The Secret of Cut-Rate Auto Insurers

“The bitterness of no coverage is remembered long after the sweetness of low price has been forgotten.” These wise words from insurance educator Jon Eubank , CPCU, ARM, perfectly exemplifies the problem with cut-rate insurers. Saving 15% in 15 minutes could cost you thousands (or more) from denied claims!

Bill Wilson, Big “I” associate vice president of education and research and director of the Big “I” Virtual University has made a 12-point list of common cut-rate auto insurance exclusions and coverage limitations that would otherwise be covered by a standard insurer:

1. Undisclosed Household Residents Are Excluded. How many of you have ‘boomerang’ kids who came back to live at home?
2. Business Use of Non-Owned Auto Is Excluded. Have you ever borrowed a neighbor’s car or made a business stop in a dealer loaner auto?
3. Business Use of Any Auto Is Excluded. Do any of you ever run to Staples or the post office on company business?
4. Use of Any Non-Owned Auto Is Excluded. Better not drive anyone’s car but your own.
5. Vehicles Over 10,000 Pounds In Gross Value Weight Are Excluded. Have you ever rented a U-Haul truck or an RV thinking your liability coverage extended to the rental?
6. Any Type of Delivery Is Excluded. Denied claims include pizza, newspapers, Mary Kay cosmetics, etc. are not covered
7. Permissive Users Only Get Minimum Limits. This can apply to people who borrow your car or even unlisted household drivers.
8. “Street Racing” Is Excluded. Google “street racing” and see how often people are killed or critically injured in the process.
9. Criminal Acts Are Excluded Or Limits Are Reduced. DUIs or even speeding tickets may preclude coverage!
10. Medical Payments Only Include Licensed Physician Fees. One insured incurred a $25,000 “life flight” helicopter fee that would not be covered, even in part, by a cut-rate policy with this exclusion.
11. Theft Without Evidence of Forced Entry Is Excluded. One insured had a four-figure vehicle-theft loss denied because he left his keys in the car.
12. Sales Tax Is Not Covered Under Loss Settlement. This cost one “same coverage” insured more than $2,000 out of pocket for sales tax on a replacement auto.

Most people never read through their insurance policies. For those with standard insurers (though it is inadvisable), it often turns out alright. However, for those buying insurance through a cut-rate insurer, do you really know what you’re paying for? Odds are that your cheaper price comes with a lot more exclusions and limitations. Think through it logically—you just can’t sell the exact same thing for a lesser price.

The 12-point list was adapted from Bill Wilson’s article ‘Price Check’ that was featured in ‘ia: Insight + Analysis For The Independent Agent’ magazine’s July 2014 issue. To find out more about how insurance isn't a commodity, you can visit IndependentAgent.com.

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

IRMI Tip of the Month: Helping Teenage Drivers

There are several things parents can do to help keep their teenagers safe behind the wheel. Here are a few tips.

• Coach Your Son or Daughter. You should "coach" your teenage driver. Talk openly and frankly with him or her in order to determine his or her attitude about being behind the wheel. Work with your teen to set ground rules, such as the number of people allowed in the car, where the car may be taken, and curfew.
• Utilize Emergency Road Service. If you do not belong to a motor club, you should consider joining one that provides 24-hour emergency road service. That way, your teenager may call for help at any time if they need gas, need a jump-start, are locked out, or need a tire changed. You can also arrange with the motor club to provide service for your teen if they are in a friend's car.
• Have an Open Discussion About Driving Under the Influence. While no one wants to think about the possibility of their teenager drinking and driving--or being in a car with an impaired friend at the wheel--we need to be realistic. History has shown that teenagers will experiment with alcohol. You should make it clear to you teen that driving after drinking is not acceptable, and is very dangerous for everyone. However, if they ever do drink, or are in a car with someone else who is impaired, make it clear to your teen that he or she can call you at any time of the day or night and that you will come to get them--no questions asked.

Two other effective, though more costly, things that can be done are:

• Install a "Governor." Many vehicles, such as school buses and certain types of delivery vehicles, have a "governor" installed in them that restricts the amount of fuel that can be injected, thus preventing the vehicle from being driven over a certain speed. A governor in your teen's car may help keep him or her within the speed limits.
• Install a Global Positioning System (GPS) in the Teen's Car. You can program it to let you know where your teenager is driving at any time. With the GPS, you can set a radius of operation and the GPS will notify you if your teen has taken the car outside of that radius. It can even alert you when the speed limit is being exceeded. Finally, A GPS can notify you if the car is being kept out past an agreed upon curfew. Note: We realize that this may seem like a rather extreme measure. Use of a GPS may best serve those parents who have a reason to mistrust their teenager.

When your son or daughter gets a drivers license, work with your insurance agent to review various options for both of you. It is important for you—and your son or daughter—to remember that, yes, your auto insurance rates will go up, but they will come down after a couple years of driving experience. However, the rates will really go up if your teenager has tickets or gets into accidents.

Get more personal lines insurance and risk management tips and ideas from IRMI.

Copyright 2008, International Risk Management Institute, Inc.

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

Not All Auto Insurance Was Made Equal

Every day we get bombarded with advertisements telling us that we can save hundreds of dollars with some company’s cheap insurance. How do they offer less expensive coverage? 

They have catchy jingles, humorous commercials, spotless websites, and they’re all offering bargain auto insurance. How can you really be paying less for the same thing? Well, that’s just it—you aren’t buying the same thing. It’s cheap insurance for a reason. Here’s how they do it:

Coverage Guidance: When quoting insurance online, there is little to no guidance given. When applying for coverage, you’ll typically be asked what your current coverage is, and that’s what they’ll quote. There won’t be a review for coverage gaps or increased liability exposure.  They won’t discuss strategies to best cover you while maintaining an affordable premium. It’s simply an apples-to-apples comparison of what you’re paying now versus what you could pay with them. Their focus is solely on price, while an Independent Agency has various insurance carriers and the experience to find the overall best value for your situation.

Customer Service: Most companies’ biggest expense is its employees. If you want to talk to a person about your coverage, you’ll most likely be dealing with call centers. Establishing a relationship with your insurer is hard when you talk to a new person every time you call in. And all of the things you could count on an agency for (new proofs of insurance, endorsements, billing) is now done by yourself online or through a call center.

Policy Coverage: Coverage from an insurer that is only focused about getting you the ‘best price’ has to cut corners somehow. Removing the agent and using call centers is one way. In addition to this, there are often large policy differences by your ‘cut-rate’ insurers. Many have policy language that drops your liability coverage to your state’s bare minimum if someone else is driving your car, which could be very dangerous! (Nebraska’s DMV website shows the minimum amount, which is 25/50/25, but also makes a note that says that the state minimum may not adequately cover your exposure) Similarly, others will only pay a certain percentage of the claim if someone else is driving. Some cut-rate insurers offer Comprehensive and Collision insurance, but they cover far fewer perils than a standard policy. An example is that even though you may have your car insured for Collision, if someone else is driving, your Collision coverage won’t pay. Others may have separate deductibles for glass claims and body/engine claims. Some may not pay for cosmetic damages, and the list goes on…

Claims: Come claim time, you can run into some sneaky provisions on the settlement. Your cut-rate insurer may have understaffed adjusters, and the adjusters may be trained to only pay the absolute bare-minimum (You can usually find claim ratings online). Then when an amount is agreed upon, you might not see that money for a few months. Another scenario you might face is a limited coverage for repairs—your cut-rate insurer might only pay to replace the most necessary parts to make your car operable again, and they will probably only reimburse you for the Actual Cash Value/depreciated amount. That leaves you with an out-of-pocket expense that a standard insurer would have covered. Lastly, some of these shifty insurers sneak a provision limiting the number of miles you are insured for. The limit varies, but as soon as you go an inch over that last mile, you instantly become completely uninsured.

Extra Coverages: With some companies, you may not even have the option to buy Uninsured/Underinsured Motorist coverage. Some companies don’t offer coverage for towing expenses. Others don’t cover Punitive Damages, and others don’t provide Medical Payments. It all varies, but a standard insurer would cover all of those.

What Does it Matter to You?

Insurance is not a commodity, but a service. To us at Copple Insurance Agency, insurance is a promise. Don’t be fooled by cut-rate insurers. Just think about it—they have be making money to stay in business, so if they’re offering cheaper rates, there must be a catch! That catch could be any combination of things, such as more exclusions, fewer coverages, terrible service, denied claims, and more. 

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

Credit Scores: Increase Your Score, Reduce Your Premium!

Our credit scores affect a lot of things in our life, and it reaches as far as determining our insurance rates! It has been statistically proven that people with higher credit scores will have fewer claims, so almost all insurers use your credit score in determining your rates. However, increasing your credit score isn't as straight-forward as you might think. That’s why we've listed a few tips on less-known ways your credit score is affected, and strategies you can use to increase your score! (For an introduction to Credit Rating, click HERE)

Ratio of Debt:

When using credit cards, you want to use between 5%-30% of your total credit each month. Having more or less will negatively impact your score (yes, you can be penalized for not using enough credit!).

The total credit is the cumulative amount of credit lines you have. So if you have three credit cards (store-issued credit cards count too!) all with a $1,000 limit, you have a total credit limit of $3,000 a month. Using any combination of the cards to accumulate between $150-$900 that month will positively affect your credit score.

Payment History:

Payment History and Ratio of Debt make up approximately 65% of your score. Payment history is a record of all payments made on your debts. Timely payments stay on your record forever, while missed/late payments stay on record for approximately 7 years. When a late payment is initially reported, it can reduce your score by (up-to) 60 points!

Credit Inquiries:

Whenever you apply for debt (a credit card, loan, mortgage, etc.), the debtor will make a hard credit inquiry. Each hard credit inquiry on your record will decrease your score approximately 3 points. Soft credit inquiries are when you check on your credit score yourself, say through www.credit.com or www.creditkarma.com. Soft credit inquiries have no effect on your score. All inquiries stay on your record for 2 years, however.      

Length of Credit History:

This part makes up approximately 15% of your score, and can only be improved by the passage of time. The Length of Credit History starts with the very first line of credit you have, oftentimes a loan or credit card.The best thing a young person can do is get a credit card (and manage it responsibly!) as soon as possible. A co-signer may be needed initially, but can later be removed with proof of sufficient income. 

For older persons, closing an old account may have a negative affect on their score, because closing a credit line erases all credit history associated with it. If you have an old card you don't use anymore, it's often better to just keep the card open, but just not use it.

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

Understanding Uninsured & Underinsured Motorist Coverage

This article will explain the significance of these coverages by discussing their functions, using likely scenarios for examples, and providing possible consequences of having too little coverage. It will discuss minimum state limits and how to avoid being an Underinsured Motorist yourself. It will also discuss what to look for when buying these coverages.

What is the Difference Between an Uninsured Motorist (UM) and an Underinsured Motorist (UIM)?

An Uninsured Motorist is just that: someone with no auto insurance. Statistics show that 1 out of every 7 drivers (14% of drivers) in the US does not have any insurance. That’s over 45 million uninsured drivers. Alarming as this is, your Uninsured Motorist coverage will step in and act like the other party’s insurer in the event of a collision with someone uninsured. So if the other party was at fault, your insurer will pay you, up to your Uninsured Motorist coverage limit, as if they were the other party’s insurer.

An Underinsured Motorist is someone driving with insufficient levels of liability/property coverage. The Underinsured Motorist coverage comes into play when the other party is at-fault for the accident, and their insurance policy limit isn't high enough to cover everything they’re liable for. Like the Uninsured Motorist coverage, Underinsured Motorist coverage then steps in to act like the other party's insurer to pay for the damages that the other party can't cover, up to your Underinsured Motorist coverage limit. 

While an Uninsured Motorist is easily defined, determining whether you are an Underinsured Motorist or not is a hard thing to do until you cause an accident. Determining if you have a sufficient amount of coverage is entirely dependent on the severity of the accident you cause. For example, if you cause a simple fender bender, you might only be liable for a few hundred dollars. That's to fix the bumper and for a chiropractic session for the person you hit. However, a serious accident involving multiple people could easily add up to be hundreds of thousands of dollars!

The Problem with Minimum State Limits

The state of Nebraska has a minimum limit of liability every driver must have to be considered an 'insured driver'. That requirement is a split limit of $25,000 of bodily injury per person, $50,000 total bodily injury, and $25,000 property damage liability (often notated as "25,000/50,000/25,000" or "25/50/25"). While those limits are all you need to be a state-approved 'insured driver', think of the risk you're taking with those low limits:

• You hit a Lexus: luxury cars take luxury parts, along with costly import or dealer service. Even a relatively minor accident might not be covered by the $25,000 for property damage.

• You hit a car with three people in it: Let’s say each one of the other car’s occupants receives $20,000 of medical care. That still leaves you with $10,000 out-of-pocket. ($50K of total body injury insured, with 3 people x $20K = $60K, leaving $10K uncovered) Now imagine a more severe accident with a small sedan that has five people stuffed into it!

• You get in a serious wreck with a sports car with only one person in it: You destroy their new Corvette, which leaves you out-of-pocket roughly $25,000 for the property. Their spinal surgery and physical therapy adds up to $150,000. That’s $125,000 of bodily injury that you’re still liable for. 

What Happens if I Do Not Have Enough Liability?

In the minimum state limit examples, the amounts not covered by your insurance would be completely up to you to cover. In most cases, you can expect a court date to determine negligence and how much you owe the other party. The amount you owe will most likely be taken in the form of garnished wages or other means until things are evened out.

But What If They Have Underinsured Motorist coverage?

If they do, their insurance company is going to step in and take care of all of their immediate bills on your behalf, since you were driving without proper coverage (at least, 'improper' for the accident you caused). The other party's insurance company will come back and sue you for everything you rightfully owe (this is called Subrogation), so refer to the previous section. (Note that in the opposite situation where you're not the one at fault, if your insurer pays you through UM or UIM, your insurer will sue the other party to make them pay for what they owe [Subrogate them])

What Should I Look for When Buying UM/UIM Coverage?

To protect yourself from a hit-and-run or not-at-fault accidents where the other driver doesn't have/doesn't have enough insurance, you'll need UM/UIM coverage. Typically, UM/UIM is sold as a single coverage, however, it often only covers your bodily injury. If you do not have Comprehensive and Collision coverage on your car, make sure UM/UIM for property damage is covered, or see if it can be endorsed to the basic UM/UIM coverage.  

How Do I Avoid Being an Underinsured Driver?

Accidents are accidents; they’re statistically going to happen to everyone. You never know if the accident is going to be a simple scuff in the parking lot, or a catastrophic event. Moreover, there is technically no way to know that you will or won't be an Underinsured Driver. However, you can take a few simple precautions that will severely limit your chances of being Underinsured: through higher limits on your auto policy, safe and defensive driving, and an umbrella policy covering excess damages, you can drive knowing you're protected for almost anything.  

What are These Precautions Going to Cost Me?

Defensive driving is free, saving you from accidents and maybe even traffic tickets along the way. Insurance wise, to bump up the liability limits from minimum level (25/50/25) to $300,000 across the board (300/300/300) is typically not very much, often costing and extra $100 or so per year. Likewise, a $1,000,000 Umbrella policy usually costs around $200 per year, and the Umbrella policy will give you additional liability coverage to your auto policy and your Home/Renter's policy! Excess liability is extremely cheap, especially when you consider what could happen without it!

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

Medical Payments—Not Always What You'd Expect

Everyone has seen the ‘Medical Payments’ section on their homeowners,  or Auto policy, but what does it really mean? Does it cover my medical expenses if I get in a car crash? Does it mean that I only have coverage for X amount of dollars for other people's medical expenses? Does it cover my family's medical expenses?

The Homeowner’s Policy & General Liability Policy:

The Medical Payments (also referred to as 'Medical Expenses') section of your homeowner’s or General Liability policy, is to cover medical expenses of someone who is accidentally injured. The caveat with it is that Medical Payments coverage does not apply to you or your family getting hurt, because that should be covered by your health insurer. For businesses, the Medical Payments coverage would not apply to you or your employees, as that should be covered by Workers' Compensation.

The Medical Payments coverage comes into play when there is no proof of negligence, but a visitor is hurt. In this situation, your insurer will pay the medical expenses required to fix up the injured person, hopefully keeping you out of court. This coverage can be substantial, as litigation can be very expensive, not to mention time consuming. However, if you had negligently hurt someone, your policy is going to pay for their medical expenses, and any litigation expenses that are incurred. Medical Payments is simply a tool to prevent you from going to court in the first place.

Here are two basic examples:

—Your  guest trips over a rug, fracturing their arm. It was completely accidental, but your insurer will pay up to your Medical Payments policy limit to fix them up in hopes of keeping you out of court.

—A pedestrian cuts through the corner or your yard and slips on a child’s toy. Once again, your insurer is going to pay up to the policy limits to fix that person up, and hopefully keep you out of the courtroom.

As you can see, this could play out a million different ways, but trying to establish blame in the courtroom is time consuming and costly for everyone involved. This small, yet potentially huge, coverage can save you time in court, and can keep a small accident from becoming a multi-thousand dollar claim on your record.

The Auto Policy:

The concept is almost reversed in auto insurance. Regardless of your negligence in an accident, your insurer is going to pay up to the Medical Payments limit for each person in the car. So when you're the driver and have an accident, it'll pay for the medical expenses of you and every passenger in the vehicle. This coverage also extends to when you are a passenger in someone else's car, or if you are hit by a vehicle while on-foot. 

The Auto policy's version can be very beneficial to have if you are the passenger during an accident or hit as a pedestrian. This is especially so if the driver doesn't have Medical Payments coverage (or auto coverage at all!). Alternatively, the driver might have an Auto policy, but they might not have high enough limits to fully cover your injuries!

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.