Insurance Talk 101

Why the Rich Pay Less for Car Insurance

2013-02-18T09:30:00.000-05:00

The people with the most money pay the least for car insurance.

It’s not because they’re rich. It’s because — as a group — they tend to be better educated, married with children and have higher credit scores. Actuarial studies have long shown that people in those circumstances have fewer accidents and claims, making them a more affordable risk for insurers. “Everything that insurers do to come up with rates is based on the data that we can use to (pinpoint) specific characteristics” of a person to how they operate the car, says Stephen Weisbart, chief economist of the Insurance Information Institute, an industry trade group. “We have decades of data that show the people with good credit scores have smaller claims. It’s a good predictor.”

It may be if you believe that mathematics, statistics and financial theory can measure one’s ability to drive a car. Turns out many people don’t see or understand how what are basically numbers can be tied to a function that most believe is a matter of dexterity and focus.

The Consumer Federation of America is among them. In its latest report on auto-insurance premiums, the well-regarded nonprofit group lambasted insurers for what it believes are discriminatory practices that mainly harm low- and moderate-income drivers. In a study that builds on two past examinations of car-insurance rates, the group compared premium quotes for two hypothetical 30-year-old women in 12 cities using the websites of the Big Five in auto insurers: State Farm, Allstate, GEICO, Farmers and Progressive.

The woman were alike in that they had each driven for 10 years, lived on the same street in the same middle-income zip code and were looking for minimum liability coverage that each state required.

But here’s how they differed: One woman, a married executive with a master’s degree who owned a home and has never not been insured, had a blot on her driving record thanks to a no-fault accident. The group says it caused $800 in damage and occurred in the last three years. The other woman had a stellar, accident-free record, she was a single renter, armed with a high-school diploma and working as a receptionist. Her only blemish was a 45-day lapse in insurance coverage.

What CFA found was that in every case, the woman with the better driving record was quoted higher premiums from Farmers, GEICO and Progressive than the executive. In several cases, the CFA says, companies would not offer a quote to the good driver but gave one to the one with the accident on her record. State Farm was a big exception, offering better quotes to the good driver. Allstate was all over the board. (The insurance companies that did respond to requests for comment said the III comments on the industry were sufficient.)

When One Home-Insurance Policy is Not Enough

2013-02-18T09:00:00.000-05:00

For the owners of some residences, one home-insurance policy just doesn’t cut it.

To get full coverage on their home and the belongings in it, many homeowners with $1 million–plus properties have to sign up for at least four policies. Beyond basic home insurance, they often need policies that pay out for damage their homes may sustain from natural catastrophes, like floods or earthquakes. They also want policies to protect valuables, like an art or wine collection, at home. And most of these homeowners also sign up for home-related policies that protect their assets in case of a lawsuit.

What’s more, premiums have been going up partly due to an increase in homeowner claims. For example, high-end insurer AIG Private Client Group says it increased premiums by 2% to 5% over the past two years. ACE Private Risk Services, the high-net-worth underwriting division of ACE Group (US:ACE), says it raised premiums by an average of 4% over the past year.

The more expensive or rare a home, the more complicated the process of insuring it. To confirm a home has the appropriate amount of coverage, luxury insurers will send an appraiser to walk through the property to assess the cost of rebuilding, replacing rare materials or employing skilled workers to restore its unique features, like hand-painted murals. That can lead to an estimate that’s 50% to 100% more than the market value of the home — leaving homeowners with higher premiums than they expected.

Insurance premiums for luxury homes vary widely. For example, on a $1 million home in areas where catastrophes are infrequent, a basic home-insurance premium can range from $4,000 to $5,000 per year, including a $2,500 deductible, with the high-net-worth unit of AIG (US:AIG). In high-risk hurricane zones, however, insurance brokers say wind coverage (which may not come with basic insurance but instead is sold as a separate policy) on high-end homes can come with premiums of $50,000 or more per year.

And in many cases, individuals planning to take out a mortgage on a home have no choice but to sign up for extra policies. Lenders will require borrowers purchasing a coastal home at high risk of flooding to first sign up for a flood insurance policy before the mortgage can be approved. Similarly, many lenders will require wind coverage for homes located in hurricane-prone areas before approving a mortgage. In some states, like Florida and South Carolina, buyers often need both flood and wind coverage to get a loan.

Awareness: Key to Reduce Your Car Insurance Premium

2013-02-10T21:00:00.000-05:00

It’s not just the price that you should consider while buying a car, but factor in what is known as ‘cost of ownership’, which includes fuel prices and possible hikes, average minimum distant that one has to cover per day and insurance. An insurance policy is all about being adequately covered for eventualities.

There are more issues than one that are linked to car insurance. Normal wear and tear and general ageing of a vehicle, mechanical or electrical breakdown, damage to or by a person driving any vehicle or car without a valid licence, damage to or by a person driving the insured vehicle under the influence of drugs or liquor, are some of the things not covered under car insurance.

One must know how one can reduce premium. “This can be done by accumulating no-claims bonus, opting for a high voluntary excess amount, installing safety devices in a vehicle, applying for a loyalty discount, just to mention a few,” said a top official of a private sector general insurance company.

He said even car model plays a part and a policyholder can ask for a higher discount if there are lesser number of accidents reported involving your car make or model.

Similarly, if a car is likely to be driven on highways, insurance companies consider that to be more prone to accidents. In such cases, claim amounts are huge. Compared to this, in a metro or a congested city, claims for scratches and dents are more, due to the presence of heavy traffic or narrow roads. Women get a higher discount, as they are considered to be safer drivers.

While one should negotiate the premium and discounts on the basis of these factors, one can bring down the cost simply by paying a high voluntary deductible – an insurance option where as a policy holder you agree to pay out of your pocket for small claims of minor damages and the insurance company pays only for the damages exceeding the limit of voluntary deductible. Voluntary deductible discount can go up to 35 per cent of the premium for vehicle damage.

The depreciation in value of a car due to usage is also reflected at the time of a claim. In such cases, a ‘nil depreciation rider’ always proves to be a useful protection.

Other than that, small things like installing anti-theft or other safety features of an approved make can lead to insurance companies offering you a discount of 2-5 per cent on the premiums. Some insurers also offer a higher discount for online policy purchase.

You can also think of switching your insurer for lowering the cost. But make sure that you don’t switch in between a term, and get a no claims bonus eligibility certificate from the existing one. You better buy a new policy and then cancel the existing one at the time of renewal. Otherwise you may lose out on many benefits and may have to pay penalties on top of it.

Tips on Preparing for the Storm and Filing Property Loss Claims

2013-02-10T20:50:00.000-05:00

With the potential for damage to homes and vehicles from the coming snowstorm, here are some tips on preparing for the storm and filing claims if there is property loss.

“One of the most important things consumers can do right now is take stock of what they have. Take the time now to make a home inventory or update an existing one,” Leonardi said. “This will be extremely helpful should the need arise to file a claim. Do not hesitate to contact the Insurance Department if you have questions or complaints.”

Before the storm:

Keep your policy and other important documents together in a safe place.
Review your policy to understand your coverage – call your company or agent if you have questions.
Create or update your home inventory.
Take photos of your possessions.
Note model and serial numbers.
Assemble original sales receipts and/or appraisal documents.

After the storm:

Call your insurance company’s 24-hour claims phone number as soon as possible; provide policy number and other relevant information and documents.
Take photographs/video of the damage.
Make repairs necessary to prevent further damage, but do not make permanent repairs until your insurance company inspects the damage.
Save all receipts from temporary repairs.
Keep a diary of all conversations, e-mails and other correspondence with the company.

Winter Damage Coverage*

Snow removal – Homeowners insurance does not cover injuries to the homeowner during snow removal. However, snow removal professionals should be covered under their own liability policies.

Ice dams: Interior or exterior damage caused by an ice dam on a roof is generally covered, however many policies do not pay for ice dam removal.

Frozen pipes: Most policies cover pipe replacement and water damage. However, coverage may not apply if you turned off the furnace for the winter without winterizing the home.

Tree Damage: In general, the policyholder of the property that is damaged by a falling tree – not the tree owner – should file the claim with his or her insurance company. The insurance policy covers the cost to remove the tree from the damaged property and the resulting damage, minus the deductible. If the tree damaged a covered structure, the claim would be made on the homeowner’s policy. If the tree damaged a vehicle, the claim would be made on the auto insurance policy.

Storm power outages: An all-risk policy generally pays for damage caused by loss of power and appliances damaged by the outage. Check your policy to see if it covers spoiled food. Most policies will not pay for shelter when you lose power for extended periods of time unless there is damage to the home that causes it to be uninhabitable.

Renters: Landlord’s insurance will pay for winter damage to building. It will not pay for damage to personal contents, which must be covered by the renter’s own insurance.

*Note:Policies may vary in coverage. Contact your agent or the Insurance Department with questions about the specifics of your policy.