One question clients frequently ask me is what will happen if they buy a vehicle on the weekend and get in an accident on the way home – before they are able to reach me to add the vehicle to their insurance policy.
There is much confusion on this point. Some people have heard that you have ten days of free coverage or that you have a thirty-day window to call and add your vehicle. Neither of these are necessarily correct.
Most Personal Auto insurance policies do have a “newly acquired vehicle” provision. This provision provides a window of time after you buy a vehicle to report it and be covered as of the date you purchased it. However, there are several points of caution I’d like to share with you.
First caution tip: You need to have an existing policy in place. Once I had a prospective client come in. He had recently purchased a vehicle and been told by the dealer he had “thirty days to get it insured”. The problem was that he did not have an existing Auto insurance policy; so there was no policy to provide him a window to report the vehicle for retroactive coverage. If you are buying a vehicle and don’t already have Personal Auto insurance, you shouldn’t drive the vehicle off the lot.
Second caution tip: If you are the one buying the vehicle, you must have an insurance policy in your name. Let’s say Junior has been covered as a driver on Mom and Dad’s insurance for two years since he got his license. Now that he is 18, he goes out on a Saturday and buys a vehicle in his own name. Unfortunately, he gets into a wreck on Sunday evening. On Monday, Dad calls to report the vehicle and the accident and Junior and his parents confront an unwelcome surprise: The policy was in Dad and Mom’s name. Junior was just a driver. There was no reporting window to report the vehicle purchase, because Mom or Dad didn’t buy the vehicle. Junior needed to have arranged for coverage before he drove off the lot. (Similar issues can arise when buying a vehicle in the name of a trust or a business.)
Thirdly, there is no standard for how long you have to report your new vehicle. Different insurance companies set different time limits for different situations. Depending on your insurance carrier, whether it is an additional or replacement vehicle, what coverages you currently carry on other vehicles, what coverage you expect to receive on this vehicle and even where you are in your policy period, you may have as little as less than a day or as long as 364 days to report your vehicle for retroactive coverage. While most policies will provide at least 3-4 days in most situations and often you may have a couple weeks, there are exceptions. Some policies even include a stipulation that to have any reporting window at all, you must insure all autos that you own with them – a problem if you own an uninsured parked vehicle or maybe a collector vehicle on its own special policy.
Fourth, you don’t have any reporting period at all under your Personal Auto policy when you buy a boat, four-wheeler, snowmobile, motorhome, camper or even a motorcycle. This reporting period provided in your Auto policy typically applies to private passenger automobiles only – meaning cars, SUVs, light vans and light trucks (up to one ton, usually). Of course, if you already have a Motorcycle policy in force, it may give you some kind of a reporting period for buying a second motorcycle. But if it is your first bike, you definitely aren’t covered if you just drive it off the lot.
Finally, this reporting period is not free coverage. When you call to add your vehicle effective the purchase date, you will have to pay for coverage back to the purchase date, assuming your request falls within the terms of your policy.
At this point hopefully you can understand why I’m saying that the issue of “coverage to drive off the lot” is not always as simple as many people think. That’s why I encourage you to call your personal insurance agent before you make a vehicle purchase to discuss your situation and confirm how much time you have to report your vehicle after you buy it. If you don’t have a relationship with a personal agent to get answers to these kinds of questions, then maybe we should talk.
The 6-8 weeks between an accepted offer and closing on a home can be a whirlwind of activity for you as a home buyer. There’s the inspection to go over and negotiate, water and septic inspections, appraisals, documents and more documents, unexpected fees that need to be covered at closing. Perhaps you don’t even think about insurance until the last minute, when your mortgage company reminds you. At that point, it might be tempting to quickly call around to a few insurance agents and blindly accept the lowest quote you receive.
If you happen to be buying is a mobile (i.e., “manufactured”) home, this could be a critical mistake on your part. Unlike insurance for stick built homes, there is very little degree of standardization among mobile home policies. Since you generally get what you pay for, if you take the lowest quote, you may be blissfully unaware of how inferior the coverage is that you selected.
So I repeat: Buyer Beware.
Issue Number One: How much coverage will apply to your dwelling? While it’s standard for stick-built home policies to insure your house for its estimated cost to rebuild (i.e., “Replacement Cost coverage), many mobile/manufactured home policies are written for “Actual Cash Value”, which means they insure the dwelling only for its current depreciated value. This means that if your home burned down, you’d have to go out and try to find another used mobile home in acceptable condition to move onto your property. Perhaps you’d find this level of coverage satisfactory and perhaps not, but it is important to know if that’s all the insurance you are buying.
This brings us to a second area of concern: Will you get paid enough to cover repairs after a smaller loss? Not if you purchase a Actual Cash Value policy. With Actual Cash Value coverage, the cost for covered repairs will be depreciated. As an example, let’s say a water line in your home breaks and it will cost $3000 to replace damaged flooring. Your insurance company assesses $900 in depreciation on top of your $500 deductible, paying only $1600 and leaving you to come up with $1400 for the new flooring. How happy will you be with this claim?
Actual Cash Value policies are virtually unheard of these days for stick-built primary residences, but they are quite common when insuring manufactured homes. Another point of caution is that some carriers sell policies that start out at Replacement Cost but then switch to Actual Cash Value after the home reaches a certain age – maybe 10 or 15 years old. While they disclose this coverage reduction in the renewal documents, I’m guessing many people either miss it entirely or don’t understand the how this change will affect them.
This is may be a good point to note that even with a true Replacement Cost policy, coverage on roofing shingles may be depreciated after the shingles reach a certain age (often 15 years old). While I don’t find this overly desirable for the average homeowner, it may be hard to find Replacement Cost coverage on your mobile home that doesn’t include this restriction.
Another area of concern comes to the amount and type of coverage for your personal property. Let’s say you are buying a 1200 square foot home. If only the home were stick built, it’s likely your policy would come with at least $100,000 in Replacement Cost Personal Property coverage. But the average policy for a 1200 square foot mobile home might only cover $10,000 to $30,000 for your personal property.
Also, if you aren’t careful, you could end up with Actual Cash Value Personal Property coverage on your manufactured home policy. This means any claim you file would be subject to depreciation. While some items such as jewelry or collectibles may actually increase in value over time, much of your personal property may be worth pennies on the dollar compared to what it will cost to repurchase it in the store. I can pretty much guarantee you that if don’t have Replacement Cost coverage for your personal property, you are going to be very disappointed and frustrated come claim time.
Another thing I often see in mobile home policies is very restrictive limits for certain types of personal property. For example, maybe the policy only covers up to $1500 for sporting equipment or only $2000 total for all electronics (including computers, TVs, cameras, mobile devices, etc.) While all Homeowners policies do limit some categories of items, the examples I just cited are much more extreme that anything you’re likely to find on a standard “stick-built” Homeowners policy. Worse yet, you’re not likely to even know about these limits, unless either read the full policy contract or are working with an agent who points them out.
It’s not that uncommon in the north country to see an older, dinky single wide mobile home with a huge beautiful shop right next to it. If you’re not careful, you could end up with only $5000 to $15,000 in coverage for that shop. Also, many manufatured home policies may deduct depreciation for any claims to the shop – in some cases even if you have Replacement Cost coverage on your dwelling!
These are not the only issues you may find in some mobile home policies, but they are certainly enough examples to highlight why it is important to be careful about what policy you buy for your mobile home. If you do choose to go with the lowest quote you receive, you should do so with the understanding that you may be receiving vastly inferior coverage to other options that might cost somewhat more.
One of the ways I try to provide better value as an agent is by sitting down with clients who are buying a new insurance policy and reviewing their options and highlights of the coverage which comes with the policy they are buying. I’d suggest that working with a professional, knowledgeable agent who will take the time to explain what you are buying is very important when you purchase coverage for your mobile home.
If you buy a brand new vehicle, you probably want to make sure that it is well insured. And while traditional “full coverage” will protect your vehicle, you might not be content with only being covered up to the depreciated value if your new vehicle is totaled in an accident or other loss.
Depending on what your insurance company offers, you likely have one, and possibly two, options to enhance this coverage on your new vehicle. Most companies offer Loan or Lease Gap coverage and a number of companies are beginning to offer New Car Replacement coverage as well. So which is better, or do you need either?
First, Gap coverage is designed to pay off the loan or lease on your vehicle if you owe more than the current value at the time of a total loss. If you didn’t make a large down-payment or receive much in the way of trade-in credit when you bought your vehicle, you could find yourself becoming “upside down” on your loan shortly after your new vehicle is purchased, due to the initial depreciation that often occurs when you drive it off the lot.
New Car Replacement coverage, however, is designed to pay what it will cost to replace your used vehicle with a new, current model year vehicle of the same make, model and options. Assuming that your loan balance is not more than the cost of a new vehicle, New Car Replacement will pay more for a total loss than Gap will.
Let’s say you bought a new Ford Escape nine months ago for $27,000. You paid $1000 down and financed the rest over six years. You added it to your insurance with a $500 deductible. Last week you were broadsided by another vehicle and your Escape was totaled. At this point, you still owe $23,000. Meanwhile, a new 2017 Ford Escape will cost $28,000. The insurance company appraises your vehicle at $21,000.
If you only chose basic “full coverage” for your vehicle, all you would get in this case is $20,500 (the appraised value minus your deductible), and you'll have to come up with $2500 out of pocket to payoff your loan. Or you may be able to roll this shortfall into a loan on your next vehicle, making you start even further “upside down” on your new loan.
If you chose Gap coverage, your insurance claim would pay $22,500 (the balance of your loan minus your deductible), leaving you only your deductible out of pocket to pay off your loan.
However, if you purchased New Car Replacement coverage and it is still in effect, your policy will pay $27,500 (the cost of current year's model minus your deductible). You’ll pay off your loan balance and still have around $4500 left as a down-payment on your next vehicle. If you do want a new Escape, you’ll be back in the position you started (minus your deductible) with a loan balance around $23,500.
Let’s take this same example and say that either you had paid cash for your 2015 Escape or you have already paid off the loan on it when your accident occurred. In that case, obviously Gap coverage would provide you no benefit at all, while New Car Replacement coverage will put you right back in the position that you started – with a brand new vehicle and no loan on it, after writing a check to the dealer for the amount of your deductible.
As you can see, New Car Replacement coverage will almost always pay better than Gap coverage. It might also cost a little more. Check with your insurance company, but on average, you might pay $2 to $5 per month for Gap, versus $4 to $8 a month for New Car Replacement.
With some carriers, you may be able to buy both Gap and Replacement together. This might be important, depending on how long your carrier allows you to keep New Car Replacement on your policy, which can vary from one to five years.
Since New Car Replacement is not yet a standardized coverage, there may be significant differences in how the coverage works between one carrier and the next; coverage may even vary from what is described here. Also, there can be restrictions on how much Gap coverage may pay as well. You should ask your insurance agent for specific information about what your carrier offers and read your policy contract carefully.
For simplicity of understanding, the settlement examples in this post do not mention the tax, title and license fees that your insurance company will add to the amount they pay you for your total loss settlement. This additional payment is intended to reimburse you for the fees you'll pay when you replace the vehicle.
Ken Cobb is owner of Pine Country Insurance and has been active in the insurance industry for over 15 years. Meet Ken.
Coverage descriptions found in this blog are summaries provided for general educational purposes and cannot fully detail the terms, conditions, limitations or exclusions of a specific insurance policy. Please read your policy carefully.