Insurance Advice
Personal Advice
Are Your Grown Kids Properly Covered?
A pivotal point in every mature parent's life is when a child leaves to start his or her own household. One thing that is overlooked during this event is whether that loved one is properly insured.
Most auto and home insurance policies define insureds (the persons protected under the policy) to include the following:
- The person named (shown) on the policy
- The named person's spouse (who lives in the same residence)
- The other relatives of the named insured who live at the same residence
Coverage problems can appear when living arrangements change.
Related, But Not Residents
Blood may be thicker than water, but it is thinner than insurance contracts. An adult son or daughter may think that, when a loss happens, coverage is available from mom or dad's homeowners or auto policy. It usually isn't and finding this out after a loss makes matters much worse. Policies are typically clear. A relative is covered, but only if the relative is a full-time resident of the named insured's household. Even if the nonresident child lives next door, a parents' policy is not going to spread its coverage to take care of an adult child's belongings.
If this fact appears harsh, know that insurance contracts are meant to handle sources of loss that can be easily identified. Person A's cars or home is protected by Person A's auto or homeowner policy. Imagine if that weren't the case.
Example: The Rabbitfield's home and cars have been insured by Plausible Fire & Casualty for 20 years. In the last five years, the Rabbitfield's children have grown and started their own households. Per the Plausible home and auto policies, the insurance premiums and two policies that covered the original family's two cars and one home, now cover the original home and cars PLUS the following:
- Son Jimmy Rabbitfield's apartment and car
- Daughter Chana Rabbitfield's home and two cars
- Other son Perry's home, seasonal home and two cars
- Other daughter Bonnie's apartment and car.
Besides covering all of the property, the Rabbitfield parents' policies ALSO cover everyone's personal legal liability.
While it might be a bargain for insurance consumers if a single auto or homeowner policy could be stretched this far, it's not likely that the insurance industry could survive such flexibility.
Being Independently Insured
Understandably, insurance is not always a priority for adult children who are now on their own. In the beginning, there's often a phase where the kids commute between "home base" and their new apartment or home and their property is at both locations. The new grown-ups typically have few possessions, especially possessions of high value, and this adds to the likelihood that insurance is overlooked or seen as unnecessary. However, even when possessions are few, EVERYONE has a legal responsibility to handle the damage they accidentally cause to other people and/or other people's property. When a child reaches adulthood, they've also reached the point where they need to get their own insurance.
If an adult child asks you for insurance advice, give them the name of an insurance professional you trust to help them get the exact protection they need.
Controlling Car In$urance
You may be frustrated with car insurance premiums and factors that may them creep upward, such as:
- Your insurance company's overall loss experience (due to more claims)
- The increased value of newer model cars, particularly SUVs
- Increases in judgment amounts awarded in auto lawsuits
- Increased business processing and administrative expenses
- Auto loans lasting longer, meaning increased auto repair costs for older cars
There are ways to address rising costs. First, gather your insurance records and any other car-related information. Next, determine if circumstances have changed since you last dealt with your coverage. Once this information is handy, call your agent and discuss relevant items such as:
- If you have your home and auto insurance with the same company, are you getting a discount?
- Does my coverage take full advantage of the discounts offered by my company?
- I have more than one car; am I getting a credit?
- Does it make sense to change my deductibles?
- Do my cars really need physical damage coverage insurance? (An important consideration for older vehicles)
- Do lifestyle choices such as drinking or smoking affect my premium?
- My son or daughter is on the honor roll, does this affect my premium?
- Did you know that my car has special security features?
- Did you know that my son took Driver's Education?
- Does the company have accurate information on how often and how far I drive?
- Am I with a standard carrier or do I qualify for any preferred program?
- Is my vehicle charged an additional premium because of its type or performance?
- Do I qualify for a loss-free history or policy longevity discount.
Giving your agent accurate information helps you get the best available premium. Provide your agent with complete details about your driving history. It's important to clear about who drives your cars and how they're used. Finally, use your agent as a resource for handling errors about your account or which may be shown in your driver records.
Umbrella Coverages- Part 1
Are You Getting Excessive?
Okay, you have a policy for your home and the cars driven by your family. You have just the right policy for the apartment you rent out to others as well as special coverage for your boating excursions. Your homeowner's policy even has a special, added coverage to handle the business that your spouse runs out of your home. Yes, it looks like you can breathe a sigh of relief and be confident that you have all the coverage you need. Or should you have an umbrella? An umbrella is the term for a liability policy that fits over your primary policies on an excess basis (and sometimes provides protection that is not available under your primary coverage).
Doesn't "Excess" Mean Too Much?
Not in the case of carrying umbrella coverage. Umbrellas are designed to be carried over a person's primary or underlying liability coverage. A person's primary coverage is typically part of his or her personal automobile and homeowner's coverage. Primary refers to the fact that in the event of a loss, the liability portion of your auto or homeowner coverage is the first to respond. Umbrellas or excess liability policies respond to an eligible loss only after the primary insurance has paid its limit.
It's quite possible that your primary insurance limits provide more coverage than you'll ever need. However, circumstances could involve a type of loss that is not completely covered by a primary policy. For instance, your newly licensed child is driving the family car and slides on an icy highway. He ends up causing a chain collision damaging several cars and injuring a dozen drivers and their passengers. Or maybe you often volunteer to help transport members of your son's first grade class on field trips and you have an accident because you tried to beat a yellow light. If you don't have enough primary coverage, any shortage may have to come out of your personal assets.
Umbrellas generally provide additional liability coverage for the following underlying policies:
- Personal Automobile
- Homeowners/Farmowners
- Recreational Vehicles
- Watercraft
- Personal Liability
The additional coverage may often extend to providing for related expenses, also on an excess basis, such as the cost of providing a court defense. Please see Umbrella Coverages - Part 2 for more information.
Umbrella Coverages - Part 2
Umbrella or Excess Coverage?
In part 2, we continue our discussion of how umbrella policies work.
A traditional umbrella offers broader protection, covering primary policies as well as a variety of, typically, uncovered exposures. For instance, you may have to go to court after being accused of slandering another person. The liability section of your homeowners policy may not cover this type of loss, called personal injury. An umbrella policy might include coverage for personal injury, so the loss is covered. You may also need a traditional umbrella to handle odd situations such as hobbies or activities that may increase the likelihood of facing liability losses. For example:
- You have an in-home hobby of training guard dogs and a neighbor's child is attacked
- You publish a newsletter on the Internet covering local or state politicians and one issue wrongly accuses a state senator of committing crime
- You collect rare instruments and, as a part of the hobby, you also repair and restores such property for other people. One day you drop an antique mandolin which shatters when it hits your garage's concrete floor
Generally umbrellas provide coverage for any amount of a loss that exceeds the primary policy's deductible. However, when handling a loss that is not covered by primary insurance, special kind of deductible called a self-insured retention (SIR) may apply. An SIR is the dollar amount you have to pay before the umbrella coverage is triggered.
Of course, umbrellas don't always work as named. Your policy may just provide additional amounts of coverage to supplement existing protection. This is how an excess policy performs. Excess policies respond the same way as a primary policy. In such cases, an umbrella may "follow the underlying coverage". This means that the umbrella covers ONLY the situations covered by its underlying coverage. In this case, the umbrella also excludes a loss that's excluded under a primary policy. While in many instances umbrellas provide broader coverage, only a careful evaluation of the actual policy wording will reveal the extent of the additional protection. So, Do You Feel Any Rain Drops?
You may or may not be feeling the need to carry an umbrella. The best way to find out if extra coverage is necessary is to discuss your coverage needs with a professional insurance agent. Especially if you have a larger than average amount of personal assets or are involved with activities that could expose you to larger liability losses. See Part 1 for other basic information about umbrella coverage.
Commercial
The Businessowners Policy
If you own and/or run a smaller business, your insurance needs may be properly handled by a businessowner policy or BOP. BOPs are similar to a homeowners policy, offering both property and liability protection. Businesses such as retailers, wholesalers, small contractors, artisan contractors, dry cleaners, restaurants, offices and convenience stores (including those with gas pumps) are eligible for BOP coverage. All such operations may be insured by a BOP as long as they are not larger than 25,000 square feet in total floor area or have gross annual sales greater than $3,000,000 (per location). More restrictive guidelines typically apply to businesses that include cooking operations.
BOPs protect buildings as well as other features such as additions (completed or being built); indoor and outdoor fixtures; machinery and equipment; landlord furnishings, and maintenance property (such as mowers, snowblowers, ladders, etc). BOPs also cover outdoor furniture, floor coverings, and appliances used for refrigerating, ventilating, cooking, dishwashing, and laundering. The building coverage also applies to materials, equipment, supplies and temporary structures located near the insured premises.
The policy's protection to business personal property applies whether the property is located inside or immediately outside the covered buildings. Business personal property (such as office equipment, copiers, desks, etc.) includes property you own, lease or control (i.e., borrow or control) as long as the property is used by the business.
Businessowners liability coverage provides comprehensive protection for claims or suits made by other parties. Its liability section covers losses involving injury to other persons or damage to property that belongs to others. It also provides limited protection against personal injury (slander or libel), advertising injury and losses involving an operation's products or services.
Naturally, there are certain situations that are not covered by a BOP. For instance, there is no coverage for losses involving most vehicles, money and securities; illegal property (contraband), land, water, growing crops or lawns; or watercraft.
A BOP may be supplemented to provide additional protection. Property coverage options include adding insurance for accounts receivable, valuable papers and records, earthquake, spoilage, etc. Liability coverage can be expanded to handle additional business interests, limited vehicle liability, losses related to personnel situations, liquor liability and injuries to leased employees.
A BOP may be the answer to your company's coverage needs and it may be worthwhile to get more information on the BOP from the nearest insurance professional.
Policy Insurance Limits
You take a look at the insurance policy that covers your business and you see an insurance limit, for instance:
| Acme General Manufacturing |
| Coverage |
Insurance Limit |
| Coverage Protection |
$1,000,000 |
It may appear obvious that you have a million dollars in coverage. But what does that mean? Well, traditionally, such an insurance limit provides up to one million dollars of coverage for each and every eligible loss that takes place during the applicable (annual) policy period. This is called an "occurrence" limit because the entire amount is available to respond to each eligible incident that occurs during the policy period. Another type of protection is provided by an "aggregate" limit. This describes an amount that applies over the entire policy period.
Example: The Acme policy above has a Jan. 1, 2005 to Jan 1, 2006 policy period. During the policy period, Acme is sued five times.
| Loss |
Date |
Amount |
Available Occurrence Limit |
Available Aggregate Limit |
| Type A Loss |
2-23-05 |
$200,000 |
$1,000,000 |
$1,000,000 |
| Type B Loss |
3-3-05 |
$450,000 |
$1,000,000 |
$800,000 |
| Type C Loss |
6-12-05 |
$175,000 |
$1,000,000 |
$350,000 |
| Type A Loss |
8-4-05 |
$300,000 |
$1,000,000 |
$175,000 |
| Type D Loss |
12-06-05 |
$50,000 |
$1,000,000 |
$0 |
| Total Paid |
|
|
$1,175,000 |
$1,000,000 |
Under the "Occurrence" limit, the total policy amount was available for each loss. Under the "aggregate" limit, each loss reduced the available limit until coverage was exhausted. In this situation, Acme would have had to handle $175,000 on its own. Aggregate limits are used by various insurers and/or for various instances where the company wishes to be more certain about its total possible financial exposure. Some insurers and some types of policies may use sub-limits as a method to control the amount they pay for losses. A sub-limit is a coverage amount that applies to certain types of losses or to losses involving certain types of property. Sub-limits may be used with either "occurrence" or "aggregate" limit policies. To keep things less confusing, let's use the same Acme policy situation and adding an Occurrence policy with sub-limits. In this instance, the policy provides the following:
$100,000 Sublimit for Type B Losses
$50,000 Sublimit for Type C Losses
| Loss |
Date |
Amount |
Available Occurrence Limit |
Available Aggregate Limit |
Available Occurrence or Sub-Limits |
| Type A Loss |
2-23-05 |
$200,000 |
$1,000,000 |
$1,000,000 |
$1,000,000 |
| Type B Loss |
3-3-05 |
$450,000 |
$1,000,000 |
$800,000 |
$100,000 |
| Type C Loss |
6-12-05 |
$175,000 |
$1,000,000 |
$350,000 |
$50,000 |
| Type A Loss |
8-4-05 |
$300,000 |
$1,000,000 |
$175,000 |
$1,000,000 |
| Type D Loss |
12-06-05 |
$50,000 |
$1,000,000 |
$0 |
$1,000,000 |
| Total Paid |
|
|
$1,175,000 |
$1,000,000 |
$700,000 |
Even though it has an "occurrence" limit, the sub-limits have had a drastic impact. In this instance, Acme would be left to handle $475,000 in losses that wouldn't be paid by the policy.
Because of the existence and the impact of different types of limits, you should be certain of exactly what your policies provide. An insurance professional would be just the person to contact to discuss this very important issue.
Employment Practices Liability
Hiring and firing practices have become legal minefields that have spurred the development of Employment Practices Liability Insurance (EPLI). It is important that a business has clear policies that are applied consistently to each employee and that directly relate to their job. Do you know what type of decisions could trigger a claim? For example, is it legal to terminate:
- a driver with a bad driving record?
- an employee who is rude to your customers?
- an employee who swears at customers?
Don't think that the answer is simply "yes." A business' action may depend upon circumstances such as whether an employee's duties involve driving a company vehicle, or directly involves customers and if the company can prove that such behavior fails to meet the applicable job standards.
One key issue is having access to legal counsel that has expertise in this special area of the law. Another key issue is documenting the essential job functions and establishing measurable standards for each position. Use of regular performance reviews and applying the standards equally to each employee is a smart employment practice. The best defense against employment practice claims is to know the law in your state and then having policies and procedures that meet or exceed its legal standards.
The U.S. Department of Labor offers a Small Business Handbook from their Website at http://www.dol.gov/. The U.S. Equal Employment Opportunity Commission also offers numerous publications addressing different employment laws from their Website at http://www.eeoc.gov. Contacting an insurance agent regarding Employment Practices Liability Insurance is another avenue to explore.
Policies and premiums for this type of coverage vary tremendously among insurers. Many companies offering the coverage also offer assistance in writing policy and procedure manuals and other ways to reduce the potential for claims involving sexual harassment, wrongful termination or discrimination. No business is immune from these claims.
The Commercial Umbrella Policy
In case of the average (smaller) business, the Commercial Umbrella Liability policy is a newer insurance coverage option. Not very long ago, the coverage was considered to be only needed by very large business entities. Today, a different set of circumstances exists. Liability claims and court decisions involving millions of dollars are no longer uncommon; any business can be found legally responsible for this type of judgment. A Commercial Umbrella Liability Policy, increasingly referred to as an excess policy, can provide an additional layer of insurance protection to handle major losses.
The coverage form is still not standardized, varying greatly among companies and some jurisdictions may create unique coverage issues. Punitive damages are an example. Some states only permit responsible parties to pay punitive damages; others allow them to be paid by insurers. Another area of difference is that no policy covers everything; every policy has exclusions.
A business owner may consider an accident that does not involve a fatality to be one that can readily be handled by regular coverage. The reality is that such an accident may result in substantial medical care, lost income and other expenses. Can your business afford a payment that exceeds a million dollars? Think of accidents involving vehicles that, today, are much safer than 5 or 10 years ago. That means that accidental deaths are less likely while the chance of severe head injury has increased. Severe head trauma can send a claim's cost soaring. It may take up to seven years to determine the ultimate extent of injury. Recovery is often slow and sporadic. These elements combine to make regular insurance coverage insufficient.
A business may have auto liability coverage but insurance limits of more than $500,000 is rare. This is because insurers are reluctant to offer higher coverage at an affordable price. When the insurance coverage provided by a business auto policy is not enough to meet the amount of a loss, the business is responsible for the difference.
An Umbrella Liability policy could be the difference between bankruptcy and an on-going business venture. The Umbrella policy would take over where the business auto policy stopped, providing defense coverage and additional limits to pay large judgments.
There are no standard Umbrella Liability policy forms; each company has their own variation. Each form offers different options that can help tailor coverage to specific business needs. One thing to remember is that an Umbrella Liability policy will not cover everything; there are exclusions in this form as in any other contract of insurance. However it still represents an excellent method to help shield a business from catastrophic claims. Contact an insurance agent to discuss securing this valuable form of liability coverage. It could help preserve your business.
|
