driver and still be covered to drive listed vehicles with your permission, they aren’t covered when they drive any other vehicles or when they rent a car.
One final word of caution relates to your auto policy’s Liability limits. State law requires your Minnesota policy to make available a minimum of $35,000 in Property Damage Liability for damage to your rental car, but what if you damage someone else’s vehicle in the accident as well? Or what if the car or truck you are renting is worth more than $35,000? Before you rent that vehicle, check your policy’s Property Damage Liability limit and whether you feel comfortable that it is enough.
Part 2: Closing on your Home
This post is part 2 of a two part series. Part 1 covered what to look for when shopping for your home.
So, you have found the home you wish to purchase! I’m sure you are very excited. You have a signed purchase agreement and a target closing date which is likely 6 to 8 weeks away.
Your first step, of course, will be to talk to your lender to get the ball rolling on your mortgage. At this point, your lender is likely to give you a document called a Good Faith Estimate. Among other things, this estimates how much cash you will need to pay in closing costs.
Part of your closing costs will be your first year’s Homeowners insurance (often referred to as “Hazard insurance” by the mortgage industry). On their Good Faith Estimate, your lender will guess how much this home insurance will cost you. Keep in mind that this is only a guess; your lender is not an insurance expert and is not basing this number on the many factors that affect insurance rate. Rather, this estimated insurance premium is likely a round number based on averages they see for homes with similar purchase prices.
Within the first couple weeks after your accepted offer, it will be good to get the ball rolling on your Homeowners insurance. If you already have a relationship with a trusted local insurance agent, you will likely call him or her and advise them of the home you are buying so that they can put together a proposal to insure it. If you don’t have this kind of existing relationship, now is the time you will need to choose an agent. I find that this is the situation for first-time homebuyers more often than not; frequently young people buy their Auto insurance online, through an out-of-town agent or under their parents until they buy their first home.
If you do need to choose an insurance agent at this point, I recommend thinking big picture. Sometimes people choose their agent simply by calling around and seeing who is offering the lowest insurance premium today. While it’s definitely important to get a good price for your new Homeowners insurance, it’s equally important to get a good agent – someone who you can begin a relationship with and trust to assist you with your insurance needs for months and years to come. So I recommend interviewing your prospective agent(s) and asking them questions other than just how much their current rates are. For much more about questions to ask, please read my post How to Choose an Insurance Agent.
Getting a Quote
The agent(s) you reach out to will need to gather information about the home you are buying. If it was listed through a realtor, they will likely pull up the listing information online. This tells the agent a fair amount about the home, but they may have more in depth questions to ask you, for example the age and type of components such as the roof, heating, plumbing and electrical. What I’ve found is that the average buyer often doesn’t know these details, and so I’ll often ask homebuyers to forward me a copy of their home inspection report, which typically will answer most of these questions. For further discussion of how these home components affect your insurance, read my post Insuring an Older Home.
Your agent will also ask you questions that are more personal in nature. Have you had prior Homeowners or Renters insurance, and have you recently filed any claims? Do you have any animals and, if so, what kind? (If you have a dog, what is the breed and has it ever bitten?) Will you have a swimming pool or trampoline on premises? Will you conduct any business out of your home? Will you occupy this home as your primary residence? These questions, and others like them, will be used by the agent to confirm what policy and coverage you will qualify for and may affect the rate you pay as well.
At this point, it will probably also be good to talk to the agent about bundling your Homeowners and Auto insurance together. Most Homeowners carriers give large discounts (typically ranging from ten to thirty percent) if you also buy your Auto insurance through them as well. Another reason to consider bundling is that in our current market in Minnesota, many carriers don’t even offer unbundled Homeowners insurance, and sometimes these are the carriers with the best rates. While there are exceptions, in many cases you are likely to pay ten to fifty percent more for your Homeowners insurance if it isn’t bundled with your Auto insurance. Please note that bundling Home & Auto together doesn’t mean that they have to be paid together; usually that is not the case as your Homeowners is paid through your mortgage while you pay your Auto insurance yourself.
After the agent has all the information they need, they will need to put together a proposal for you. If you are talking to an independent agent such as us, the agent will likely be checking into several different insurance companies to find you the best value. Depending on the complexity of your situation, how many companies the agent is quoting and how many other quotes they are working on at the time, this quoting process may take a few days. This is a reason not to put off starting the insurance process until a couple weeks before your closing date!
If you talk to more than one agent, once you receive their quotes, you will need to compare and decide which agent you wish to choose. Again, I recommend basing this decision on more than just price! While price will be the most obvious way to compare, a minor difference in premium won’t seem nearly as important down the road if you have a loss and need to file a claim. I encourage you to ask questions of each agent, to try to understand how their proposed coverage might vary and how well you feel you can work with them going forward. (An important note: If you are buying a manufactured home, read my blog post Buyer Beware When Insuring your Mobile Home.)
Meeting With your Agent
Once you have reviewed the insurance proposal(s) and you have chosen the agent who you wish to use, the next step is typically meeting with your agent to sign an application for insurance. Here’s where the agent you choose will make a difference: While many agents may simply just tell you where to sign the application, it’s my opinion that a good agent is going to take the time to sit down with you, explain the coverage you are buying and go over the options and choices you can make to customize your insurance policy. We have this discussion with every new client, and I’ve been told by many new customers that this was the first time anyone ever explained their insurance to them.
Once your agent has a signed insurance application, he or she will be able to send a binder to your mortgage lender. A binder is a document that confirms that your insurance coverage will be effective on the date of closing. It indicates how much the home will be insured for, advises of the type of coverage and the deductible, shows the annual premium and it displays the mortgage company who will be listed on your policy. This document is required for your lender to prepare your final closing documents. Most lenders want a binder at least one or two weeks prior to closing.
Paying for your insurance
As referenced above, when you arrive at closing, you will be paying for your first year’s worth of home insurance. Then, starting with your first monthly mortgage payment, your bank will deposit part of that payment into your escrow account to cover future property taxes and insurance that will come due. Basically, you will be paying one-twelfth of your annual Homeowners insurance premium every month as part of the mortgage payment. Those amounts will sit in your escrow account until your home policy renews a year after closing, at which time your mortgage company will pay your next year’s insurance premium. More information about escrow accounts.
While I've talked to some first-time home buyers who assumed that it’s up to their mortgage company to take care of their Homeowners insurance, in reality this important decision is your responsibility to make. While your mortgage company might be the one writing the check to your insurance carrier, they’re using your money to do so. Homeowners insurance policies provide much more protection than just covering the home as collateral for your loan. A good Homeowners policy also covers your equity in the home, your personal property and your personal liability. It even covers your increased living costs if you can’t occupy your home due to a covered loss. So choosing the right coverage – and agent! – is an important decision you will make as a new homeowner.
In the earlier post How to Choose an Insurance Agent, I put together a list of questions I’d encourage insurance consumers to use when interviewing a perspective insurance agent. In this post, I’ll actually provide my own answers to each of these questions.
1. How long have you been in the insurance industry? I started in the insurance industry in 1999 and have been full-time in the Home & Auto side of the industry since early 2000. Over that time, I have gained a great deal of experience and knowledge in the lines I specialize in - Home, Auto and Health insurance.
2. What insurance education have your completed? I am one of a small handful of agents in the Bemidji area who hold the Certified Insurance Counselor (CIC) designation. I earned this through successfully completing five years of annual advanced insurance coursework. In order to remain a member of the Society of CIC, I also continue my education by annually completing a multi-day advanced insurance course.
3. Do you read policy contracts? The Society of CIC to which I belong stresses the importance of each member agent reading policy contracts to understand what insurance policies cover. While I certainly can’t function as your attorney or provide legal advice, I do take significant time to review common policy forms and endorsements, so that I have a good feel for the coverage that I am offering, enabling me to answer your questions accurately. Please note that the fact that I work to be familiar with the policy contracts I regularly use does not mean that I have not thoroughly reviewed every page of every policy contract that I ever sell. Also it is still your responsibility to ready your policy carefully.
4. Do you sell insurance solely based on price? While it’s always my goal to provide a competitive premium for my clients and prospects, I try very hard to make the insurance buying decision about more than just a price comparison. Rates may be the easiest thing to compare, but you’re not buying a price; you’re buying protection. That’s why I sit down with clients when writing new insurance to explain their coverage selections to them and make sure they make an educated insurance buying decision.
5. How long do you plan to remain in the insurance business? As I write this a couple months short of my fortieth birthday, I anticipate remaining in the business locally for several more decades. While no one knows what life holds in store, my new clients can feel confident in choosing an agent likely to be around for them for some time to come.
6. Are you a jack of all trades or do you have a specific expertise or focus? While many agents dip their toes in many waters by insuring a little bit of everything, I have chosen to narrow my focus so that I can be more of an expert at what I do. For that reason, I don’t offer commercial insurance for businesses. I don’t offer group health, and I refer out all but the simplest life insurance requests. My focus is on personal insurance – Home, Auto, toys, Umbrella and individual and family health coverage.
7. Will you explain my coverage and options when starting a new policy? As mentioned earlier, with each new policy I sell, I sit down with my client (usually in person and sometimes over the phone) to provide an overview of the coverage being offered and explain the selections and options that they have within the policy being purchased. I have had many new clients remark that this is the first time someone has ever explained their insurance to them. (It is still your responsibility to read your policy carefully.)
8. Are you an independent or exclusive agent? Unlike exclusive agents who can offer insurance from just one company, I am an independent agent contracted with a number of different insurance companies. This allows me to choose from multiple options in order to provide clients a good value.
9. If my rates go up later on, what will you be able to do to help? Because I’m independent and represent multiple carriers, I can often respond to a rate increase by offering my client continued coverage with another company. This allows us to continue our relationship; my client doesn’t have to go out and find a new insurance agent just because they need a different insurance company. Having said that, it’s also true that there are times when rate increases are unavoidable, such as if the whole industry is raising rates or perhaps after an accident. Also, there will always be some inflation in insurance, just as there is in other products and services that you buy.
10. What service will you provide if I have a claim? I believe that filing a claim is the moment of truth in my relationship with my clients, and so I work hard to be there for and follow up with clients during the claim process. I encourage clients to call me after a loss, so that we can discuss their situation and I can help them report the claim if appropriate. I try to explain the claim process up front and then follow up with clients later on to see how the claim is progressing.
11. What options will I have for communicating with you? Many of my clients communicate with me via email or texts, while others prefer phone. At the time of this writing, we are also testing a live chat feature on our website, as another method of instant communication during business hours. Of course, you can always visit our office, which is open 9-5 Monday through Friday in downtown Bemidji.
12. What is your standard for returning phone calls and emails? While things can certainly get busy at times in the office, I am able to return a majority of calls and emails within one or two business hours, and I reply to almost a hundred percent on the same business day.
13. Do you contact clients on a regular basis to check in or to offer an annual review? I understand that most of my client’s lives are quite busy and they probably don’t think about their insurance all that often. That’s why we proactively reach out via email or mail once a year, asking our client to complete a brief survey, which is intended to flesh out if there are any obvious needs or questions that should be addressed. This survey also asks if our client would like to schedule an annual review meeting face to face (occasionally over the phone). Over the last few months, I’ve also begun sending an email newsletter twice a month, which contains helpful living tips as well as links to recent blog posts on relevant insurance topics.
14. Are you active in your community? I’m currently a member of the Bemidji Rotary Club, the Bemidji Area Sertoma Club, Northern Exposure BNI and serve on the Bemidji Chamber Public Affairs committee. As of this post, I’m currently President-Elect of Bemidji Rotary and have previously served as president of Sertoma, BNI and the Bemidji Downtown Alliance.
15. What is your standard of ethics? I believe that trust is the most important aspect of the insurance transaction. Occasionally, I talk to a current or prospective client who would prefer that I lie or withhold information from the insurance company in order to get him or her a lower rate or more favorable coverage. However, I believe it would be better to walk away from that business than to default on the ethical responsibilities I have as an agent. Here’s the plain truth: If your agent is willing to lie for you, how can you trust them not to lie to you?
16. Are you a farmer or a hunter? While a “hunter agent” is primarily concerned with placing as much new business on the books as quickly as possible, I prefer farming. Farming is all about cultivating long term relationships based on trust. I have not grown my business as fast as some, but I’ve tried to grow it right.
17. Will you make me any type of written pledge or promise of how you will perform as my agent? As a Trusted Choice agent, I have adopted and strive to live up to this pledge of performance.
18. Why should I entrust my insurance protection to you? This question is where the rubber meets the road. Enabled by my choice of multiple insurance companies and my years of education and experience in the industry, I work to earn your business by offering a good insurance value, explaining and assisting you in customizing your coverage - with the goal of building a long-term relationship based on trust.
Part 1: Shopping for your home
This post is part 1 of a 2 part series. Part 2 covers 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 Part 2 of this series, I guide you through the insurance aspects of the closing process, from the point that you sign the purchase agreement through the day you close.
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.
Interview Questions to Ask
Earlier this week, a first-time homebuyer called me for an insurance quote. After I gone over the information necessary to prepare his proposal, I asked if he had any questions for me. He asked me, "When I call around to your competitors, what questions should I ask them?" I thought that was a great question - one worth answering via a dedicated blog post.
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.
Update on 7/28/17: Want to know how I would answer these questions? Today's new post features my own reply to each of the questions above.
There have been a few cases in the past when a client has mentioned something that they'd prefer I not to share with their insurance company, sometimes implying that I should 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 I enjoy providing clients with pricing information to assist in making decisions, there have been cases in which I've felt a client was actually asking for coaching on how to answer the 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, ice house, 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.
Having water in your home is great when it stays in its proper spots – within your pipes, toilet, sink or tub. But water can quickly create a lot of damage and cleanup expense in your home if it gets let loose. My clients often ask me if their Homeowners policy covers water damage. The answer is that it all depends on where the water came from.
Water damage could come from a leak in a water line (usually covered) or from a leak in your roof (usually covered) or from seepage in through basement walls (hardly ever covered) or from flooding of normally dry ground (virtually never covered without separate Flood insurance). It can also come from water that backs up from sewers or drains or overflows from a sump pump, and that is what we want to discuss in today’s post.
Most standard Homeowners policies do not cover water backup or sump pump overflow automatically. Typically, this is an option that you can add for additional premium. Most carriers will allow you to specify how large of a limit you’d like for this coverage, often in $5000 increments. Depending on your insurance company, the first $5000 in coverage may cost $25 to $100 per year, with higher limits going up from there. (Some carries only offer up to $5000 to $10,000 in coverage, while others offer maximum limits significantly higher.)
Many people in our area live in the country and rely on septic systems. We all know that septic systems sometimes freeze, especially in years where there is not sufficient snowfall to build up a good layer of insulation on top of the ground. If your septic freezes, your sewage may have no direction to go but back into your house, coming out through a toilet or other drain opening.
If you live in town, there could be a blockage that results in your sewage (along with the sewage of all your neighbors) backing up into your house as well. It has been my observation that the city may not be willing to pay for your cleanup or water damage, and you may be on your own if you don’t have the Water Backup option.
If you have a sump pump in your basement, this identifies another possible risk. The job of that pump is to remove ground water that has found its way into your basement. If the pump fails mechanically, loses power or is overwhelmed by extra water during a rainstorm or wet season, you could have quite the mess in your basement. If you have finished basement flooring or walls, your loss could easily be in the thousands of dollars for the repairs.
If you have a water or sewer backup or overflow in your home, the first step is to get everything dry and clean. Many homeowners will try to this themselves – maybe with a shop vac combined with household-grade fans. Unfortunately, this method is often insufficient to dry out flooring or walls, but sometimes homeowners aren’t aware of that until later when mold develops. The best thing to do in this situation is to call in a water restoration company, who can check for moisture content in walls and floors and has the proper equipment to get things dried out right. If dollars is tight, having insurance coverage to pay for this professional assistance can be huge.
Once you do get things properly dried out, there may be flooring, sheetrock and more that needs to be removed and replaced. Again, this can get quite expensive if you didn’t have Water Backup coverage on your policy.
The Water Backup coverage option can vary somewhat from carrier to carrier, but usually it will cover water damage from both the backup of sewers or drains and the failure of your sump pump if you have one. We encourage you to consider adding this valuable protection to your Homeowners insurance policy.
One question clients frequently ask me is what will happen if they buy a vehicle on the weekend and get in an accident on the way home – before they are able to reach me to add the vehicle to their insurance policy.
There is much confusion on this point. Some people have heard that you have ten days of free coverage or that you have a thirty-day window to call and add your vehicle. Neither of these are necessarily correct.
Most Personal Auto insurance policies do have a “newly acquired vehicle” provision. This provision provides a window of time after you buy a vehicle to report it and be covered as of the date you purchased it. However, there are several points of caution I’d like to share with you.
First caution tip: You need to have an existing policy in place. Once I had a prospective client come in. He had recently purchased a vehicle and been told by the dealer he had “thirty days to get it insured”. The problem was that he did not have an existing Auto insurance policy; so there was no policy to provide him a window to report the vehicle for retroactive coverage. If you are buying a vehicle and don’t already have Personal Auto insurance, you shouldn’t drive the vehicle off the lot.
Second caution tip: If you are the one buying the vehicle, you must have an insurance policy in your name. Let’s say Junior has been covered as a driver on Mom and Dad’s insurance for two years since he got his license. Now that he is 18, he goes out on a Saturday and buys a vehicle in his own name. Unfortunately, he gets into a wreck on Sunday evening. On Monday, Dad calls to report the vehicle and the accident and Junior and his parents confront an unwelcome surprise: The policy was in Dad and Mom’s name. Junior was just a driver. There was no reporting window to report the vehicle purchase, because Mom or Dad didn’t buy the vehicle. Junior needed to have arranged for coverage before he drove off the lot. (Similar issues can arise when buying a vehicle in the name of a trust or a business.)
Thirdly, there is no standard for how long you have to report your new vehicle. Different insurance companies set different time limits for different situations. Depending on your insurance carrier, whether it is an additional or replacement vehicle, what coverages you currently carry on other vehicles, what coverage you expect to receive on this vehicle and even where you are in your policy period, you may have as little as less than a day or as long as 364 days to report your vehicle for retroactive coverage. While most policies will provide at least 3-4 days in most situations and often you may have a couple weeks, there are exceptions. Some policies even include a stipulation that to have any reporting window at all, you must insure all autos that you own with them – a problem if you own an uninsured parked vehicle or maybe a collector vehicle on its own special policy.
Fourth, you don’t have any reporting period at all under your Personal Auto policy when you buy a boat, four-wheeler, snowmobile, motorhome, camper or even a motorcycle. This reporting period provided in your Auto policy typically applies to private passenger automobiles only – meaning cars, SUVs, light vans and light trucks (up to one ton, usually). Of course, if you already have a Motorcycle policy in force, it may give you some kind of a reporting period for buying a second motorcycle. But if it is your first bike, you definitely aren’t covered if you just drive it off the lot.
Finally, this reporting period is not free coverage. When you call to add your vehicle effective the purchase date, you will have to pay for coverage back to the purchase date, assuming your request falls within the terms of your policy.
At this point hopefully you can understand why I’m saying that the issue of “coverage to drive off the lot” is not always as simple as many people think. That’s why I encourage you to call your personal insurance agent before you make a vehicle purchase to discuss your situation and confirm how much time you have to report your vehicle after you buy it. If you don’t have a relationship with a personal agent to get answers to these kinds of questions, then maybe we should talk.
The 6-8 weeks between an accepted offer and closing on a home can be a whirlwind of activity for you as a home buyer. There’s the inspection to go over and negotiate, water and septic inspections, appraisals, documents and more documents, unexpected fees that need to be covered at closing. Perhaps you don’t even think about insurance until the last minute, when your mortgage company reminds you. At that point, it might be tempting to quickly call around to a few insurance agents and blindly accept the lowest quote you receive.
If you happen to be buying is a mobile (i.e., “manufactured”) home, this could be a critical mistake on your part. Unlike insurance for stick built homes, there is very little degree of standardization among mobile home policies. Since you generally get what you pay for, if you take the lowest quote, you may be blissfully unaware of how inferior the coverage is that you selected.
So I repeat: Buyer Beware.
Issue Number One: How much coverage will apply to your dwelling? While it’s standard for stick-built home policies to insure your house for its estimated cost to rebuild (i.e., “Replacement Cost coverage), many mobile/manufactured home policies are written for “Actual Cash Value”, which means they insure the dwelling only for its current depreciated value. This means that if your home burned down, you’d have to go out and try to find another used mobile home in acceptable condition to move onto your property. Perhaps you’d find this level of coverage satisfactory and perhaps not, but it is important to know if that’s all the insurance you are buying.
This brings us to a second area of concern: Will you get paid enough to cover repairs after a smaller loss? Not if you purchase a Actual Cash Value policy. With Actual Cash Value coverage, the cost for covered repairs will be depreciated. As an example, let’s say a water line in your home breaks and it will cost $3000 to replace damaged flooring. Your insurance company assesses $900 in depreciation on top of your $500 deductible, paying only $1600 and leaving you to come up with $1400 for the new flooring. How happy will you be with this claim?
Actual Cash Value policies are virtually unheard of these days for stick-built primary residences, but they are quite common when insuring manufactured homes. Another point of caution is that some carriers sell policies that start out at Replacement Cost but then switch to Actual Cash Value after the home reaches a certain age – maybe 10 or 15 years old. While they disclose this coverage reduction in the renewal documents, I’m guessing many people either miss it entirely or don’t understand the how this change will affect them.
This is may be a good point to note that even with a true Replacement Cost policy, coverage on roofing shingles may be depreciated after the shingles reach a certain age (often 15 years old). While I don’t find this overly desirable for the average homeowner, it may be hard to find Replacement Cost coverage on your mobile home that doesn’t include this restriction.
Another area of concern comes to the amount and type of coverage for your personal property. Let’s say you are buying a 1200 square foot home. If only the home were stick built, it’s likely your policy would come with at least $100,000 in Replacement Cost Personal Property coverage. But the average policy for a 1200 square foot mobile home might only cover $10,000 to $30,000 for your personal property.
Also, if you aren’t careful, you could end up with Actual Cash Value Personal Property coverage on your manufactured home policy. This means any claim you file would be subject to depreciation. While some items such as jewelry or collectibles may actually increase in value over time, much of your personal property may be worth pennies on the dollar compared to what it will cost to repurchase it in the store. I can pretty much guarantee you that if don’t have Replacement Cost coverage for your personal property, you are going to be very disappointed and frustrated come claim time.
Another thing I often see in mobile home policies is very restrictive limits for certain types of personal property. For example, maybe the policy only covers up to $1500 for sporting equipment or only $2000 total for all electronics (including computers, TVs, cameras, mobile devices, etc.) While all Homeowners policies do limit some categories of items, the examples I just cited are much more extreme that anything you’re likely to find on a standard “stick-built” Homeowners policy. Worse yet, you’re not likely to even know about these limits, unless either read the full policy contract or are working with an agent who points them out.
It’s not that uncommon in the north country to see an older, dinky single wide mobile home with a huge beautiful shop right next to it. If you’re not careful, you could end up with only $5000 to $15,000 in coverage for that shop. Also, many manufatured home policies may deduct depreciation for any claims to the shop – in some cases even if you have Replacement Cost coverage on your dwelling!
These are not the only issues you may find in some mobile home policies, but they are certainly enough examples to highlight why it is important to be careful about what policy you buy for your mobile home. If you do choose to go with the lowest quote you receive, you should do so with the understanding that you may be receiving vastly inferior coverage to other options that might cost somewhat more.
One of the ways I try to provide better value as an agent is by sitting down with clients who are buying a new insurance policy and reviewing their options and highlights of the coverage which comes with the policy they are buying. I’d suggest that working with a professional, knowledgeable agent who will take the time to explain what you are buying is very important when you purchase coverage for your mobile home.
If you buy a brand new vehicle, you probably want to make sure that it is well insured. And while traditional “full coverage” will protect your vehicle, you might not be content with only being covered up to the depreciated value if your new vehicle is totaled in an accident or other loss.
Depending on what your insurance company offers, you likely have one, and possibly two, options to enhance this coverage on your new vehicle. Most companies offer Loan or Lease Gap coverage and a number of companies are beginning to offer New Car Replacement coverage as well. So which is better, or do you need either?
First, Gap coverage is designed to pay off the loan or lease on your vehicle if you owe more than the current value at the time of a total loss. If you didn’t make a large down-payment or receive much in the way of trade-in credit when you bought your vehicle, you could find yourself becoming “upside down” on your loan shortly after your new vehicle is purchased, due to the initial depreciation that often occurs when you drive it off the lot.
New Car Replacement coverage, however, is designed to pay what it will cost to replace your used vehicle with a new, current model year vehicle of the same make, model and options. Assuming that your loan balance is not more than the cost of a new vehicle, New Car Replacement will pay more for a total loss than Gap will.
Let’s say you bought a new Ford Escape nine months ago for $27,000. You paid $1000 down and financed the rest over six years. You added it to your insurance with a $500 deductible. Last week you were broadsided by another vehicle and your Escape was totaled. At this point, you still owe $23,000. Meanwhile, a new 2017 Ford Escape will cost $28,000. The insurance company appraises your vehicle at $21,000.
If you only chose basic “full coverage” for your vehicle, all you would get in this case is $20,500 (the appraised value minus your deductible), and you'll have to come up with $2500 out of pocket to payoff your loan. Or you may be able to roll this shortfall into a loan on your next vehicle, making you start even further “upside down” on your new loan.
If you chose Gap coverage, your insurance claim would pay $22,500 (the balance of your loan minus your deductible), leaving you only your deductible out of pocket to pay off your loan.
However, if you purchased New Car Replacement coverage and it is still in effect, your policy will pay $27,500 (the cost of current year's model minus your deductible). You’ll pay off your loan balance and still have around $4500 left as a down-payment on your next vehicle. If you do want a new Escape, you’ll be back in the position you started (minus your deductible) with a loan balance around $23,500.
Let’s take this same example and say that either you had paid cash for your 2015 Escape or you have already paid off the loan on it when your accident occurred. In that case, obviously Gap coverage would provide you no benefit at all, while New Car Replacement coverage will put you right back in the position that you started – with a brand new vehicle and no loan on it, after writing a check to the dealer for the amount of your deductible.
As you can see, New Car Replacement coverage will almost always pay better than Gap coverage. It might also cost a little more. Check with your insurance company, but on average, you might pay $2 to $5 per month for Gap, versus $4 to $8 a month for New Car Replacement.
With some carriers, you may be able to buy both Gap and Replacement together. This might be important, depending on how long your carrier allows you to keep New Car Replacement on your policy, which can vary from one to five years.
Since New Car Replacement is not yet a standardized coverage, there may be significant differences in how the coverage works between one carrier and the next; coverage may even vary from what is described here. Also, there can be restrictions on how much Gap coverage may pay as well. You should ask your insurance agent for specific information about what your carrier offers and read your policy contract carefully.
For simplicity of understanding, the settlement examples in this post do not mention the tax, title and license fees that your insurance company will add to the amount they pay you for your total loss settlement. This additional payment is intended to reimburse you for the fees you'll pay when you replace the vehicle.
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.