When people buy a new home, move to a new town or move into assisted living, often they may still own their old home for a period of time afterwards. Perhaps the plan is to put their home on the market or rent it out. Sometimes the home sits vacant for a while. In any case, the question comes up: If I move out of my old home, can I keep the insurance policy I already have, or will I need different insurance coverage?
This really comes down to who (if anyone) will be living in the home. Residential insurance policies are set up based on occupancy. Different policies allow for different occupancy situations, and when the occupancy changes, you often need to change policies. So who will occupy the home now that you have moved? Will a relative move in? Will you rent it out? Will you use it as a secondary residence? Or will it be unoccupied or vacant?
It’s likely that your old home is currently covered by a Homeowners policy. Homeowners policies are specifically intended only for owner occupied homes. So if you (the owner of the home) will no longer be living there, your old home will need a different kind of policy to insure it.
If you will be either renting out the home or having a friend or relative live there, you will probably need to switch to a Dwelling Fire policy. Dwelling Fire policies allow someone other than the owner to live in the home but are similar to Homeowners insurance in many respects. However, they typically don’t have the same coverage bells and whistles and are sometimes written with more restrictive perils and settlement terms. In addition, most Dwelling Fire policies are written with little or no personal property coverage, since it is the responsibility of the resident to buy their own Renters policy.
Because the risk of loss is perceived to be higher when someone other than the owner is living in the home, Dwelling Fire policies tend to cost more than Homeowners policies, at least when comparing the coverage being provided. While they are more flexible on who lives in the home, standard Dwelling Fire policies do require that the home be occupied by somebody.
So if no one will be living in the home while you put it up for sale, complete renovations or figure out what to do with it, you will need a third type of policy - a Vacant Dwelling policy. Technically this is a special version of Dwelling Fire coverage that allows for vacancy. A vacant home is considered much more risky, which is borne out in both the premium you will pay and the coverage you will receive. You may well pay as much or more for a Vacant Dwelling policy with far less coverage than you did for the Homeowners policy you previously carried.
As far as the restrictions in coverage found in Vacant Dwelling policies, covered perils tend to be more limited and loss settlement terms more restrictive. As an example, a Vacant Dwelling policy might not cover water damage resulting from a broken pipe, or it might deduct for depreciation rather than paying for the full cost of covered repairs. A Vacant Dwelling policy will probably be written only for the current value of the home, not what it would cost to rebuild it. It’s really a bare bones policy, compared to either a Homeowners or standard Dwelling Fire policy.
There is a scenario in which you might be able to keep your existing Homeowners policy in place - if you are moving your primary residence but plan to continue living in your old home on a secondary basis. For example, perhaps you bought a new home in another town because your spouse got a new job, but you’re still working in your old town and living at your old home all or part of the week. If you still have the home furnished and setup for living and are living there at least part time, your current Homeowners carrier may allow you to continue your policy, although they might make some changes in coverage or rate to reflect that it is now just a secondary residence.
Perhaps when moving out of your old home, the path of least resistance might seem to be to put off informing your insurance company or agent. Why not leave well enough alone? You are happy with the rate you are paying now and see no need to potentially pay more premium for less coverage. Unfortunately, this could prove financially devastating if a loss occurs your claim is denied. Because your current Homeowners policy is only intended for owner occupancy, it may have provisions that potentially void coverage if you are no longer living in the home (such as the common “where you reside” policy definition, or various carrier-specific terms and conditions).
So how long will you have to replace your policy after you move out? Really, this may depend on your insurance carrier. Some carriers may agree to insure your home until its next renewal. In other cases, a carrier might require (or have policy language requiring) you to get a new policy within a certain period of time, such as 30 or 60 days. Due to concerns with the common “where you reside” policy definition referenced above, it’s probably best to get this arrangement confirmed in writing with the carrier.
I hope you found this post informative and educational. If you have any questions about covering your old home after you move out, I’d love to hear from you!
In referring to the coverage provided by a “standard Dwelling Fire policy” above, we have in mind a DP3 (“Special Perils”) policy. Other, more restrictive Dwelling Fire policies are also offered and sold in the marketplace.
I’m often asked by clients at what point it makes sense to drop Collision and Comprehensive coverage off their car or truck as it gets older. Some people have heard that once a vehicle reaches the “magic age” of ten years old, these coverages should be dropped. Other people assume that as soon as they pay off their loan, perhaps it is time to drop down to “Liability only”.
Personally, I don’t think hard and fast rules like these make a lot of sense. Because if you’re asking at what point you should stop paying for physical damage coverage on your vehicle, then what you are really asking is at what point you should start self-insuring your vehicle.
In other words, if you drop your vehicle to “Liability only” and then a loss occurs, you may lose the entire value of the vehicle and may have to come up with a way to replace it out of your own pocket. So, by my way of thinking, the lower the value of the vehicle, the less you are risking if you self-insure it.
Financial advisors talk a lot about “risk tolerance” when it comes to choosing investments. I think the same thing applies to choosing a level of insurance coverage. How much risk are you willing to tolerate in order to save some premium? Would you gladly risk the loss of a $8000 car to save $20 a month in insurance cost? Or maybe you fall closer to the other extreme and would rather pay another $80 a month to avoid the potential loss of a $2500 vehicle?
As you can see, the question of risk tolerance is partly individual preference and another part about your financial position at the time. How well can you afford the higher monthly insurance payment? And also, how well can you afford to replace your vehicle if need be?
So when a client asks me for advice regarding dropping coverage on their aging vehicle, I first ask them if they know what it is worth. That’s step 1 - quantifying your risk. Step 2 is to quantify your savings; so I quote how much premium they would save if they did reduce coverage. Step 3 is to compare the risk with the savings and make a decision on what you feel comfortable with.
As discussed above, risk tolerance will vary from person to person, but I’d say that many of my clients will reduce coverage on a vehicle somewhere in the $2000 - $5000 value range. Again, this is a personal decision, as you will have to live with the consequences.
Once their vehicle value drops to four digits and their loan is paid off, some people will play this half way and drop their Collision but keep Comprehensive coverage. The reasoning often goes like this: “I’m a safe driver, and I don’t think I will cause an accident. The most likely way my vehicle would be damaged is if I hit a deer or a rock breaks my windshield.” This logic may have some merit, especially here in the north country where deer hits and broken windshields are our most frequent auto insurance claims. However, bear in mind that you may be the safest driver in the world, but that doesn’t mean that your vehicle won’t be hit while parked at the store or that you won’t be rear-ended at a stoplight by an uninsured driver. In both of these cases, it’s fairly likely that you will be out of luck if you weren’t carrying Collision coverage on your vehicle.
One factor worth noting is that as your vehicle value drops lower and lower, the likelihood increases of it being totaled out after even a minor mishap. If you are fully insuring a $1500 car, you need to be bear in mind that there is hardly any claim that you could have (except maybe glass damage) that is not going to total it out. If you are carrying a $500 deductible, this means that the most you could get for a claim on your $1500 car would be around $1000. If you were carrying a $1000 deductible on your $1500 car, your max payout would be $500 or so! For this reason, it may not make a lot of sense to fully insure a vehicle once the value drops below $2000.
So, about that “magic age” at which a vehicle should be dropped to “Liability only”. Is it eight years old? Ten years old? Maybe even twelve years old? To answer that question, let’s work frontwards, not backwards. I think we can all agree that there is a huge difference in value between a ten-year old four-wheel-drive pickup and a ten-year old 2 door coupe. So answer this: At what age will your vehicle’s value be low enough to make you comfortable risking its loss? Once you answer this question for yourself, you will know your vehicle’s “magic age”.
A question I’m often asked by current and prospective clients is why the amount of coverage on their home seems to be significantly higher than its market value. People will look at the policy Dwelling limit and compare it to a recent appraisal or tax valuation and notice that the numbers just don’t look quite right.
The reason that many homes are insured for more than their market value is that a Homeowners policy is usually intended to allow you to replace your home if it burns down, rather than just pay you the market value after a total loss. So most Homeowners policies are written based off a home’s estimate reconstruction cost – regardless of what the market value of the home might be.
My realtor friends tell me that it currently costs more to build than to buy. Meaning, that you can buy the same amount of home for less than it would cost you to build it new. While the market value of the home is dependent on a variety of factors often collectively referred to as “market conditions”, the cost to build a home on a given lot is solely dependent on construction costs.
The difference between the cost to build and buy can be especially out of whack with an older home. In many cases, older homes tend to be worth less in the real estate market than newer homes. However, it will cost just as much to rebuild an older home as it would if the home was brand new. (In some cases, it can cost a lot more to rebuild an older home if you want to build it back the way it was, if it uses vintage construction materials, for example.)
When putting together a new Homeowners insurance policy, I calculate a replacement cost estimate, typically using either CoreLogic or e2Value online software. To create the estimate, I input basic information about the home, such as the home style, square footage, location and type of components. The software then provides an estimate of what it would cost to rebuild the home like it is now. In most cases, this estimated replacement cost is used as the proposed amount of coverage for the new policy, subject to the review and agreement by my client.
As the name suggests, a replacement cost estimate is just that – an estimate. It is basically an average of what similar homes cost to build in the local area. While some software gets more detailed than others, a replacement cost estimate is not the same as an actual contractor bid to rebuild a home. It can run high or run low, and there is no guarantee that it is adequate or correct. Therefore, I always encourage my clients to review the amount and make sure that they are comfortable with it. Ultimately, it is your decision as the homeowner how much to insure your home for (subject, of course, to the rules and parameters of the insurance company as well as state law).
Sometimes I’ll run a replacement cost estimate on a brand-new home and it will come back well above what it just cost to build the home. Part of this may due to the estimate just being a lot off in this case. But in many cases, the cost to rebuild a home can be higher than the cost to build it the first time, especially if the home was built as part of a subdivision where the builders were working on multiple homes at once. When homes are being built as a group, there can be a lot of savings from what we call “economy of scale”. Not only may the contractor get a better deal on materials from buying in bulk, but the electrical, plumbing, heating, roofing and other subcontractors often charge less per home as well, since it is more efficient for them to work in a block of homes in same neighborhood.
While we see replacement cost estimates come in higher than the market value more often than not, this can work the other way too. This is often the case with lake homes, where a large portion of real estate value is in the land itself. Insurance policies do not insure land. If the home burns down, the owner will still have the value of the land; so the insurance policy only needs to pay to remove the debris and rebuild the home. (I have also seen this same phenomenon down in the metro area, where regular lot values are often much higher than they are here in northern Minnesota.)
But getting back to the more common scenario in our area, where the home’s estimated replacement cost is greater than its market value. The question often comes up, “Do I really need to insure my home for this much?” When a client asks me this question, I often reply with a question of my own, “If your home burns down, would you be happy just cashing out and walking away from the property, or would you want to at least have the option to rebuild?”
More often than not, my client replies that they’d like the option to rebuild. However, for clients answering that they would just want to “cash out” (or would rebuild much smaller), many carriers offer the option to insure for less than the estimated replacement cost. (When doing this, it’s important to make sure that the policy is written correctly to avoid a co-insurance penalty.) Properly written, we can often insure a home for as little as 50 or 60 percent of its replacement cost, but keep in mind that you will often pay a higher rate for the limit you do buy. So you may not save as much premium as you might think by purchasing a lower limit. This is because most Homeowners claims are not total losses, and the insurance company knows that they will have to pay the same amount to repair your home after it is damaged in a storm or by leaky pipe, regardless of whether you insure at 60 percent or 100 percent of replacement cost.*
As I mentioned earlier in this post, a replacement cost estimate is just an estimate, and it might be wrong. It might estimate high. It also might estimate low. For this reason, many carriers offer (or even automatically include) “Extended Replacement Cost” protection. This feature basically says that as long as you have kept your home insured for its estimated replacement cost and notified the carrier of any improvements or additions to your home, your carrier will pay over and above the policy limit, if necessary, to rebuild the home. This feature is usually capped at a percentage of the Dwelling limit, most frequently providing up to an additional 25 percent in protection.
*Assuming that the standard Homeowners co-insurance penalty has been properly modified or removed to avoid being underpaid on a covered repair for a partial loss.
I have found that there is a fair amount of confusion about insuring cargo and utility trailers. Some people have heard that coverage is automatic for trailers, while others have been told that they have to add insurance on the trailer for it to be covered. Which of these is true? Well, both actually!
There’s really two different types of coverage you may need or want for your trailer, and they work different ways under auto policies.
The first and most important coverage you need for your utility or cargo trailer is liability protection. Not only is this required by state law, but you also want it for your own peace of mind. If you swing too wide and hit something or someone or if your trailer becomes detached while driving down the road and causes damage or injury, you want to know that your insurance will cover your legal obligation to make things right financially.
The good news is that your Personal Auto policy* likely extends Liability coverage to whatever trailer you are pulling, either on a primary or secondary basis, in most cases. (A “secondary” basis would mean that if you are borrowing the trailer from someone else, the owner’s Auto insurance may be first in line to pay before your insurance.) So, if you have a valid Personal Auto policy* providing Liability coverage on at least one vehicle, this should cover you while towing a trailer in most circumstances.
There are some restrictions to this automatic Liability coverage for trailers. Generally speaking, the trailer needs to be small enough to be easily pulled by your personal vehicle. Your policy probably doesn’t provide coverage for a trailer owned by someone else but furnished or available for your regular use. (However, the owner’s policy might provide this coverage, if he or she is insured.) Your policy might exclude coverage for both your auto and your trailer while making deliveries or certain other business activities. (Other exclusions may apply; so you should read your policy carefully.)
To summarize, we’ve established that in most cases, you’ll have liability protection for your cargo or utility trailer without needing to specifically list it on your policy. For this reason, the state of Minnesota does not require you to show proof of insurance for a personal-use trailer.
But Liability coverage may not be the only insurance you desire. You may also want physical damage protection for your cargo or utility trailer. Meaning that if you swing too wide or make an error backing up, not only do you want to cover whatever else you damaged, you also want the damage to the trailer itself to be insured. In addition, you’d might also also want to make sure that your trailer is covered while parked - if a tree falls on it, if another vehicle backs into it or if the garage it is stored in burns down.
Unlike with Liability, your trailer is not automatically covered for physical damage under your Auto policy. Your Auto policy only provides Comprehensive and Collision coverage for owned vehicles that are actually listed on the policy. However, believe it or not, your Homeowners policy may provide a small amount of physical damage coverage for trailers, but this is usually limited to a small payout (often $1500 or so) and is also subject to your Homeowners deductible; so relying on Homeowners coverage is not a good solution either for a cargo or utility trailer worth several thousand dollars.
The bottom line is that if your cargo or utility trailer has some value that you would like to protect, your best option is usually to add it to your Personal Auto policy as an additional vehicle. Unlike insuring your cars, you will typically only pay for physical damage coverage, since Liability coverage extends to your owned trailer without additional premium. Covering cargo and utility trailers this way is relatively inexpensive; you will likely find cost to be between $5 and $10 a month in many cases.
Once you add Comprehensive and Collision coverage for your cargo or utility trailer, you can feel confident that its value will be protected against covered mishap, both while you are pulling it down the road and while it is parked in your yard, driveway or garage.
I hope this information has been helpful to you in understanding what coverage you already have, along with what additional coverage you may optionally desire to add for your cargo or utility trailer.
This post summarizes auto coverage under common Minnesota Personal Auto Policies only and only for non-commercial, personal use trailers. Coverage may vary in other situations. You should read your policy carefully for a full understanding of its terms and conditions. *Coverage for trailers you are pulling under a Minnesota Personal Auto policy assumes that you are a Named Insured or the resident relative of the Named Insured on the policy.
When you drive a car on Minnesota public roads, the state requires that it be insured. Minnesota also requires proof of insurance when registering an automobile. So you may be surprised to learn that the state does not require watercraft coverage. You can register your boat and use it on public lakes and rivers in our state with no insurance protection at all.
But while it is legal to skip Watercraft insurance, this is probably not be wise. While most boats are operated safely on Minnesota waters, each year there are dozens of boating accidents and a number of boating fatalities. If the worst happened and you were found legally responsible for a serious injury out on the water as the boat operator or owner, you could face a financially catastrophic loss if you weren’t carry Liability coverage on your boat.
The good news is that many owners of outboard-powered boats might have Liability coverage and not even be aware. This is because many Homeowners and Renters policies automatically extend Liability coverage to watercraft with outboard motors up to a certain horsepower, even while away from home out on the water. The maximum horsepower varies depending on the policy; a 50 horsepower limit is fairly common, but we also see policies with cut-offs as low as 25 and as high as 100 horsepower. We even represent one carrier offering Liability coverage to all outboard-powered boats, regardless of horsepower.
This automatic Homeowners coverage usually extends to most non-motorized boats as well, such as canoes, kayaks, row boats, paddle boats and small sailboats. However, generally speaking, your Homeowners policy won’t provide any protection for boats powered by inboard, stern drive or jet engines.
If you find that your boat is not automatically covered for liability by your Homeowners policy, you might be able to add this coverage to your policy for a small additional charge, depending on the type of engine and what your carrier offers. However, if this is not an option under your Homeowners policy, then your only course of action may be to buy a separate Watercraft policy.
Speaking of a separate Watercraft policy, this is a good option to consider regardless of whether your Homeowners policy provides any coverage or not. Because a good Watercraft policy can provide a lot of other worthwhile coverage beyond just basic Liability.
For starters, if your boat has value, you probably want to buy physical damage coverage. (And you won’t have any choice if you have a loan.) While you can sometimes watercraft physical damage coverage this to your Homeowners policy as well, we find that a separate Watercraft policy is usually a better value to fully insure your boat. Not only are the rates typically lower, but coverage terms are often better as well. For example, some of our policies offer Agreed Value coverage for most watercraft and replacement coverage if you just purchased your boat new. These are not options offered by most Homeowners policies.
In addition, a specialized Watercraft policy may allow you to choose from a number of other valuable coverages for your boat, such as financial protection if you were injured by an uninsured boater, fuel spill cleanup, basic medical coverage if there is an accident on your boat, on water towing and roadside assistance, coverage for personal effects and fishing equipment and more.
In summary, you may find the basic, built-in coverage under your Homeowners or Renters policy to be a good fit for an outboard-powered, occasional-use boat without much horsepower or value. In most other situations, a separate Watercraft policy is usually the way to go. Often starting at as little as $100 to $250 per year, Watercraft policies are usually quite affordable as well.
Because Homeowners and Watercraft policies vary from carrier to carrier, it is important to read your own policy carefully. Not all residential policies provide coverage for any outboard-powered watercraft. While this post summarizes coverage frequently found in many cases, it does not fully detail all the terms and conditions of your policy.
Personal Umbrella coverage is a valuable piece of an overall insurance program. It provides an additional layer of liability coverage over and above your primary insurance policies. This provides you greater protection against catastrophic financial loss.
A Personal Umbrella policy gets its name from what it does - it typically extends over and above all your personal underlying exposures. While you still need primary policies in place to insure your properties, vehicles and toys, a single Personal Umbrella policy can provide secondary liability protection over all of them.
To further illustrate why an Umbrella policy is called an Umbrella policy, picture with me three people wearing rain jackets all huddled under a single large umbrella. Each individual may have their own protection against the rain (their rain jackets), but that umbrella provides them a second layer of protection. In the same way, if a lawsuit rains down from above, you want as much liability coverage standing between you and your bank account and assets as possible, regardless of whether the loss involves an auto accident, a dog bite, a boating injury, etc.
Unfortunately, the name “Umbrella policy” is vague enough to create a lot of confusion about what it is and what it covers. So, while a Personal Umbrella policy is a great way to add more liability protection, I’d like to use this post to clear up a few things that a Personal Umbrella policy is not.
A Personal Umbrella policy is not a substitute for primary insurance coverage
Because the name “Umbrella” suggests that it covers everything, often people assume that if they have an Umbrella, they can avoid buying other policies. Maybe they don’t need to buy a watercraft policy as protection against boating accident. Maybe they don’t need primary liability insurance for their hunting cabin to cover them if there is an injury at that location. And maybe they can skip the purchase of an off-road vehicle policy to protect them if someone gets hurt by their four wheeler. Unfortunately, none of these assumptions are correct.
For the most part, Umbrella policies are not intended or priced to provide the first layer of liability protection. This is why Umbrella policies specifically required underlying coverage be in place. These required underlying limits do vary somewhat from carrier to carrier, but to illustrate how this works, here is what is currently required by one specific carrier who we represent:
Again, let me be clear that your Personal Umbrella carrier’s underlying insurance requirements may be different than those shown above, as this example is for one specific carrier only. Do not rely on these amounts; check your own policy!
So, what happens if you don’t comply with your Personal Umbrella’s underlying insurance requirements and a loss occurs? Will your Personal Umbrella carrier scold you for being a bad boy or girl but go ahead and save the day? Unfortunately not. If a loss occurs and the required relevant primary coverage was not in place, one of two things will happen, depending on how your policy contract is written. Either your Personal Umbrella carrier will completely deny your claim or they’ll cover your claim but only after you pay out of pocket the six-figure amount you were supposed to carry.
As an example, let’s say that you own a small, rustic cabin way back in the woods. The cabin isn’t in the best condition and isn’t worth too much; so you don’t worry about insuring its value. And you falsely assume your Personally Umbrella policy is fully protecting your liability this location. During a terrible thunderstorm, a passerby takes refuge in your cabin, but strong winds cause the rickety structure to cave in, severely injuring the person inside. The next thing you know, you are being served with a $1.5 Million lawsuit, alleging that you are responsible for the injury because you were negligent in maintaining the cabin.
A horrible accident, but at least your Umbrella policy has your back, correct? Well, it would have if you had spent around $20 a year to extend primary liability coverage to the cabin. Unfortunately, in this example, your Umbrella required a $300,000 underlying liability limit, which you didn’t carry. If you are lucky, your Umbrella carrier may not deny your claim entirely, but, even so, when the $800,000 settlement is reached, you will be responsible to pay the first $300,000 out of your own pocket before your Umbrella pays for the rest.
Let me be clear: a Personal Umbrella policy can be a life-saver in protecting you against catastrophic financial loss, but it is very important that you pair it with the underlying primary liability coverage it requires.
Having said all this, many Personal Umbrella policies do provide some “drop-down” coverage. This is when you carried all the required underlying insurance, but the loss that occurred fell between the cracks of your primary policies and wasn’t covered by any of them. In this case you may be responsible for a small share of the loss, such as $250 or $1000. As an example, maybe your primary Homeowners policy doesn’t cover Personal Injury but there is no exclusion for this in your Personal Umbrella. You make a post on Facebook, describing your horrible experience with a family doctor, and the doctor sues you for slander. In this case, you have no primary insurance policy to cover you, but your Personal Umbrella picks up the slack and pays for your legal defense. If there is a verdict or settlement against you, you pay your $500 share and your Personal Umbrella pays the rest. (It’s important to note that not all Personal Umbrella policies work this way, however.)
A Personal Umbrella policy is not a simplified, cheaper way to protect your property against damage
As has been explained already, a Personal Umbrella policy provides additional liability coverage. What a Personal Umbrella policy does not provide is coverage for loss or damage to your property.
Unfortunately, this can be misunderstood because of the vague name “Umbrella”. Sometimes people assume that if they have an Umbrella policy, it will fully cover all their property and possessions against damage, theft or any other loss.
This is simply not the case. If you carry “Liability only” on your car and it gets damaged in a car accident, your Personal Umbrella will not pay for the repair or replacement. When your old rustic cabin that you didn’t bother insuring finally falls down in a storm, your Umbrella policy will not pick up the slack and pay to rebuild it. If you don’t insure your pontoon during the winter and the garage it is stored in burns down, after your Homeowners policy pays its watercraft limit of $1000 or $1500, your Umbrella will not pay for the rest of the value of the boat.
To repeat: A Personal Umbrella policy provides you with extremely valuable liability protection, but don’t be confused by the name: It doesn’t provide any coverage for the damage or loss of your own property. That’s what primary insurance policies are for.
A Personal Umbrella policy is not offered at a flat price
Some insurance buyers might assume that you pay a standard price for an Umbrella policy to cover whatever exposures you might have now or in the future, but this is really not how it works. Most Umbrella policies will base their premium on the number and type of exposures you own. For example, an Umbrella policy might have an annual premium of $35 for each car, $25 for each motorcycle, $30 for each additional residence, etc.
Depending on your Umbrella carrier, this premium is often fixed for the policy term and then re-calculated at each renewal, based on anything new you have acquired in the meantime. However, there are also a number of carriers that will actually make an adjustment to your premium in the middle of the policy term if you add or remove exposures.
For this reason, many Personal Umbrella carriers ask you to let them when exposures are added, removed or replaced. Of course, this process is simplified when the same agent and carrier provides all your underlying personal insurance policies as well as your Personal Umbrella. This is usually the best way to go.
It’s important to note that some Personal Umbrellas will actually exclude coverage for certain exposures if you haven’t disclosed them and paid an extra premium to cover them. For example, one of our carriers excludes coverage for any loss caused by an ATV, motorcycle or jet ski that is not listed on the Umbrella policy.
A Personal Umbrella policy is not able to extend over commercial insurance
As the name applies, a Personal Umbrella policy extends over your other personal insurance policies. By and large, it does not and cannot extend over a commercial insurance policy.
Here’s how this works. Let’s say that you own a couple homes that you rent out for investment income. You have been insuring them each on a personal Dwelling Fire policy and relying on the additional layer of liability coverage provided by your Personal Umbrella policy. However, when you buy your third rental home, a friend tells you that you could save money by combining the properties under a single commercial package policy. While there may be other coverage advantages to moving your rental home insurance from personal policies to a commercial policy, it is important to be aware that your Personal Umbrella policy probably won’t cover the rental homes anymore. So you should make sure to buy a high enough liability limit under your new commercial policy to pick up the slack. Or you could buy a commercial umbrella policy for the rentals.
In summary: A Personal Umbrella policy is not… a waste of your money!
The best way I could close this post is by emphasizing what a good idea a Personal Umbrella policy is. While it doesn’t do everything that some people assume it does, what it does is very important: It provides you with additional liability protection against a catastrophic financial loss. Properly understood and set in place, this is very valuable coverage indeed.
This post provides general, summarized information about the subject matter discussed. Because underlying limit requirements, coverage limits, policy terms and rates can vary significantly from one carrier to the next, specific examples used in this post should not be relied on to apply to your own insurance situation. Instead, it is important that you read your own policy(s) carefully. While outside the scope of what we explained in this post, it is worth noting that many Personal Umbrella policies also have the option to add a second coverage, Excess Uninsured/Underinsured Motorist protection.
I’m frequently asked by clients if they can do something to save premium on a vehicle that they will be parking for a while. For example, perhaps they have a car that they only drive in the summer and it sits in the garage all winter. Or maybe the vehicle isn’t running or they want to drive a more economical vehicle to save on gas.
Minnesota law requires that your vehicle be insured when driven on public roads, but there is no statute requiring you to carry coverage on a vehicle when it’s not being driven.
For this reason, people sometimes simply remove the vehicle from their Auto policy while it is parked. If you were carrying “Liability only” on your vehicle, this generally makes sense. However, if you were fully insuring your vehicle to protect it against damage and theft, you might want to think twice about removing all coverage from the vehicle.
Just because your vehicle is parked doesn’t mean that nothing can happen that would cause damage. If you store your vehicle in a garage, the garage could burn down. If your vehicle is parked outside, a tree could fall on it or it might be damaged by hail. Your vehicle could also be stolen or vandalized. If you remove all coverage from your vehicle and one of these things happen, your loss is not going to be covered, leaving the entire value of the vehicle at risk. (Contrary to common assumption, Homeowners insurance never covers automobiles, even if they are parked in an insured garage.)
So, if you decide to park a vehicle that you have been fully insuring, a better option is to reduce your coverage to Comprehensive only. This is sometimes called “storage insurance”. Comprehensive covers non-collision damage that could occur while your vehicle is parked, including fire, hail, theft, vandalism, falling objects, water damage, etc. While the cost for this coverage varies, in many cases going with storage coverage will save you around two-thirds of the premium.
Whether you chose to drop your parked vehicle entirely or to reduce coverage to Comprehensive only, it is important to make sure that no one is going to drive the vehicle, since, either way, the vehicle isn’t legal to be on the road and doesn’t carry basic coverages you need for third party liability, occupant injury, damage to the car caused by collision, etc.
It could be really bad if you or another family member forgot (or was unaware) that insurance had been suspended and drove the vehicle and either got stopped by the police (bad) or got in an accident (far worse). For this reason, we recommend rendering the stored vehicle inoperable (some people remove the battery) or at least placing a large sign over the steering wheel warning that it can’t be driven.
Even if you are certain that no one is going to drive the vehicle while it is parked, reducing coverage on your parked vehicle isn’t entirely without risk. As I mentioned earlier, with storage insurance, your vehicle is only covered for “non-collision” damage. It’s not covered if you accidentally hit it with your other vehicle, which happens more than you might think. Or if somehow the vehicle started to roll and struck another object, that wouldn’t be covered either. Thirdly, let’s say you had friends or relatives over, and small children were climbing around on the parked vehicle and one fell off and was injured; this could easily result in a claim or suit against you, and it’s unlikely that either your Homeowners or Auto insurance would protect or defend you or pay anything for the injury.
It’s worth keeping in mind that suspending coverage on your parked vehicle might be inconvenient if you needed or wanted to drive it again without advance notice. Because you’d first need to get ahold of your insurance agent or carrier and confirm that regular coverage has been reinstated. (Leaving a voice mail for your agent is not good enough.)
Sometimes people park a vehicle that they intend to sell and think that storage insurance will be sufficient. The problem is that it is not wise to allow a potential buyer to test drive your vehicle if it’s not properly insured. What would happen if the prospective buyer got in an accident during the test drive? While the driver would likely be covered if they already have their own Auto policy, you wouldn’t have any coverage as the owner of the vehicle. In addition to possibly losing the value of the vehicle, you might sued or held responsible for third party injuries or damage as well. For these reasons, we recommend leaving coverage as-is on a vehicle that you are trying to sell.
There are some cases where it might not be possible to either reduce or remove coverage from your parked vehicle. For one, a few carriers might not offer the option for storage insurance. Secondly, if you have a loan on your vehicle, then you have probably agreed to carry both Collision as well as Comprehensive coverage. (Some insurance companies might let you keep both Comprehensive and Collision to satisfy your loan and drop everything else, but many other carriers don’t have this option.) When clients call regarding parking a financed vehicle, we usually recommend that they talk to their bank to see what they will allow.
Another problem might be if this is the only vehicle on your policy. For one, many carriers aren’t going to let you suspend all or most coverage on the only vehicle you insure. And if you were able to drop basic coverage off your only insured vehicle, you would lose your coverage for situations like borrowing a friend’s car, renting a car and protection if you were hurt in a car accident as a passenger or pedestrian.
Local ordinance might also prevent you from reducing or removing coverage from your parked vehicle. Some towns and cities require that all vehicles parked on city streets or even on private property within the city limits carry insurance. (Such rules exist to prevent an unsightly build-up of old junkers or just unnecessary extra vehicles in the neighborhood.)
One other thing to note is that if you don’t keep regular coverage on your parked vehicle, you can’t renew your tabs, since you will be asked to document that your vehicle currently carries required insurance coverage.
I hope you find this post informational and helpful. If you have any questions, I’d love to hear from you!
Putting up a trampoline in your backyard is almost a sure bet to entertain your kids for hours – getting them out of the house into the fresh air and providing them great exercise to boot. In fact, trampolines are so enjoyable that soon neighbor kids or friends may want to join in the fun – and this is where the insurance problem lies.
As children of different sizes (and even some adults) compete to see who can jump the highest or pull off the coolest trick, injuries frequently occur. When that injury happens to someone outside your family, it will often lead to a claim under your Homeowners Liability coverage. After all, it is your trampoline and therefore your responsibility to supervise its use, making you financially responsible for whatever goes wrong.
Livestrong.com reports that trampolines cause over 100,000 injuries in the US each year. Of these injuries, at least ten percent affect the head and neck. While many injuries may be just minor bruises, some end up being very serious such as broken bones, blunt trauma and even paralysis, reports spineuniverse.com. The American Academy of Pediatrics considers the risk so serious as to recommend that trampolines never be purchased for home use and advises parents to never allow their children to play on someone else’s trampoline.
Because of how frequently people do get hurt on trampolines, many insurance companies consider trampolines to be an added level of risk that they would prefer to avoid. However, there is a lot of differences in how different Homeowners carriers treat trampolines.
Some carriers either forbid them entirely as a condition of coverage or else add stringent requirements in an effort to reduce the risk. For example, one carrier we represent requires a six-foot fence around it with a self-locking gate. (This is to attempt to avoid neighbor kids from using the trampoline when you aren’t home to supervise.) Other carriers may ask for photos to document that additional safety precautions are in place (see my list further down in this post).
Some insurance companies will ask you to sign an exclusion form if you have a trampoline. If you sign this, your policy won’t pay for any injuries that occur on the trampoline. Keep in mind that if there were a serious trampoline injury not covered by your insurance, you could be on the hook personally for the lawsuit – both defense costs as well as the dollar value of any eventual settlement or verdict. One carrier we represent limits trampoline liability coverage on all of its policies to $10,000 – which would not be nearly enough financial protection in many situations.
Another carrier we represent deals with the added risk by raising your rates around $40 a year if you own a trampoline.
However, not all carriers try to address trampolines, probably figuring that they aren’t going to be able to keep track of who has one and who doesn’t at any given time. Two Homeowners companies we represent don’t ask about trampolines and don’t take any action if they find out that you have one.
So, will adding a trampoline affect your insurance? It largely depends on what insurance company you are currently with and what their trampoline guidelines currently are. One thing to note is that even if you find that a trampoline is not a concern to your current carrier, it’s always possible that they could revise their rules later or you could desire to switch insurance companies and be limited to fewer options to choose from because of your trampoline.
If you are considering buying a trampoline for your children, it is a good idea to first contact your insurance agent or carrier and find out if this will create any issues for your current Homeowners insurance. If you do go ahead with the purchase, many experts strongly suggest installing:
Further, if you are in a neighborhood with other children present, we strongly encourage you to think how you are going to avoid other kids using the trampoline when you aren’t there to supervise. Such use is simply an accident waiting to happen – one which you will likely be responsible for. While we rarely see people in our area build fences around their trampoline, a sufficient fence might be your only option to detour unintended use.
Once the trampoline is installed with all safety enhancements in place, it’s a good idea to review recommended safety precautions to further reduce the likelihood that someone will get hurt. Here are links to suggestions by Nationwide Insurance, spineuniverse.com and trampoline.com.
No matter how safe you try to make it, owning a trampoline increases your risk of someone getting injured on your property – and it could be someone you love. So it’s a good idea to think it through carefully before making the decision to buy one.
When I was in college in the late 90s, I decided a great way to make some extra money would be to deliver pizza on the weekends for the local Pizza Hut. I did this for several months – until my old vehicle started having car trouble from the extra usage – blissfully unaware that I might be voiding coverage under my personal auto policy.
I should clarify that not all personal auto policies directly exclude delivering pizzas, newspapers, mail or other products. Standard (ISO) personal auto policies only exclude “public or livery conveyance”, which has often been interpreted to mean that you aren’t covered if your vehicle is available for hire to the general public (for example, Uber, taxis, sight-seeing vans, package delivery services, etc.) So if your Auto policy features this language, you might be covered delivering pizza for a restaurant, but it could depend on how your claims adjuster interprets your insurance policy.
Unfortunately, not all policies use this standard language. For example, one of America’s largest personal auto insurers excludes any coverage while your vehicle is being used for “retail or wholesale delivery, including, but not limited to, the pickup, transport or delivery of magazines, newspapers, mail or food”*.
What this means is that if you are insured with this carrier (and many people are) and you get into a car accident while on your newspaper route or on a pizza delivery, your Auto policy may not cover hardly anything related to the accident.^ So if the accident is your fault and someone else is seriously injured and sues you, no coverage. If there is major damage to someone else’s vehicle, no coverage. If there is major damage to your own vehicle, no coverage under your policy. This could leave you at risk of a financially catastrophic loss if you were sued as a result of this accident.
Before you begin a job delivery pizza, newspaper, mail or any other product with your vehicle, you should first carefully review your insurance policy contract to determine if you will be covered if you do so. Failure to accurately complete this step could result in an extremely unhappy surprise if you get in an accident en-route.
But that’s not all. Even if your personal auto policy doesn’t clearly exclude delivery, this doesn’t mean that your insurance carrier is willing to continue your policy. Typically, personal auto carriers consider regular delivery use to be a higher risk that they simply aren’t comfortable with. So, once your carrier finds out that you are using your vehicle this way, they will probably advise you that they will be ending your current policy and suggest that you purchase a commercial auto policy that properly rate for delivery use.
The bottom line is that if you have a personal auto policy, your insurance company is assuming that you are using it for personal use. Delivery is not personal use, and if you do deliveries in your personal vehicle, your best bet is to buy a commercial auto policy instead.
*Form 9611A MN (02/16) version 2.0 (exclusion found in Liability to Others, Uninsured/Underinsured Motorist and Damage to A Vehicle policy parts). ^This exclusion is not found under the Personal Injury Protection part of this cited policy.
In some parts of the country, the word “cabin” might elicit a mental picture of a small, rectangular log structure with smoke coming out of a rock chimney. But those of us who live in the Northland understand that cabins come in all shapes, sizes, styles and values. As best I can figure, what makes a cabin a “cabin” is where it is located (typically on a lake or other desirable vacation spot) and how it is used (usually as a getaway retreat or a summer home). Of course, this definition is further stretched when folks retire, sell their main home and move full time to their “cabin”!
Given how different cabins can be from one to the next, insurance needs and premium may vary considerably. So here are a few factors that may affect what coverage may be available and how much that may cost.
Because a “cabin” could be anything from a single room rustic structure to a million-dollar contemporary home, we should start by saying that the condition of the cabin will make a big difference in the type and price of coverage available. Cabins in good condition with newer roofs and modern or well-maintained siding will be easier to insure than a cabin with thirty-year old shingles, a weathered wood exterior and a rotting deck or porch.
In addition, whether it has full house-like amenities will affect insurance as well. In other words, does it have central heat, modern electricity and full modern plumbing.
If your cabin is well maintained and features full home amenities, usually we can insure it like we would your primary residence, on a Homeowners policy which will give you the best coverage and value for your money. However, if there are maintenance issues or maybe no central heat or no plumbing, it’s not likely to qualify for this level of coverage and we’ll likely be looking to insure it on a more basic Dwelling Fire policy.
In some cases, a Dwelling Fire policy might cost less than its Homeowners policy counterpart, but don’t assume that means that it is a better value. Dwelling Fire policies may insure on an actual cash value (non-replacement) basis and may provide coverage against only a few things that could go wrong. They also may provide less peripheral coverage – such as coverage for other structures or personal property.
Beyond condition and amenities, the location of your cabin will also pay a big role in how much it will cost to insure. By and large, most cabins aren’t located close to fire departments. The further your cabin is from fire protection, the more your insurance is likely to cost.
Another factor could be the presence of wood heat – a feature found in many cabins. A wood stove could limit your insurance options and drive your rates higher. Of course, whether the stove is UL approved and property installed (with appropriate clearances and the safe chimney components) may also make a big difference.
If you are in the process of buying a cabin, your first insurance call should probably be to whoever is insuring your primary residence. This is because many of the most competitive insurance companies only insure secondary or seasonal residences when they are also insuring your primary residence. Combine that with the discounts which may be available for bundling, and it is quite possible that the carrier insuring your primary home may be able to offer you a better value than anyone else.
On the flip side, you could also find that your primary carrier cannot insure your cabin for one reason or another. Or they might come back with a sky-high quote. In either case, you’ll probably have to look further at that point.
It’s worth mentioning that you shouldn’t be terribly surprised if you find that your cabin costs more to insure than your primary residence worth two or three times as much. Insurance carriers are looking at the level of risk. The distance from the fire department, age and type of components and just the fact that you aren’t there all the time to watch over the home can all make a big difference in the insurance cost.
Here’s a couple of tips on protecting your cabin. First, don’t rely on insurance coverage alone. Consider installing a monitoring system to provide an alert if something goes wrong when you’re not there – such as burglary, fire or drop in temperature. For example, knowing right away that your furnace went out mid-winter could make the difference between a simple mechanical repair versus thousands and thousands of dollars in water damage from frozen/broken pipes.
Secondly, don’t compare insurance alternatives for your cabin based on their price tag alone. Insurance for cabins is often much less standardized than for a primary residence, and you need to know if you are comparing an apple with another apple or an apple with an onion. Taking the lowest quote may appear to be a good value when you aren’t aware that it only provides a fraction of the coverage that came with the higher quote you could have accepted.
I hope I answered a few of the questions you might have about coverage for your cabin. If do you have questions or would like help with comparing different quotes, I’d love to hear from you. Give me a call at 218-444-9360 or email me at email@example.com.
Many of us here in Northern Minnesota like our space. It’s not that we’re not neighborly; we just want a little bit of breathing room. So we often buy up the empty parcels of land on either side of us to avoid having homes built a little too close – or maybe just so we can have more outdoor space to enjoy.
But buying this additional property around your home raises a question that you may not have considered: Will your Homeowners policy extend to cover your liability if someone were to get injured on this land and sue you?
There are several ways we could potentially find coverage under your Homeowners policy for your empty land surrounding your home:
First, Homeowners policies cover your “residence premises”. If your adjacent property could be considered to be part of the “grounds” of your residence, coverage should apply automatically. However, to me this seems to be too unclear to rely on.
Secondly, a standard Homeowners policy will also cover any premises you “used by you in connection with” your residence premises. If your additional parcel is connected with the lot that your home is on, wouldn’t this assure that coverage will apply? Unfortunately, this still seems grey in my opinion if the land is empty and really not “used” for anything. And many insurance companies seem reluctant to confirm that they would interpret this provision as covering adjacent parcels.
Third, a standard Homeowners policy covers “vacant land, other than farm land” that you own or rent. At first glance, this may seem to be the provision that clearly indicates that coverage will apply. But not so fast! Courts have concluded that the definition of vacancy means devoid of any man-made structure. So if your adjacent property has a fence, a telephone pole, an old deer stand, an run down hunting shack, any other outbuilding or any other man made structure – it’s not technically vacant and probably not covered by this provision.
And, even if your adjacent land is technically vacant now, what if you put up a small structure later? It could be something as simple as erecting a tree stand or installing a gate to block the access. When you do this in the future, chances are that it may not cross your mind that you have just voided your liability coverage for the property.
At this point, liability coverage for your adjacent property might sound about as clear as the mud that forms on it after a hard rain. And most of us would rather know for sure that coverage applies than to leave it as a surprise after a loss occurs.
This is why the best course of action in many situations may be to go ahead and pay a little extra premium to list the additional parcel on your Homeowners policy. Most carriers will allow you to do this for a small cost – often around $10 or $20 a year. Specifically identifying the property on your policy removes the question mark as to whether any of the provisions discussed above cover your land.
This post specifically addresses coverage under a standard ISO HO3 Homeowners form. Differences may exist in certain other versions of Homeowners policies. In addition, other types of residential policies (such as Dwelling policies and Farm policies) may contain provisions which vary considerably from what is discussed here. Also note that this post is not intended to apply to farm land, land containing building(s) or land used for any commercial or business purpose.
When a teenager first gets their driver’s license, they almost always go on their mom and dad’s Auto insurance policy, both because they are living with and driving their parents’ vehicles and also because the premium to buy their own policy would be astronomically high in most cases. So the question becomes: how long can this young driver stay on their parents’ insurance before they need to get their own policy?
Many people wonder if there is a magic age which would force the young person to buy their own coverage, such as there is for health insurance (age 26). However, Auto insurance works differently, and there really isn’t an age restriction, at least not with most carriers. Instead, it comes down to where the young adult lives and who is on the title of their vehicle.
Most Auto carriers don’t want to insure vehicles from more than one household on a single policy. This means that once a young person moves out, typically they are going to need to get their own Auto insurance. However, this doesn’t usually apply to a student temporarily away at college. Usually when students leave to attend school, they are living there in temporary housing and have not established another permanent residence. In this situation, they are still considered to be legal residents of their parents’ household; so they can normally stay on the family Auto policy.
But once a young person fully moves out, most Auto carriers will not allow their vehicle to stay on the policy, once the company becomes aware. In addition, if a young adult does stay on their parents’ insurance after moving out, their insurance coverage becomes more limited. As a resident relative of the policyholder, they enjoyed broad coverage under the family policy – coverage when they temporarily borrow or rent a vehicle and coverage if they are hurt as a passenger or pedestrian in a car accident, for example. Once they leave home, however, typically they have no coverage under their parents’ Auto policy except when they are driving the vehicle insured on the policy.
So a young person should get their own insurance policy once they permanently move out of home, both because the insurance company probably requires it and also so that they can keep well-rounded Auto insurance protection.
The other issue that comes into play is the titling of the young driver’s vehicle. Almost always, the first car a new driver uses is one owned by Mom or Dad. However, at some point, they might buy a different vehicle and put the title in their own name. While some carriers may allow this vehicle to go on Mom or Dad’s policy if the child still lives at home, other carriers follow strict “insurable interest” rules and will require the child to buy their own policy at this point. One way to avoid such issues is to co-title the vehicle – listing both the child’s and parent’s name on the title; this allows either of them to carry the insurance on the car.*
So, here’s a quick rundown of how this normally works, told from the perspective of a fictional young person named Haylie and her mom Jennifer:
I hope this post answers your questions about when it is appropriate to remove a young driver from mom and dad’s policy. If you have any additional questions, I’d love to hear from you!
This article describes the general rules and coverage terms found with many auto insurance carriers. Some carrier’s rules or policy setup procedures may vary from what we describe in this post.
*For liability protection, it is important that all titled owners of a vehicle be either listed as a Named insured or Additional Insured or reside with a relative who is the Named Insured on the policy insuring the vehicle. In addition, we hear that titling a vehicle in a parent’s name might increase a parent’s liability exposure, especially once the adult child leaves home. However, we do not offer legal advice; so we recommend that you seek competent legal counsel regarding the wisdom of titling your child’s vehicle in your name.
“If you’re driving out on the lake and your vehicle falls through the ice, will your insurance company provide coverage?” Earlier this week I posed this poll question to other local business people at a networking meeting. When I asked for a show of hands of how many people thought yes, not a single hand went up. Most thought the answer was no, and a few said they weren’t sure. Guess what? I’d say these undecided folks were probably the most correct.
You are probably covered…
I’m not sure how this started, but this legend has been floating around for years that insurance policies don’t cover vehicles that fall through the ice. I suppose this legend is beneficial in encouraging people to be more safety conscious, but I’ve never seen an insurance policy with an ice exclusion.
If you fully insure your vehicle, one of the coverages you purchase is Comprehensive. In a standard Auto policy, Comprehensive covers “direct and accidental loss to your covered auto” not caused by collision or upset. This is what we call open peril coverage; the loss is covered unless the insurance company can point to an exclusion. And there is no ice exclusion in a standard policy.*
Let’s not forget that if your vehicle fell through the ice, the loss of its value wouldn’t be your only concern. You would also be legally required to pull it out from the bottom of the lake. Unless you are well equipped with diving gear, special tow ropes, a customized crane and/or other necessary equipment (trust me, you’re not), you’re going to have to pay a specialist to get it out for you. And that won’t be cheap.
Based on some online research I did, recovering a car or pickup from a frozen lake may cost any where from $1500 to $5000 or even more. And make no mistake; the DNR isn’t going to let you just abandon your automobile at the bottom of the lake.
Interestingly enough, most Auto insurance policies really don’t indicate if coverage applies for recovery costs – whether this means a simple tow after an accident or a lake bottom extraction. However, the general consensus in the insurance industry seems to be that if a vehicle is fully insured, your insurance company is responsible for the cost to remove it from the scene if required by law, in addition to paying for its value or repair.
You might not be covered…
But hold on. What if your vehicle was not fully insured? Let’s say you use your old 1996 Chevy Pickup to pull your fish house onto the ice each winter. You don’t fully insure it, because if something happened to it, you’d come up with another grand to replace it with a new old bucket of rust. However this probably doesn’t mean that you ready to shell out thousands of dollars to pull it up and out of a lake if it falls through.
So here’s the question: if you carry “Liability only” on your vehicle, will your policy cover your legal obligation to remove the vehicle from the lake bottom after it falls through the ice? One could argue that because you are “liable” for the cost of removal, your Auto Liability coverage should apply.
But let’s take a closer look at your policy language. Your Auto insurance protects your liability for two things - bodily injury and property damage. Meaning that if a third party has suffered property damage for which you are responsible, your Auto policy will cover you. But the question is whether anyone else has suffered any property damage. Has the lake been “damaged” because there is a truck or car sitting on its bottom? (How about this: If you abandon an old broken-down car in your neighbor’s woods, have you “damaged” their property?) I think I could make reasonably sound arguments either way.
If you find this question confusing, you’re not alone; the insurance carriers seem confused as well. Recently, I contacted several of the carriers I represent asking them if they’d pay to recover a “Liability only” vehicle from the bottom of the lake. One carrier I talked to said yes. Others said no, and still others didn’t seem to be quite sure. So while we could hope for the best, I certainly wouldn’t count on coverage applying in this situation.
You’re probably not covered!
Now, it’s time to consider the other types of vehicles that people drive out on the ice – namely snowmobiles and four wheelers. The reality is that many people don’t insure these machines at all. This would leave you on your own to pay the four-figure bill to extract your off road vehicle after it falls through the ice. If you are going to be riding your ATV or sled out on a lake, make sure you have insurance to cover it, preferably an off road vehicle policy.
How about your fish house that you pull out on the ice? If you have it insured, we would expect coverage to work the same way as on your car or truck. However, what if your ice house isn’t worth that much and you didn’t worry about insuring it? Big mistake; you are probably on your own if it falls through.
Guess when I’ll fall through!
A couple years ago in the late winter I was driving east on Highway 2 crossing over the Pike Bay inlet at Cass Lake and noticed a vehicle parked out on the ice with a handmade sign in the windshield that said “Guess When I’ll Fall Through the Ice!” I’m sure that many passing drivers got a kick out of seeing it. (I’m equally confident that any passing DNR official didn’t get the joke!) This raises the point that there are other exclusions in your Auto policy that could apply to falling through the ice, such as that unhappy but always-present exclusion for intentional loss. Insurance policies contain other exclusions as well; so it’s very important to read your policy carefully.
My advice to you when driving out on the ice: First, use caution. Be very careful about where you drive. Bundle up and drive with your windows open to be safe. Be prepared in case the worst happens. And you are probably best to only bring out vehicles and trailers that are fully insured. Just in case.
*Because not all policies are standard, it is important that you read your policy carefully. While we have never seen an ice exclusion, we cannot say that there are no policies that add this restriction. In addition, it seems unlikely but possible to us that an insurance carrier might consider falling through the ice to be a collision or upset. If this were the case, Collision coverage might be necessary to cover the loss.
While this post pertains specifically to the risk of falling through the ice, Pine Country Insurance recommends that all off-road vehicles be properly insured, whether used on frozen lakes or just on land.
When you sit down with your insurance agent to customize your Homeowners insurance policy, it may be helpful to know what’s most likely to go wrong that could result in a Homeowners claim. So I thought I’d pass along this actual claim data, which average nationwide losses over five recent years.
Wind and Hail 34.8%
Storm damage accounts for over a third of all Homeowners claims in an average year. Of course, this can vary considerably depending on weather patterns. During the five years of this data, it ranged from 20% of all claims filed in 2015 to 49% of losses in 2012.
Water Damage and Freezing 28.9%
What is most likely to happen to your home when there’s no storm activity? Probably a pipe breaking or water line leaking or appliance malfunctioning that results in water damage in your house. It’s easy to forget how many water lines we have running throughout our homes, and one small leak can lead to thousands of dollars in cost to clean up and repair the resulting damage. This category also includes damage and cleanup costs from a backup of sewers or drains (an optional coverage on most policies). In years when it’s not storming, this category accounts for the lion’s share of claims; for example, in 2015 (a year in which only one out of every five claims were storm related), 45% of all claims were for water damage and freezing.
Fire and Lightening 23.5%
While fire coverage is probably the main thing people think of when insuring their home, less than one quarter of all claims fall in this category, which also includes lightening claims. In my experience, lightening related electric surge claims are far more frequent than fire claims. If I had to guess, I’d say probably only one out of every ten “fire and lightening” claims result in the fire department having to put out a fire. Of course, when that does occur, there is going to be a lot of damage, from smoke and water if nothing else.
All Other Property Damage 6.7%
There’s a lot of other things that could go wrong that could lead to damage to your home, personal property or outbuildings. This category includes vandalism, frozen food spoilage, damage caused by vehicles and a number of other less likely (but possible) perils.
Liability and Medical Payments 3.6%
This category covers any time your policy pays money out to a third party on your behalf. For example, a guest is hurt on your premises, your dog bites someone or you are trying to cut down a tree and it falls the wrong way onto your neighbor’s shed.
Good news! The odds of someone breaking into your home and stealing your possessions are actually rather low, compared to other things that could go wrong at your home. This category also includes a thief breaking into your car and stealing stuff inside or maybe taking items from an unlocked garage.
Chances are you won’t have to file a Homeowners claim due to any of these things happening any time soon, but having a well-rounded Homeowners policy provides great peace of mind just in case something does go wrong.
Claim data is per Insurance Services Office (ISO), as reported in the June 2017 issue of National Underwriter.
If your Auto policy just renewed and your price has gone up, you are not alone. We are noticing a trend in Minnesota of rising Auto insurance rates, similar to what drivers have been experiencing across the country in the last two years, according to many news sources. (Here’s one example story by CBS.)
The good news for drivers is that we do have a competitive Auto insurance marketplace. There are many, many different insurance carriers who would like your business and are looking for ways to win you as a customer. If one carrier decides to raise prices simply to rake in more profits, someone else will undercut their rates and steal much of their client base.
Having said that, an insurance carrier can’t sell you insurance coverage at a loss, or at least they can’t do so for long. When rates are adjusted across the board there is typically an underlying cause.
So why have Auto insurance rates been going up around the country? According to everything I have read, it comes down to two primary factors. Drivers are getting into more accidents, and each accident is costing insurance companies more.
Let’s break this down. It’s been said that more accidents are happening because people have been driving more miles due to lower gas prices. In addition, increased distractions such as texting while driving continues to cause more accidents. And accidents are growing more expensive to cover for several reasons, including the cost to replace all the new safety devices going into new vehicles, ever-increasing medical costs and increased litigation costs and average claim settlements. (Read more about the reasons for higher rates here.)
“But why are MY auto insurance rates going up?” you may ask. “I haven’t filed any claims.” Let me see if I can explain this with a simple example.
Example of how Auto insurance rates work
Let’s pretend Lake Mutual is an insurance company who insures ten drivers and ten vehicles. For the past several years, Lake Mutual has paid $7000 per year in claims and their overhead costs have averaged $2600 per year. They have collected a total of $10,000 in premium per year from their ten drivers and have made $400 per year in profit.
Now, one might assume that if Lake Mutual is collecting $10,000 in premium per year from their ten drivers, then each driver is paying $1000 per year. But that’s not how Auto insurance works. Instead, what Lake Mutual does is to look at statistical likelihood of each driver to file a future claim.
Lake Mutual charges Jared the most. He is 22 and has had a DUI and two speeding tickets in recent years. Lake Mutual charges Jared a whopping $3000 a year. They also charge Sandra $1400 a year. She is 45 but had two recent accidents with her prior carrier before switching to Lake Mutual.
Lake Mutual considers both Jared and Sandra to be a lot riskier than their other drivers and so charges them way more. This takes care of nearly half of the $10,000 Lake Mutual needs to collect, and so it splits the remaining $5600 among their remaining eight drivers, at an average of $700 per driver per year.
Glen pays the least. He is 55 and has a perfect driving record other low-risk factors and pays only $450 per year.
To recap, Lake Mutual has been charging its ten drivers a total of $10,000 a year, from Jared at $3000 down to Glen at $450. Unfortunately, costs are going up. Lake Mutual’s claim payments last year went up to $7900 and their overhead to $2800. So they have decided that they will have to raise rates to collect $11,000 this next year instead of $10,000. This means each driver gets a ten percent increase. Jared’s rates go up from $3000 to $3300. Glen’s rates go up from $450 to $495.
Of course, Glen isn’t happy about his increase. He has been paying Lake Mutual $450 a year for several years and hasn’t filed any claims. He doesn’t feel his rates should go up because of other people’s claims. What he doesn’t know is that he is still paying way less than some of Lake Mutual’s other insured drivers, because he is a lower risk. All Glen sees is his $45 increase.
What this very simplified example points out is that a low risk driver will always pay less than a higher risk driver, but when costs go up, everyone will pay more. Unfortunately, this is the nature of Auto insurance.
What to do about rising Auto insurance rates
If you are seeing your rates go up, there are several things you can do about it:
If your home is situated on several acres and you own a tractor, Bobcat, skid steer or other motorized machine that you use to maintain your premises, I’m sure that you want to make sure that this equipment is properly covered, both for its value and also with liability protection if an accident occurs. Unfortunately, while your Homeowners insurance may provide some coverage for your machine, most policies will leave uninsured gaps which might escape your notice without a close examination of your policy.
As I see it, the problem is not that your Homeowners carrier doesn’t want to properly cover your bobcat or tractor; it’s more that the writers of your Homeowners policy didn’t really anticipate policyholders owning this kind of machine to begin with.
First let me explain that there are typically only two types of motor vehicles covered under most Homeowners policies: a) vehicles intended to assist the handicapped (think motorized wheelchairs) and b) unregistered, off-road vehicles used to service your premises (aka “service vehicles”). While the primary intent of service vehicle coverage is for incidental machines such as riding lawnmowers, it may also work to cover your tractor or similar machine, but let’s dig a little deeper before we assume that you’re good to go.
First, most Homeowners insurance policies only cover service vehicles while they are on your premises. Even if that is the main place you use your machine, do you ever take it over to a relative’s home to help them out or maybe to hunting land you own to do a little work? Or how about when you bring it into town for servicing? If you got in a car accident while trailering it or if it was damaged or stolen while at at another location, most carriers would likely deny your claim.
Secondly, there are other exclusions and limitations that could come into play. Some Homeowners policies place a limit on coverage for service vehicles, which might be as low as $5000 or less. While $5000 should be enough to cover most riding lawnmowers, it’s probably nowhere near the value of your bobcat, skid steer or other tractor or machine. Occasionally I see policies that don’t provide any service vehicle coverage at all.
Unfortunately, most Homeowners carriers simply don’t offer a way to overcome these restrictions or fully cover your motorized equipment. It’s not so much that they don’t care about your coverage needs, but a suburbanite working in a 4x6 cubicle in a high rise may not be able to imagine why a private homeowner would need such a machine to begin with.
There are a few insurance companies out there who will allow you to specifically add your motorized equipment to your Homeowners policy (or on a separate companion policy) to ensure that it is covered up to its value both on and off premises. Depending on the carrier and the value of your machine, this often costs one or two hundred dollars a year and is probably money well spent. However, it is important to note that this addition provides property coverage only and does not broaden your Liability coverage, which might remain a major gap in coverage. We do see a few carriers that provide off-premises Liability coverage service vehicles, and you probably need to go with one of these carriers. Or your other option would be to buy a farm policy if you are able, as farm policies tend to be more friendly to insuring motorized equipment.
Let me bring up a very important word of caution. If you are relying on your Homeowners or other personal policy for coverage, I’d strongly discourage you against ever using your machine for pay. The temptation is definitely there: Once you have this machine, why not make a little money with it on the side doing a few cash jobs for friends or acquaintances? The problem is that as soon as you use your machine for any business or money-making purpose, you are probably voiding coverage, even if your machine is specifically listed. If you want to use your equipment to make money even occasionally, your only option for coverage is likely a commercial equipment policy.
As I’m sure you can tell from this post, coverage for large motorized machines as a home owner is quite tricky. We recommend seeking the help of a knowledgeable, experienced local agent – one who takes the time to read and understand policy contracts (many don’t). We also recommend carefully reading your insurance policy yourself. If I can be of any assistance, I’d be happy to help.
This post only addresses the coverage needs of a private homeowner who lives on residential property not used for farming or business and who insures their home via Homeowners coverage (not farm coverage) and who owns a motorized machine for the primary purpose of maintaining their primary residential premises. While the coverage described in this post is typical in our experience, there can be significant coverage differences from one policy to the next. Therefore, your own policy coverage may vary from what we describe here. Please read your insurance policy carefully.
At Pine Country Insurance, we believe in helping each client customize their insurance coverage to fit their own needs, desires and budget. So we take the time to sit down with each new client (preferably face to face but sometimes via phone) to review and explain the basics of their coverage options and selections.
Before this discussion happens, we normally base our initial quote primarily on a set of basic coverages normal in the industry, to the extent possible and practical. However, if you have already provided us with a copy of your current policy declarations page, then we attempt to match that coverage to the extent that we are able, unless we discuss otherwise with you. Either way, that initial quote is preliminary, because we have not yet had a chance to sit down with you to help you customize as desired.
This means that the final price of your coverage with us could be higher or lower than the initial quote that we provide you – based on the decisions that you make when we sit down to review your options. Here are some of the variables that you may have a chance to customize during our discussion:
Your Dwelling limit
The most basic part of your coverage is the limit for coverage on your dwelling. Most often we base this on a reconstruction cost estimate that we complete. It is important for you to review this to make sure it looks accurate to you and that you feel comfortable with it. Most people want a policy that will rebuild their home if it burns down, but there are cases where people might want to just “cash out” of the value of their home and walk away. In that case, some (but not all) of our carries will offer the option to insure for less than the estimated replacement cost of the home.
The most common Homeowners deductible that we see is $1000, and that’s most often what we initially quote. Depending on the carrier, you may be able to buy down to a $500 deductible, but sometimes this becomes quite expensive, and many carriers don’t offer a lower wind & hail deductible. We also have several carriers who offer a healthy discount if you choose to buy a higher deductible.
Increased basic limits
Most carriers automatically include allowances for Personal Property and Other Structures that are based on a certain percentage of your Dwelling limit but that can be increased if desired. In addition, higher limits for Liability, Medical Payments and Loss of Use may be available. During our discussion, we review these limits and whether you feel they are sufficient to meet your needs.
Water Backup coverage
Most of our carriers offer this as an option that can be added to your quote. In general terms, it covers cleanup and damage that results from the backup of sewers or drains or failure of a sump pump. Click here for more information on this valuable add-on.
Coverage for valuable items
While Homeowners policies generally provide blanket coverage for most of your personal property, there are some items that may need special protection. For example, the average Homeowners policy provides around $1500 for theft of jewelry and around $2500 for theft of firearms. If you have valuable jewelry or guns exceeding these limits, then we may wish to talk about options to add more coverage. (Read this post to learn more about insuring valuable jewelry.)
If there is flooding in your neighborhood which damages your home or belongings, it is important to understand that your Homeowners policy won’t cover this. Flood coverage is usually available through the National Flood Program, sponsored by the federal government and administered by various insurance companies.
Many more ways to customize
There are many, many more options that you can add to your Homeowners policy for additional peace of mind. Depending on what is offered by the carrier, these additional options may include Identity Theft, Personal Injury Liability, Volunteer Wrongful Acts Liability, enhanced Dwelling replacement cost coverage, “Special Peril” Personal Property coverage, Ordinance or Law, Equipment Breakdown, Service Line coverage, “green” repair, Earthquake and numerous others. (In some cases, some of these options might already be included in your initial quote, for example, if we are quoting the IMT GEM Homeowners.)
As you can see, you have many choices in how you wish to customize your Homeowners coverage. We don’t tell you what to buy, but we do take the time to sit down and explain how your coverage works and what your options are, to the extent that you desire. Because we believe that the insurance business is about trust, we want to start our relationship out in the right way.
Coverage descriptions in this post are based on what is typical at the time of writing but may vary from what is included on your quote or policy. There are cases in which we may not be able to offer the kind of coverage discussed herein, due to the condition of your home, unique hazards or other reasons. Please read your policy carefully.
If your vehicle were damaged in an accident, how would you get to work or drive your kids to school? Most Auto policies give you the option to add the Rental Reimbursement option to vehicle(s) that you fully insure. This covers all or part of the cost of a rental car if your vehicle is disabled due to a loss covered by your policy, giving you something else to drive while your vehicle is being repaired.
If your vehicle is involved in an accident and isn’t drivable, Rental Reimbursement coverage typically kicks in right away. If your car is drivable after an accident, then a rental car will normally be offered for the period of time that it is in the shop. If the cost to repair your vehicle is too high and the insurance company declares it a total loss, the rental car will typically extend until shortly after your claim is settled.
When you add Rental Reimbursement coverage to your vehicle, you will usually get to choose from optional limits such as:
Locally, most insurance companies will offer to set you up with a rental car through Enterprise. In this arrangement, Enterprise will directly bill your carrier for the cost of the rental car, up to your coverage limit(s). However, if your total cost (including taxes) for the rental car exceeds the daily or total limits shown above, then you will be responsible for the difference. Because Enterprise typically provides discounted insurance rates, $30 a day is usually about enough to cover the cost for their most basic vehicle in Bemidji.
You also have the option to choose your own rental car provider. In this case, the rental car provider might bill your insurance company (if they are willing to do so); otherwise you can pay for the rental care and then submit your receipt to your claim adjuster and ask for reimbursement up to your covered limit.
Because rental car agencies in town run a fairly tight inventory, it’s usually best to reserve your rental car as soon as you schedule the repairs with your body shop. If your vehicle isn’t drivable after an accident or if your vehicle is stolen, it can be hit and miss as to whether a rental car will be available immediately or not.
Rental Reimbursement is priced quite reasonably – often costing $1 to $4 per month per vehicle. Some insurance companies will actually include a nominal limit for free on all vehicles that they fully insure. Most often, if a limit is included for free it is $20 per day. We represent one insurance company that includes $30 per day at no additional charge.
It’s important to note the Rental Reimbursement doesn’t kick in unless there is damage to (or theft of) your vehicle which is covered under your policy. Since Auto insurance doesn’t cover mechanical issues, you can’t use your Rental Reimbursement coverage if your vehicle goes in the shop needing transmission work or a new carburetor. You also can’t buy Rental Reimbursement coverage on a vehicle you insure for “Liability only”.
Some people may choose not to buy Rental Reimbursement coverage under the assumption that their body shop will provide a loaner car or that a rental car will be covered by their vehicle warranty. However, our experience is that only in rare cases do body shops provide loaners, and any rental car coverage in your warranty probably only applies if you have a warranty claim for a mechanical issue to your vehicle.
While making the wrong decision on whether to add Rental Reimbursement won’t make or break you financially, I can tell you that having this coverage definitely makes things easier after an accident. If you don’t have access to backup vehicle, I think this is probably worthwhile to add.
If you rent your home and apartment and don’t currently have Renters insurance, you’re not alone. Statistics I’ve seen indicate that only one out of every two or three people who rent buy this coverage. In 2010 when the Regency Park apartment building caught on fire in Bemidji, a client informed me that less than five of the tenants in the building had Renters insurance at the time of the fire.
So, why bother with Renters insurance? Do I really need this extra expense, especially if most other people aren’t buying it either? Here are some things to consider:
First, understand that your landlord’s insurance isn’t going to cover your stuff. If your building burns down, its insurance will cover the damage to the structure, but it won’t cover your personal property in most situations. So, if you don’t buy your own insurance, you are totally unprotected.
Second, if a fire or other major calamity occurred, the cost to replace all your stuff adds up quicker than you might guess. And think beyond your computer, TV, phone, tablet and furniture. How much would it cost just to replace every item of clothing that you own? Now how about all your other miscellaneous household items, from linens and blankets to pots and pans to your DVD collection or hobby gear? If you talk to someone who has lost everything in fire, they will be quick to tell you that replacing everything was a much larger expense than they would have imagined.
Thirdly, what if you accidentally caused damage to the building where you live? Renters insurance covers more than just your things; it also covers your personal liability. Let’s say you accidentally left a candle burning or a space heater running too close to flammables and a fire started. Or you accidentally flipped off the furnace switch before leaving on a short trip and came back to frozen pipes and water damage. In either of these scenarios, your landlord’s insurance will likely cover the damage to the building – but then the insurance company may might well turn back around and sue you for the entire cost of repairs, since it was your fault. The liability coverage provided by a Renters policy definitely adds peace of mind.
Finally, the cost to buy Renters insurance is less than you think. Most people can buy a starter policy for no more than $10 - $15 a month. And if you bundle Auto and Renters insurance together, your cost will often be even less. In some cases, the discount for bundling that gets added to your Auto insurance can actually be more than the cost of the Renters policy, in affect making your Renters insurance free!
Given its inexpensive cost and all the protection that it provides you, Renters insurance is definitely a great value worth adding. And coverage is easy to get; just call the agent who handles your Auto insurance and I’m sure they will be happy to help. Or call us if we can be of assistance.
If you have recently become engaged, I’m sure this is a happy time that you will remember all your life. Perhaps the thought has crossed your mind while you are showing off your new ring to everyone, “What if this precious possession fell off my finger and I lost it?”
Given the value of most engagement rings, it’s important to make your ring is properly insured. Yes, your ring could slip off your finger, or your diamond could fall out of the ring or your ring could even be stolen. Your new ring is a financial asset worth protecting.
Unfortunately, Homeowners or Renters policies usually don’t automatically include sufficient coverage for most engagement rings. An average policy will cover theft of jewelry up to $1500 or so and usually won’t cover accidental losing at all. This is why it is a good idea to add specific coverage for your ring as “scheduled property”. This is often a feature that you can on to your existing Homeowners or Renters policy.
When you schedule your ring, you are describing it on your policy, declaring its value and paying an additional premium based on how much it is worth. While rates do vary from carrier to carrier, we often see scheduled jewelry run around 80 cents to a dollar per year, per hundred in value. This means that a $5000 ring would cost $40-$50 per year to schedule and a $10,000 ring would command $80 to $100 in annual premium.
Usually your agent will ask you for an appraisal before your ring can be scheduled. Beyond establishing a value, the appraisal also provides a detailed description of the jewelry for identification and/or replacement purposes. If you have a receipt that includes a detailed description (including the 4 Cs of your diamond - cut, color, clarity, and carat), this may work in lieu of a separate appraisal document. Depending on the carrier, an appraisal may not be required for lower valued rings but it is still usually a good idea because it documents what is being insured and what it is worth.
Scheduling your ring gives you far better coverage than you would have otherwise. Your ring is fully covered up to its stated value and you have coverage for misplacing it or losing all or part of your ring. Typically there is no deductible that applies.
Not all scheduled jewelry coverage is the same, however; so we recommend specifically asking for Agreed Value coverage. If your jewelry is scheduled on an Agreed Value basis, you will be paid the full amount shown on your policy if your ring is lost or stolen. Without Agreed Value and depending on your policy, you may be paid the lesser of the actual cash value, the estimated repair cost, the estimated replacement cost and the value shown on your policy. Agreed Value might cost a little bit more but is well worth the extra premium.
While we usually recommend our client buy Agreed Value coverage whenever it is offered by the carrier, we rarely see it on other jewelry schedules people bring in for us to review. So if you don’t specifically ask for Agreed Value, you are not likely to get it and you probably won’t be aware of the difference unless you actually have a loss.
One issue that sometimes comes up is who should schedule the ring – the bride or the groom? Since property normally needs to be insured by whoever owns it, this comes down to a philosophical debate within the insurance industry as to whether an engagement ring is owned by the giver who purchased it or the receiver who possesses it. I’ve seen different insurance companies come down on both sides of this debate, so the rules vary depending on your carrier.
If the two of you are both insured under the same Homeowners or Renters policy, this is a moot point, as you can add it to your joint coverage. However, we often see cases where one party owns the home or has their name on the lease and has the insurance just in their name. (This raises other coverage issues; see this post.) Depending on your carrier’s rules, you may or may not be able to add the ring on to this existing policy. If the other party does not have their own insurance and doesn't live with parents or other family, it’s possible a separate policy may have to be taken out to get the ring insured. (However, we often have more flexibility for our clients since we represent multiple insurance carriers.)
If you have just become engaged, congratulations. Enjoy this special time, and don’t forget to make sure your insurance keeps up with your recent life change.
Full Glass is an option you can add to your vehicle’s Comprehensive coverage which reduces your deductible for glass damage to $0. If you add this option to your policy, it will pay the full cost to replace your windshield or other safety glass.
Full Glass is offered by Minnesota Auto policies but is not often found in other states. Most Minnesota drivers who purchase Comprehensive coverage on their vehicle buy Full Glass as well. However, it is optional, and it is possible to fully insure your vehicle with Comprehensive and Collision coverage but not buy Full Glass.
Sometimes people ask us to insure their vehicle for “Liability with Glass.” Unfortunately, this is not possible, as glass breakage is not a coverage you can buy on its own. Glass is covered under Comprehensive coverage, and Full Glass simply waives the Comprehensive deductible that would normally apply. However, you can buy Comprehensive with Full Glass without buying Collision coverage; if you did this, your vehicle wouldn’t be covered for damage caused by collision or upset, but it would be protected against deer hits, theft, fire, vandalism, hail, etc. as well as glass breakage.
Most glass claims are filed to replace cracked windshields, but Full Glass also extends to the other safety glass surrounding the passenger compartment of your vehicle. Full Glass does not apply to headlights, taillights, cameras, sensors, etc.
If you choose not to buy Full Glass coverage, any glass claim would be subject to your Comprehensive deductible. If you choose a deductible of $500 or more but decline Full Glass, you’ll probably end up paying for the entire cost of a new windshield out of your own pocket, in the event it needs to be replaced. (However, carriers often fully cover chip repair even without Full Glass, as an incentive to repair your windshield before the chip grows into a crack requiring replacement.)
The cost to add Full Glass can vary considerably from carrier to carrier and also depends on how high your Comprehensive deductible is and other factors. On a preferred policy, we often see a price tag ranging from $2 to $5 per month per vehicle. However, there are other cases where it can cost a couple hundred dollars every six months to add Full Glass to a vehicle, especially on a higher risk policy issued to someone with a less favorable driving history and/or a lapse in prior coverage.
Assuming that you are able to add Full Glass inexpensively, I do consider it a good value, as I tend to see more claims filed for cracked windshields than for anything else.
A few years ago, GEICO ran ads bragging that they cut out the middleman, implying that buy selling insurance directly to you they save you the invariable markup this guy in the middle charges. Indeed, the biggest reason people buy their insurance direct instead of through an agent is undoubtedly because they think they will save money. But is this actually true?
In my office, I compete against direct insurance writers every day, especially when it comes to Auto insurance. What I have found is that there are times that a direct policy will cost less than what I can offer, but there are many other times that I can offer as good or better a price as what someone found online.
But how can that be? What about the commission my agency receives for its services? How can this commission be added to the price yet the price still be lower? I believe there are four main reasons why the rates I offer are often lower than what you might find online, and I’ll explain these reasons in this post.
Reason 1: All insurance companies have acquisition costs
You might think you are saving money by cutting out the middleman like GEICO said, but did you ever stop to think how much GEICO spent in advertising costs to get you that message? I just googled it myself and the figure seems to hover around $1 Billion per year. (That’s Billion with a B.) Think of that: One insurance company is paying a billion dollars to try to get you to buy their product! Where are they getting this money? I assure you their billion dollar advertising bill is not being paid via their money tree; it’s coming out of your pocket, as a part of the premium you pay! In fact, a 2013 study showed that nearly seven percent of premium paid to GEICO went directly to cover their advertising costs.
Let me be clear, I’m not saying this to criticize insurance companies with large advertising budgets. What I am explaining is that all insurance companies have acquisition costs. Before you can buy insurance from a given company, you first have to hear that the company exists, and you have to be convinced that it would be a good idea to consider them. It costs an insurance company money to make this happen.
In my agency, we represent a mix of insurance companies whose names may sound familiar (Progressive, Travelers and Nationwide) and other carriers you probably never have heard of (such as IMT, Ram Mutual, State Auto and Itasca Mutual). The primary difference between these carriers is how much they spend on advertising. You see, the carriers you have never heard of have to rely on insurance agents to bring them customers, and they compensate their agents to do so.
“But,” you say, “I found my insurance company online! It wasn’t a result of advertising!” Think again. Chances are that if you bought your insurance directly from a carrier after a Google search, that carrier paid quite a bit for Google to show you their name. In fact, insurance is the most expensive Google search category, according to this website, which indicates that when you google the word “insurance” and click on a sponsored result, that insurance company may be paying Google up to $50 just for your one click, regardless of whether you buy anything from the company or even whether you stay on their website for more than an instant. Again: Who pays Google $50 per click? You do, as part of your insurance premium when you buy from a carrier who markets via Google.
So the question is not whether you are willing to pay acquisition costs as part of your insurance premium; it’s simply a question of who you will pay acquisition costs to support. Will you pay your acquisition costs to support Google, CBS or ESPN, or will you pay them to support a trusted local agent who will work with you to provide you a good insurance value both now and down the road?
Reason 2: Good agents help keep your rates low
For you as a consumer, the purchase of insurance is a bit more complex than buying bread or milk. There’s a lot to understand about insurance, and making a mistake in the coverage you buy could be financially catastrophic down the road. This is a reason so that so many people turn to trusted agents to assist and guide them.
What you may not be aware of is that the reverse is also true – insurance companies rely on trustworthy, ethical agents to assist them through the complexity of selecting the right customers to insure at the right price! In order to keep their rates low, insurance companies need to insure risks that fit into what they are priced to be able to cover. They also need accurate information about the nature of the risk so that proper rates can be charged. If a given carrier is constantly writing insurance policies with bad or only partial rating information or that don’t fall within their plan guidelines, they will soon find that they are paying more in claims than what they are taking in for premiums. Rate increases are sure to follow next.
Good insurance agents help the insurance companies they partner with write the insurance business that falls within their guidelines and with rates based on accurate information. This helps insurance carriers keep their rates low. And it explains why some of our carriers with names you’ve never heard of may be able to beat the rates of the carriers trying to sell you insurance without the assistance of a professional insurance agent.
Reason 3: It also costs money to money to provide you service
Insurance companies who sell direct have ongoing costs to serve you. Every time you call or inquire online regarding a bill or to add or remove a vehicle, someone has to be paid to take care of this for you. It’s either going to be a faceless employee in a call center receiving these service dollars, or it can be your local professional insurance agent and their staff. Now I know that many insurance companies have online service portals, but there’s a fair amount of money spent keeping that technology working properly as well, and there are certain issues that come up that artificial intelligence just isn’t equipped to resolve. Servicing your account costs money no matter how you cut it.
Reason 4: Bundling saves you money
Most of the big direct online insurance sellers focus primarily on Auto insurance, and for good reason. Auto insurance is much easier for them to write without the assistance of a local agent, compared to other lines such as Homeowners or Renters coverage. If these guys offer Homeowners insurance at all, it’s frequently almost an afterthought, and often they are partnering with a different carrier to even insure your home since they don’t actually write home coverage themselves. But when you buy your Auto insurance from one provider and purchase Homeowners or Renters insurance somewhere else, you typically pay more to buy these policies separately. Your local agent can help you save money by bundling your auto and home protection together.
Beyond the initial premium you pay
It’s important to conclude this post by pointing out that a good insurance value is about more than just the price of the premium. It’s about professional, trusted assistance in making a good decision in how you set up insurance to protect your risks. Many people buy their insurance online without really understanding what they are buying. Perhaps they think all insurance is the same. It’s not. Perhaps they think their insurance needs aren’t any different than the next person’s, so all they need is an online button or call center employee to take their order for a one-size-fits-all policy. That’s not true either. At some point down the road, you may need your insurance to cover a loss, and there’s no substitute for a trusted local agent in helping you increase the odds that you’ll have the right protection in place to cover it.
If you carry Rental Reimbursement coverage on your Personal Auto policy, it will pay for a rental car while your vehicle is disabled after a covered loss. Also known as Transportation Expense, this coverage will typically kick in immediately if your vehicle is not drivable after the accident. If your vehicle is drivable, then Rental Reimbursement applies for the time that it is in the shop being repaired.
Rental Reimbursement coverage is usually sold with a daily limit and an overall limit. Frequently offered limits include:
If you have this coverage on your vehicle, most insurance companies in this area will offer to set up a reservation and direct bill with Enterprise. This means all you have to worry about is a refundable security deposit and any rental car fees or taxes that exceed the limits that you purchased. Of course, you also have the option to obtain a rental car from another provider you receive and submit the receipt for reimbursement if the provider isn’t willing to bill your insurance carrier directly.
How big of a limit should you buy? In our local area, we find that $30 per day is probably a good minimum. $30 tends to be about enough to cover the fees and taxes for the least expensive rental car option with Enterprise’s insurance rates. (Enterprise offers discounted rates for insurance claims.) If you currently drive a bigger vehicle and want that same option for a rental, then you should probably go up to $40 or $50 a day.
How long will the insurance company pay for your rental car? If your vehicle is being repaired, typically until your vehicle’s repairs are complete. If your vehicle is a total loss, then usually the rental car ends shortly after the insurance company pays your claim. (Coverage will also end if you exceed your total available limit, which doesn’t happen too often.)
Rental Reimbursement coverage is relatively inexpensive. On average, it costs $1 to $4 per month to add it to a fully insured vehicle. Some carriers include a nominal amount of coverage for free, most frequently $20 per day. Currently one of our carriers that we represent, IMT, includes a $30 daily limit automatically for all fully insured vehicles, as a value-added benefit of being insured with them.
It’s important to note that Rental Reimbursement only kicks in if there is a loss covered under your policy. So if you hit a deer, get in an accident, have your vehicle stolen, etc. But if your transmission goes out, your Auto policy won’t cover the repair; which means it also won’t pay for a rental car while they put a new transmission in your vehicle.
Sometimes clients will say that they don’t need Rental Reimbursement because it is already covered under their auto warranty. But, more than likely, any rental car coverage in your warranty only kicks in if there is a warranty claim. This means that if a mechanical issue disables your vehicle, you have a warranty claim for the repair and the rental car. If an accident disables your vehicle, then you have an insurance claim for the repair and the rental car. In general, I’d say that vehicle warranties and insurance coverage compliment each other but don’t duplicate benefits.
Whether you choose this coverage is not a decision that will make or break you financially. However, I tend to recommend it for anyone who doesn’t have a backup vehicle available, for the simple reason that I know you will be quite a bit happier with your insurance at claim time if we can put you into a free rental car. It’s just an added expense that most people aren’t keen to absorb in addition to their deductible after an accident.
Should you add Rental Reimbursement coverage to your fully insured vehicle(s)? Consider what you would drive to get to work, to take the kids to school or to get to your appointments if your vehicle was disabled and/or being repaired after a car accident. If you’re not sure you’d have another vehicle available, it’s probably worthwhile to add this coverage to your policy.
"Share one another’s burdens.” The numbers are growing of people who find this philosophy appealing - much more appealing than continuing to pay more for health insurance than they pay for their mortgage. And so many people who have carried traditional insurance all their lives are now choosing faith-based health sharing plans, such as Medi-Share, Samaritan Ministries, Christian Healthcare Ministries and others. But how do these compare with traditional health insurance, and are they a financially safe alternative?
How do these plans work?
Instead of paying a monthly premium to an insurance company, you pay your monthly membership to other members of your healthcare sharing plan who’ve incurred medical expenses deemed eligible for “sharing” by the plan. The plan may also ask for a small amount of your membership share to cover its administrative costs. Because recognized healthcare sharing ministries in existence prior to 1/1/2000 have a special exception in the Affordable Care Act, if you are a member of such a plan, you are not subject to the Obamacare penalty for being uninsured.
Reasons people like these plans better
The single major reason the many people are joining faith-based health sharing plans is that they are usually much more affordable. Your monthly membership cost in such a plan might range from $300 to $800 a month for an average family, versus $1000 to $1500 a month to enroll your family in the cheapest health insurance option (which comes with a much, much higher deductible).
So, how are faith-based health sharing plans able to charge that much less? I'd suggest that the obvious answer is that it is mainly healthy people who enroll in them. Why? For one, these plans tend to restrict coverage for pre-existing conditions, so they aren't nearly as attractive to individuals with expensive chronic conditions. And people with ongoing medical needs are more likely to value the security of real insurance. This isn't rocket science; having a healthier membership means lower medical costs per average member, which means members don't have to pay as much. These sharing plans may also point to lower administrative costs, the assumed healthier lifestyles of their church-going members and available discounts when paying for medical bills in cash.
Secondly, not only is your monthly payment lower with a healthcare sharing plan, your out of pocket medical cost may be lower as well. While many people are now buying health insurance with $6000 or $7000 deductible, the average healthcare sharing plan might start paying after as little as a few hundred dollars out of your own pocket.
Beyond basic affordability, the whole concept of direct sharing can be appealing. Many families find it much more acceptable to write a large monthly check directly to another member in financial need than it is to fork over those same hard-earned dollars to a big insurance company. It can be argued that it is far more in keeping with American values for citizens to freely associate to help each other in time of need, rather than being told they must buy a product or face a tax penalty.
Reasons for caution
As these healthcare sharing plans disclose in the fine print and usually even the big print, they are not insurance. What does that mean? In simple terms, it means that there is no contract in place guaranteeing that your bills will be covered. Your medical expenses being paid for is wholly dependent on the continued voluntary participation of other members. These plans are quick to point out that “so far, so good” – they’ve always remained solvent to date. But, without question, the plan would fail if some natural or man-made disaster occurred or a terrible virus spread that caused a high percentage of members injury or major sickness. This is a risk you take with such plans. Since these plans are not insurance, there is no state guarantee fund backing them in the event the plan becomes insolvent.
In addition, because these plans are not insurance, they are also not regulated by government. Not only does this mean that you can’t appeal to the Department of Commerce to resolve a dispute, but it also means they are not required to “cover” everything that a regular major medical insurance policy covers. Most of these plans have caps on how much they will pay for – per medical incident or per year. I noticed one plan with a cap as low as $125,000 in some cases, which is definitely a cause for caution. (You may be able to add an additional level of protection for an extra monthly or annual cost.)
Since they aren’t regulated as insurance, these plans may also have unexpected exclusions. In addition to excluding medical costs arising out of activities deemed immoral (such as sex outside of marriage), the plan could also exclude other seemingly random procedures or activities. For example, a given plan might exclude injuries resulting from riding an ATV or rock climbing. And as mentioned earlier, unlike today’s health insurance policies, these plans generally exclude or restrict pre-existing conditions. (This even means the plan might not cover a pregnancy which began before you signed up.)
To switch or not to switch?
So, is a Christian healthcare sharing plan worth the risk and uncertainty of not being insured? Ultimately this is a decision you will have to make. One thing I can say for sure: more and more families and individuals feel that they don’t even have a choice, as the cost of health insurance rises further out of reach with each annual rate hike. At the end of the day, you have to be able to afford to pay the monthly cost of whatever you enroll in.
If you are considering taking the leap to healthcare sharing, I hope this post helps you make an education decision. If you move forward, it's important to do so with your eyes open, understanding both the risk as well as the benefits.
Pine Country Insurance is an insurance agency offering insurance products. As such, we are not an expert in the subject matter discussed herein, and we are providing this high-level commentary for general thought-provoking purposes only. Pine Country Insurance does not offer or endorse any non-insurance plans or products.
We are happy to bring back our holiday storefront display which we debuted last year. It features two scenes from "Bemidji in the 1930s". On the right, newly constructed Paul & Babe statues dominate the waterfront scene, next to a busy Carnegie Library all decked out for the holidays. The left shows a neighborhood scene, including one of the main small grocery store /residence combos which dotted the Bemidji landscape in this era.
We hope you will stop by to take a look at our display and to say hello this holiday season!
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.