IRMI Tip of the Month: Questions to Consider for Insurance Checkup

One recent insurance survey suggests that over 30 million U.S. households own insurance policies that are seriously out-of-date. To check your coverage, you should ask yourself the following questions. If the answer to one or more of these questions is yes, then you should contact your insurance agent as soon as possible so your insurance policies can be appropriately updated.

The following list is a good starting-point for an insurance self-examination:

●       Has your house undergone major renovations or improvements? If so, your home may be underinsured.

●       Have you changed your job? Most insurers use occupation as part of their rating process.

●       Has your marital status changed? If you have married, for example, you may now qualify for a multi-car discount on your auto insurance.

●       Have you purchased new valuables or collectibles? If so, you may be seriously underinsured for these items. Specialty policies or endorsements can properly cover them.

●       Are you now participating in a carpool? If so, your exposure to injuring passengers has grown and your liability limits may need to be increased.

●       Are you now retired? If so, your auto insurance premium will likely drop since your annual mileage should decrease.

●       Have you added a burglar alarm with central station reporting for your home? If so, you could qualify for a homeowner’s premium discount.

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.

What Are Professional Liability Policies?

Some risks overreach the boundaries of the General Liability policy. These risks require the use of a specially designed policy, called the Professional Liability policy. Who all needs a Professional Liability policy? Why aren’t these risks covered by the General Liability policy?

When you think of Professional Liability, you think of your doctor, your lawyer, and your accountant. These individuals are recognized professionals, and most certainly require a Professional Liability policy to be properly protected. These individuals need the Professional Liability due to the great financial and/or physical harm they can inflict on their clients if they do not properly perform their work. These professionals are also being held to a higher standard by the certifications and associations they belong to as a doctor, lawyer, accountant, etc., thus they are referred to as a ‘professional’. Being a professional, they assume more risk than what is covered in a General Liability policy, thus the need for the Professional Liability policy.

However, while doctors, lawyers, and accountants are all great examples, they only make-up a portion of all Professional Liability policyholders. The ones you don’t think about are personal trainers, insurance agents, architects, graphic designers, and many more (these examples are often referred to as quasi-professionals). A good rule-of-thumb on determining if someone has the need for a Professional Liability policy is if they have to have a state license to legally work. If a state license is required, they almost certainly will need a Professional Liability Policy. The follow-up rule is that they have any sort of certification needed for their job, they probably need a Professional Liability as well (an exception to this would be a First-Aid certification). While there are plenty of exceptions to these two rules, it will catch most people who need it (Note that some professions require a Bond instead of the Professional Liability policy).

If someone does need Professional Liability, it depends on their situation as to where they can get it. Some individuals must find personal Professional Liability policies on their own, such as the typical CPA. Others may have coverage provided for them from company, which would be the case for most nurses. A Professional Liability policy can be written to cover either situation, but in both situations, the policy will act in a similar way: providing a separate liability limit for claims caused by the errors or omissions of a professional or quasi-professional. 

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.

Umbrella Policies: Safety for a Rainy Day

What is an Umbrella? Can both a business and an individual have an umbrella? What all does it do? Why should I consider getting one? How expensive is it?

What is an Umbrella Policy?

The Umbrella Policy is very straight-forwardly named, as it covers the underlying policies. Most Umbrella policies can go over all of your underlying lines of liability coverages. By purchasing an Umbrella policy, you are giving yourself an extra layer of liability coverage in the event of a large loss. It is a very important risk management tool for both businesses and individuals, as the extra coverage picks up where the General Liability, Auto policy, etc. stops, often for no additional deductible/retention. For businesses, they would purchase a Commercial Umbrella policy, and for an individual/household, they would purchase a Personal Umbrella policy. Let’s look at an example with ABC Company’s insurance to illustrate my point:

Let’s say ABC Company has a General Liability policy of $1 million per occurrence, $2 million aggregate, and they also have a Commercial Umbrella policy on top with $1 million coverage. Next, imagine they have a General Liability loss of $1.5 million. Their General Liability will only pay $1 million of that (because of the $1 million per occurrence) but their umbrella steps in and covers the excess $.5 million. In the end, every penny of the loss was paid by ABC Company’s insurance. However, in the absence of that Umbrella policy, they would have had to cover the $.5 million out of pocket.

A liability loss in the millions is not something that only happens to big businesses though. Losses of this magnitude happen to businesses of all sizes, and even happens to households. Also, the biggest risk you take all day will most likely be getting in a car. Huge liability claims come out of auto accidents, and both the Commercial and Personal Umbrella policies can go over your Auto policy as well. A Commercial Umbrella policy can keep you and your employees safe while driving too. Back to the example with ABC Company, most people/businesses could not easily cover that $.5 million on their own. In these situations, it’s always better to have too much insurance, instead of not enough!

Do the Commercial and Personal Umbrellas cover all underlying policies?

No, there are certain situations that the Personal and Commercial Umbrellas won’t cover everything. Sometimes a separate, special Umbrella will need to be purchased to go over certain liabilities, such as a Professional Umbrella policy to cover a business’s Professional Liability. This Umbrella policy was designed to cover the added perils that professionals face, providing extended coverage for their endeavors. Also, Workers' Compensation cannot be covered by an Umbrella policy. Your agent should know when an Umbrella policy is necessary.

Do the Umbrella policies cover anything extra?

Yes, both the Commercial and Personal Umbrella policies broaden coverage. The broadened coverage usually has to do with policy definitions. For example, the Cincinnati Insurance Companies' Commercial Umbrella policy extends the term 'bodily injury' to include "disability, humiliation, shock, fright, mental anguish or mental injury, whether or not they're a result of physical injury." The General Liability policy only covers direct physical injuries. Umbrella policies can also fully reimburse your lost income from appearing in court or gathering information after a claim, where your underlying policies might only provide a fixed amount of coverage. It may also cover supplementary payments (pre-judgement interest, post-judgement interest, bail bonds, etc.) entirely or at higher amounts than underlying policies. Ask your agent for full details.

So What Does an Umbrella Policy Cost?

While each situation is different, a general figure to go by is approximately $250 a year for a Personal Umbrella policy, and $500 a year for a Commercial Umbrella Policy for one million dollars of coverage. Although that might seem like a lot, if the situation arises where you need it, you'll definitely think of it as money well spent!

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.

An Introduction to General Liability

Every establishment, large or small, retail or service, has a liability exposure. Naturally, some businesses have a higher claim potential than others. For example, an amusement park has far more exposure than a bakery, but how would each business ensure that all of their exposure is covered?

The General Liability policy (GL) covers the liability exposures found in all businesses and organizaitons, such as someone slipping and falling on their property, or the damage to someone else’s property caused by them or an employee. The General Liability policy also covers the defense costs of any lawsuits arising from these types of events. Essentially, it is a business’s primary defense against many unforeseen, often unpreventable, accidents.

What Determines the Proper Limit for the General Liability?

Setting a proper General Liability limit for a business highly varies. The best way to 'ballpark' the limit is to look at what the business is doing. Does this industry typically have a lot of claims? What is the claim severity for this type of business? Does the business have any special circumstances that increase or decrease its risk? It is imperative that you think of all the potential causes of a General Liability loss. The limit should then be set to adequately cover the total costs to defend and settle any suits that could come up or any damages that could be done.

Most any insurance agent will tell you that you can never have enough liability coverage. However, since most people can’t afford infinite coverage, you must carefully work with your agent to determine the proper GL level. Come claim time, it's always better to have too much coverage!

How Do the General Liability Limits Work?

Most General Liability limits are split, meaning that there is a limit per occurrence, and a separate aggregate limit. For example, let’s assume your General Liability has a $1 million occurrence limit and $2 million aggregate limit. You then have a loss of $1.5 million under your General Liability. The General Liability policy will cover $1 million of that loss, and you will also have another $1 million dollars left for any other claims that may occur that year. The $.5 million would not be covered and would require you to pay out of pocket—unless you had an Umbrella policy. 

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.

Scheduled Property–-The Solution for Sublimits

Homeowner’s insurance covers your home, your liability, and your items in your home. However, having a standard homeowner’s policy does not necessarily mean all of your items are properly insured. Certain categories of items are subject to limitations by sublimits. This article will discuss how you can properly protect yourself by scheduling your property.

The Homeowner’s policy covers just about every piece of property inside your home. Most policies even cover items you’re storing for others. Most policies typically extend $1,000 of coverage for damages to other's property while you are away from home. One of the biggest pitfalls with the property coverage of a homeowner’s insurance policy, however, is its sublimits. All standard homeowner's policies have sublimits, which are limitations on your personal property limit, assigned by category. Though almost all kinds of property is covered, it is only covered up to the sublimit’s stated value. These limitations can create the need to schedule your property if they are worth more than the total of the sublimit.

Scheduling property is a fairly simple thing to do. At anytime, give your agent the type of property it is (E.g. Jewlery), a vivid description of the property (E.g. Women’s white-gold wedding ring, ½ kt. Princess-cut diamond with diamond paving), and the appraised value. Some categories of items don’t need a professional appraisal, but most companies will require a professional appraisal if the total value of an items is over a pre-determined threshold.

The cost to schedule property is very affordable. The typical item only costs about a dollar per $100 of value. For example, a guitar scheduled for $700 would only cost about $5 per year. The biggest problem with scheduling is getting the correct value, especially for jewelry. The price of precious gems and metals are continually increasing, so having an appraisal every year or two is vital. The $1000 wedding ring you bought in 1990 is definitely not worth only $1000 anymore. Also, the need for professional appraisals becomes increasingly vital as the value of the item goes up.

On the opposite side of things, depreciation drastically affects other categories of items, especially technology (E.g. The $2000 you spent on technology a few years ago may only be worth $400 now).  Some things can be easily appraised on your own using the internet, but professional appraisals are always the most accurate way to ensure you are setting limits properly. Appraising is usually a better option than paying too much for over-insured items as well.

By scheduling your high-worth items, you can bypass the sublimit’s limitations on coverage. Depending on your insurer, you can sometimes schedule your items for agreed value, instead of the actual cash value you would get if the item is only covered under the sublimit’s coverage. Scheduling property is one of the best ways to make sure you have your items properly insured come claim time.

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.

A Non-Mechanic's Guide to Winterizing Your Vehicle

One of the best ways to keep your vehicle from breaking down is proper preparation. Winter conditions can be very hard on your car, and often turn small mechanical problems into large ones. While there are things that are best left to the professionals, we have compiled a list of things anyone can easily check to minimize the chances of having a mechanical failure this winter:

• Anti-Freeze (Coolant):
• Fill the reservoir if it is below full:
• A 50/50 mixture of anti-freeze(coolant) to water is recommended to properly cool and to not freeze.
• Battery Cables and Connections:
• Batteries should be replaced periodically. A bad battery will often die on the first freeze.
• Cables connecting the battery to the engine should be in good condition, not visibly warn or wrinkled, and (especially) not showing the wire underneath:
• Replace any rubber coverings that are in this condition asap.
• Connection points on the battery should be corrosion-free and should be firmly tightened to the battery.
• If corrosion (usually a white-crusty substance) is built up around the connection points, disconnect both battery connections before you clean:
• Use baking soda mixed with water.
• Alternatively, use a can of Coke.
• Brakes:
• Make sure the brake fluid reservoir it is filled to the proper level
• Note that the brake line is a closed system. If the brake fluid level has gone down, that means you have a leak, which should probably be serviced as soon as possible.
• If your breaks squeal or squeak when breaking, it might be time to replace the brake pads.
• Replacing the pads yourself is a fairly simple process if you have the proper space and tools.  
• Note that the squeaking is not a sure-fire sign of the brake pads needing to be replaced.
• Fuel Tank:
• Keep a full tank of gas in case of an emergency.
• A full tank of gas will keep the fuel line from freezing.
• Heater/Defroster:
• Make sure each works properly, have them serviced if not.
• Lights/Hazard Signal:
• Make sure all lights and signals work: 
• If they don't, first try replacing a possibly burnt-out bulb:
• If the new bulb doesn't fix it, have it serviced.
• Oil:
• Check for correct oil level:
• Fill if below recommended level.
• Check the oil weight:
• Heavier oils congeal more at low temperatures, and thus do not lubricate your engine as well.
• A guide to oil weight can be found HERE. 
• Windshield Wiper Equipment:
• Repair worn-out blades.
• Ensure wiper-fluid is full and works properly:
• Make sure your wiper fluid is made for winter conditions!
• Tires:
• Replace tires if the tread is worn out or is not made for winter conditions:
• The test to determine worn out tires is to find a penny, and stick it into the grooves of your tires with Honest Abe's head-down. If the tread does not cover the top of his head, they need to be replaced.
• Thermostat:
• make a mental or physical note of where the thermostat's needle normally is once the engine is fully warmed up.
• Variance from the normal temperature may require professional servicing, or just the addition of more coolant/water.

There's hundreds of things that could cause a problem on the road, but following this guide can help prevent a lot of them. Self-diagnosing and fixing a potential problem before it turns into one can save a lot of time and money. 

Note: While working in and around your car, make sure the engine is off and the car is in park/has its park-brake on. A cool engine will work best for checking these things, and remember to follow all of the guidelines on/in your car and in your owner's manual. When in doubt, check it out--your owner's manual will show where all of the reservoirs are, where they should be filled to, and what they're supposed to be filled with. Double check before pouring! Be safe this winter!

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.

Myths of Renter's Insurance

Only 14% of renters are insured in the United States. Renter’s insurance is often overlooked, due to untrue assumptions. Being insured as a renter is a vital personal risk management tool, and typically only costs approximately $12 a month. It is a safeguard for your future, and can benefit both you and your neighbors! This article debunks insurance myths about apartment/multiple-occupancy style living.

Why do so few people have renter’s insurance?

The typical renter does not know the danger they are in. Most believe that if a fire starts, someone breaks in, or if someone gets hurt on the property, the landlord will be responsible. These are all completely untrue and can have terrible consequences. In fact, we’d argue that renters need insurance even more than the typical homeowner! Let’s discuss this further by discussing a few myths:

‘If a fire burns down my apartment, my landlord will replace my property.’

This could not be further from the truth. In event of a random fire, you are solely responsible to replace your property. The landlord has no contractual obligation to pay for your items, nor is there any law requiring your landlord to. It is solely on you. There are a few other ways a fire loss could go, so let’s illustrate those with a few more fire examples.

‘If my neighbor starts my building on fire and it destroys my property, the neighbor and the landlord will take care of me.’

Once again, it is not required that the landlord replaces or reimburses you for that property. In this case, if your neighbor can be proven negligible in starting the fire, that neighbor is the one responsible for replacing your property, and any damages to the building. The problem with this is the fact that so few renters have insurance! Without insurance, the negligent neighbor will only be able to pay you whatever they have on hand, which is most likely going to be next to nothing, especially since they'll have to pay the landlord and the other neighbors as well.

‘If I start a fire that damages the building and other people’s property, I won’t be held responsible for it.’

No, if you negligibly started that fire, your landlord is going to sue you for the damage you caused to the building. Your neighbors will then sue you for the damages you caused them. If you don’t have insurance, this will be all out of pocket, and will most likely leave you penniless, and will also leave your neighbors’ damages unpaid.

‘If a disaster makes it so I can’t live in my apartment, my landlord will furnish a new place to live.’

If some disaster makes your apartment uninhabitable, you landlord is not required to pay for a new place to live. The landlord isn't even required to help you find a new place! The time you have to spend in a hotel before you can find a new place to live will be up to you to pay for. As for the previous myth, if you were to make another person’s unit uninhabitable, you would be held responsible for any extra costs they faced because they had to find a new place to live. Each of these could be easily covered by a Renter’s policy, but won’t be easily covered out-of-pocket.

‘My roommate has insurance, so I have insurance.’

This isn't necessarily true, unless you are legally married to your roommate, or your roommate is part of your immediate family (even extended-family-roommates might not be covered, so make sure to ask your agent!). Otherwise, your roommate’s policy covers only his/her property and liability. So if you were to start a fire, you would still be held liable for everything, and your roommate’s policy would only cover his/her property that you destroyed, though his/her insurance will try to collect the damages from you.

'What's the big deal--I'll just claim bankruptcy'

This can be a misconception, depending on the situation. If you were to be liable only for financial damages, your bank accounts would be depleted and your belongings would be sold off. Anything after that could possibly be written-off with a bankruptcy. However, the problem is if someone were to be injured or killed. The damages you owe to someone when it involves bodily harm or death cannot be written-off with a bankruptcy. What you owe to the victims will be taken as a lien on you, garnished wages, or both. This same concept applies for those without/with too little auto liability insurance.

The Bottom Line:

Many renters believe that they don’t need insurance, but in truth, renters should have MORE liability insurance than homeowners! This is especially true when you’re part of a very large apartment building—just think of what it could cost you to take care of all the people living in the units adjacent to yours, coupled with the costs to repair the building after you started a fire or flood! On the other hand, even if you don’t cause the disaster, think of how likely it is for someone else around you to flood the place or start a fire! Having all of those neighbors only increases the chances of something going wrong!  

As I mentioned, renter’s insurance is cheap, and will pay you in the event of someone else not having insurance. It is a very worthwhile investment, and can make all the difference when tragedy strikes. That $10 a month can be paid off by skipping fast food for a single meal! Renter’s insurance is a small, but worthwhile safeguard for your future, and can protect both you and your neighbors.

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.