Getting into an accident is no fun. It can certainly be a traumatic experience, and it’s almost always an inconvenience and disruption to your life. What’s even worse is when your insurance rates go up on top of all that. Unfortunately, it is the reality that Auto insurance rates are based on your statistical level of risk.
After an accident, when your next renewal arrives, your insurance company re-assesses your comparative level of risk as a driver and adjusts your rates accordingly. Auto policies are written for either a six or twelve-month term; so your next renewal could be anywhere from a month to a year down the road. When your next renewal does come, your rates are likely to go up because you are now statistically more likely to have a future loss than you were before.
So how much will your rates go up at renewal? Unfortunately, this can be difficult to predict. The rates you pay have been filed by your carrier with the state, but they are quite complex. I often see increases that range anywhere from fifteen to fifty percent after an accident. Obviously, that’s a big range, and I’ve definitely seen cases outside that range as well.
One thing worth mentioning is that the amount your premium increases is not based on the amount that was paid out on your claim. This is because your rates reflect your statistical likelihood of filing a claim in the future; it's not about recouping what was paid out in the past. (However, some carriers may not raise your rates if your claim was under a certain amount, such as $500 or $1000.)
Most insurance companies surcharge accidents for a three-year period. This means that at your next renewal after the accident’s third anniversary, typically you’ll see your rates go down. However, many carriers also have a safe driver discount that can look back as far as five years; so there could be some effect on your rates for up to five years.
But what about not-at-fault accidents? By and large, you shouldn’t see a big rate increase if the accident was someone else’s fault. Keep in mind, however, that if the insurance company pays a claim for collision damage to your vehicle and there weren’t any other drivers involved, the accident is automatically considered your fault. So, unfortunately, if you back into a tree, hit a parked car or slide into the ditch due to icy conditions, your rates will go up just as much as if you fall asleep at the wheel and cause a five-car pileup.
So is it a good plan to switch carriers after an accident to avoid the rate increase? If only it were that simple. Because insurance companies base their rates on your likelihood of having a loss in the future not as a means to recoup what they paid out in the past, any other carrier you ask for a quote is likely to surcharge your accident just the same as if your accident had been with them. This doesn’t mean that you can never find a better deal with another carrier, but it’s unlikely you’ll be able to avoid any increase in insurance cost.
You may have heard about a friend being non-renewed by their carrier after they have had an accident. The good news is that this doesn’t happen as much in Minnesota as in other states, because of Minnesota’s consumer protection laws. However, if you’ve already had other accidents or tickets in the past three years, it is possible that your most recent accident could be the straw that breaks the camel’s back and allows your carrier to legally non-renew you. In that case, you would have to move to a new carrier willing to accept your driving record, and unfortunately the rates you find might not be pleasant.
It’s worth noting that there are now a number of insurance carriers offering optional accident forgiveness, which means they won't surcharge your first accident. You have to pay extra to add this feature up front before your accident happens; it doesn’t apply to an accident you’ve already had. Typically, only your first accident in a three-year period is forgiven. In my office, two of my eight carriers offer this option.
When working with my clients, I realize that an accident is an unpleasant experience for my clients, and I try hard to help and guide them through the claim process and also dealing with the affect in their rates afterward. Sometimes I can find clients a better option with another carrier; or we can talk about other ways to cut costs if need be. If you’ve been in an accident and need assistance, let me know how I can help.
Here in northern Minnesota, many of us look for more ways to spend time outdoors during our long cold winters. One such opportunity many enjoy is to relax in an outdoor hot tube after a long hard day. As I write this post, fall is in the air and homeowners are contemplating a new hot tub purchase or are preparing their existing tub for the upcoming season.
Clients often call me to “add their new hot tub” or to make sure their hot tub is covered under their Homeowners policy. Good news! If you have a standard Homeowners policy, your hot tub is already covered; if it catches on fire, gets hit by a falling tree, is stolen or is damaged by hail or even vandalism, you should be good to go.
However, we should stop and ask: What is most likely to happen to your hot tub? Odds are that you’re not going to have a thief back up a flatbed and load it up using their forklift. It’s not even very likely that it will burn up in a fire. What is likely is that the water in your tub could freeze, destroying the shell, mechanics and/or plumbing beyond repair. I’ve had this happen to several clients, and the cause could be either a loss of power or a failure or breakdown of the heating system in the tub.
Now if knew about this right away, of course you would either quickly fix the issue or else drain the tub before the water cools enough to freeze. But what if you don’t realize there is an issue until it is already too late? If you use your tub every few days, that is plenty of time for something to have gone wrong since its last use and for the water in the tub to freeze.
So, if the worst happens and your hot tub is totaled by freezing, will your Homeowners policy cover its replacement? I wish this were a simple question; however, unfortunately it is not. What I have found in my research is that the answer to this question may depend on a) what exactly went wrong that resulted in the freeze; b) whether your carrier classifies the tub as part of your dwelling, a detached structure or personal property; c) what optional coverages your policy includes and d) how your carrier interprets several vague provisions contained in your policy.
I’m sorry if this doesn’t sound very re-assuring. The honest truth is that you probably aren’t going to be able to know in advance whether a potential freezing claim would be covered. However, there are a couple things you can do now to make an uncovered loss less likely.
First, an ounce of prevention is definitely worth of pound of cure. Talk to your hot tub dealer or an electrician about installing some kind of warning light or alarm that will let you know if you lose power to the tub. If you were able to install an alarm system that directly monitors the temperature of your water, that would be even better. If you have a way to be notified of a heating failure before your water freezes, you’ve reduced your need to worry about whether a resulting loss would be covered.
Secondly, contact your agent and ask them to check with your carrier as to a) whether your hot tub falls under your Dwelling, Other Structures or Personal Property coverage and b) once this is known, whether there are any optional coverages that can be added that make coverage more likely or more complete. For example, if your hot tub is considered personal property, make sure your personal property is covered at replacement cost coverage (you want this anyway) and consider beefing up your personal property coverage from Named Peril to Open Peril (aka, upgrade your HO3 to an HO5). Also, make sure that your applicable policy limit is high enough to factor in the added value of the hot tub.
Any hot tub coverage discussion would not be complete without mentioning the unthinkable risk of a small child drowning in your hot tub. While you might be careful to supervise children whenever they use the tub, what if a neighbor kid wandered over while you were gone and climbed in the tub? For this reason, I recommend installing a locking mechanism on your outdoor hot tub and making sure it is engaged when not in use. If the worst did happen, most Homeowners policies would cover your liability for this accident, but occasionally we see a policy that excludes or limits such coverage; so you should confirm your hot tub liability coverage by reviewing your policy and/or calling your agent or carrier.
We are privileged here in the North Country to have numerous beautiful log homes adorning our lake shores and wooded areas. You may have heard that these homes are harder to insure, and this can certainly be true. Many insurance companies aren’t willing to insure log homes, and when you find insurance, it may be more expensive than if you lived in a wood frame home of similar size.
First, a point of clarification. Not all homes that look like log homes are actually log homes. Log siding often creates a log home look but is not true log construction. An easy way to tell the difference with a casual glance is to look at the corners of the home. If it is a true log home, the logs will extend through the corners. If it is a frame home with log siding, you will see trim boards in the corners. In my experience, you shouldn’t have any issues insuring a frame home with log siding.
But, assuming you do have a true log home, why are many insurance companies unwilling to insure it? Some of it may have to do with the uncertainty of how much premium to charge. With a frame home, if a portion of an exterior wall is damaged, repair is often as simple as replacing a few studs and some pieces of siding. But with a log home, will all the logs on that side of the home have to replaced? Is that even possible without tearing down the home and rebuilding it? And will contractors skilled to work on log homes be a lot more expensive? And if the home does have to be rebuilt, how do they even estimate what that would cost? These are some of the questions that may make many insurance companies walk away.
A common misconception is that log homes are harder to insure because of their increased fire danger. From what I have read and heard, log homes really don’t pose an increased fire risk, especially those with larger sized logs. Common sense would say that it is more likely that a home with 2x4 or 2x6 wood studs will burn to the ground than at a home with logs of an eight to twelve inch diameter. Having said that, there are things in a log home that will burn, and most log homes tend to be located further from their fire department, which does makes them harder to insure.
Once you find an insurance company willing to insure a log home, you might have to pay more to cover it, for several reasons. One reason is that many times a lot of the most competitive carriers don’t insure log homes. Secondly, the distance from fire departments of the average log home also makes it more expensive to insure. A log home may be more likely to feature wood heat, which may also affect insurance cost. An insurance carrier may also not offer its biggest discounts for log homes, due to the perceived increased risk.
Another issue with the cost of coverage is the increased replacement cost. A log home will often cost more to rebuild than frame construction of a similar size. Because standard Homeowners policies largely base their premium on estimated replacement cost, this is going to affect how much it costs to insure the home.
If you own or are buying a log home and are struggling to find good insurance at a fair price, you should talk to an independent agent. Independent agents represent a number of different insurance companies and will normally have options to insure your log home. As an example, here at Pine Country Insurance I represent a handful of carriers who insure log homes and am can usually offer log home owners a reasonably priced policy.
Perhaps you find the insurance transaction to be a bit of a mystery. You may wonder what happens to the money you pay in premium and how the agent who services you gets compensated for his or her time.
Insurance agencies are normally compensated in the form of commissions received from the insurance company (or sometimes subtracted from the premium the agency forwards to the carrier). In Home & Auto insurance, this is usually a percentage of the premium, most often in the range of eight to fifteen percent. In Health insurance, commission is usually a set dollar amount per policy per month. Either way, this commission compensates the agency for its marketing costs, for assisting its clients in purchasing coverage and for providing continued service to the customer.
Beyond commission, the other common form of compensation is profit sharing. Profit sharing is basically an agreement between the insurance company and the agency that if the agency does a good job of screening and discretion in what policies it places with the carrier and if this performance leads to the insurance company turning a profit on the agency’s business in a given year, the insurance carrier will share some of this profit with its agency partner, recognizing and rewarding the agency’s role in creating this profit. Quite often there is a minimum amount of business that the agency must have with the carrier and there may also be growth requirements attached. Not all insurance companies pay profit sharing.
Some agencies are also paid via fees billed directly to the customer. These fees could be instead of commission or in addition to it, and they could be a set dollar amount for certain services or could be a percentage of premium paid. Fee assessment is probably more common in larger insurance agencies and brokerages than it is in local agencies. We don’t charge customers any fees at Pine Country Insurance.
Here’s an example of how an agency is paid and where premium dollars go. Let’s say that in January Kala purchases Auto insurance from First Street Agency and signs up for auto-pay. First Street Agency places her insurance with Gopher Mutual. Gopher Mutual takes $83 a month out of Susie’s checking account and pays First Street Agency $12 per month (14 percent) in commission.
At the end of the year, Kala had paid $1000 in premium to Gopher Mutual. Good news! It was a good year; there weren’t any major storms in the state and Gopher Mutual’s customers didn’t have too many major accidents. So, out of the $1000 Kala paid for the year, Gopher only had to use $430 to pay customer’s claims. It did also use $260 to pay its operating costs and it paid $140 to First Street Agency in commission. This left $170 in profit. Gopher shared $20 of this profit with First Street Agency and much of the rest it placed in reserve in case there are more storms or accidents next year.
While your actual insurance transactions will be different from the example above, I hope this post adds some transparency to the process of agency compensation and where your insurance premium dollar actually goes. I welcome any questions you might have!
Here in Minnesota lake country, many of us who live on water make a sizable investment in our boat lifts and docks, and of course we want to make sure that they are insured.
First, the good news: Your dock or boat lift which is on your residence premises would be covered by a standard Homeowners policy, either as a structure or as personal property, subject to the policy deductible. However, there are several important caveats; so keep reading.
First, your dock or lift is not going to be covered if damaged by waves. While Homeowners policies cover wind damage, they don’t cover damage caused by water, even if the water is being driven by the wind. So if wind-driven waves knock loose your dock or lift from its moorings, expect to be on your own for the cost of the damage. However, if the force of wind directly causes damage to the dock or lift, that loss should be covered.
Secondly, your dock or lift is also not covered against damage caused by ice. If you leave your dock in the water over the winter and moving ice shelves destroy it during spring thaw, your Homeowners carrier is likely to deny that claim. Or if you leave in your boat lift and the pressure from freezing or thawing of the ice around it causes damage, again, this is most likely not covered.
Beyond these two troublesome exclusions, there are many situations where coverage could hinge on whether your dock or lift is considered a structure or personal property. This can matter because policy coverage provisions for structures and personal property are often quite different. If your dock or lift is permanently set in place and attached to its location, it is almost certainly a structure. However, most Minnesota lake dwellers pull their docks and lifts out of the water in the fall to protect them from ice damage. Is a movable structure still a structure? The answer to this question may depend on which insurance company you ask. (This means you probably do need to ask.)
If your movable dock or boat lift is not considered a structure, then it would be considered personal property and typically covered against loss caused by one of the perils named in the policy. This gives you coverage if it is directly damaged by wind during a storm. It also covers fire, vandalism and falling objects, among other perils. The other good news is that, as personal property, your dock or lift is covered anywhere in the world, even if it’s not located where you live. Finally, as long as your Homeowners policy covers personal property on a Replacement Cost basis, then your dock or lift will be covered for its cost to replace or repair, without a deduction for depreciation (when actually replaced or repaired).
Things can get a bit more complicated if your dock or lift is considered a structure. First of all, most Homeowners policies only cover structures located on your “residence premises”. So if you own a dock or lift located at a resort or on a vacant lake lot and it’s considered a structure, then you are going to need to add special coverage for it. (Many insurance companies offer an option to add coverage for structures located elsewhere; however, if your carrier doesn’t make this option available, it could be more difficult to get it insured.)
Another problem could be that it may not be clear whether your dock or lift is on the “residence premises” or not. Perhaps you have a camper setup at a resort which you insure as a seasonal residence. If your policy includes coverage for Other Structures, will it cover your boat lift located elsewhere in the resort? Or what if you have a dock where you live but your legal boundary stops just short of where it sits?
Standard (ISO) Homeowners policies define your “residence premises” as including the structures and grounds at the location of your insured home. In the case of a dock at the edge of your land but just beyond your property’s legal boundaries, my opinion would be that it’s at the same location of your home and therefore should be covered. However, not everyone agrees with my opinion, leaving some doubt. In the case of the boat lift located across the resort from the lot you occupy, there may still be an argument to be made in favor of coverage, but coverage seems even less certain. Also, be careful here, as some non-standard policies might define “residence premises” even more narrowly.
Just like personal property, a boat lift or dock considered a structure will be covered against direct damage from wind, fire, vandalism, falling objects and more. Unfortunately, if considered a structure, it is probably not going to be covered on a Replacement Cost basis. Standard policies cover “structures which are not buildings” on an Actual Cash Value basis, meaning a deduction will apply for depreciation, based on the age and condition.
It would certainly be nice if coverage for boat lifts and docks wasn’t so complicated. But given the issues that I’ve raised, I recommend contacting your agent to explain your situation (including exactly where your dock or lift is located, whether it is movable, etc.) and to discuss how and whether coverage applies under your policy. If you don’t have a knowledgeable personal agent to call, maybe it’s time to call me!
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.