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Liability Insurance FAQs
||What kinds of questions should I be expected
to answer when I am applying for an insurance policy? Why do
insurers need so much information?
When you apply for an insurance policy, you
will be asked a number of questions. For example, the agent
might ask you your name, age, gender, address, etc. In addition,
you will be asked a number of other questions which will be
used to determine how likely you are to make a claim.
When an insurance company is deciding whether
or not to offer automobile insurance to a potential customer,
it will want to know about the person's previous driving record,
whether they have any recent accidents or tickets, and what
type of car is to be insured.
Insurance companies have different programs for different
customers. Adults with good driving records will generally
pay less for auto insurance than will a young driver with
traffic tickets. In order to determine which program you qualify
for, an insurance company needs basic information about you.
In addition to your age, gender and driving
experience, information about the vehicle you drive, and how
you drive it, is also needed to determine a fair price. For
example, a large luxury car costs more to repair or replace
than a sub-compact; and, someone who commutes 30 miles each
way is more likely to be in an accident than someone who rides
the bus to work and drives only on weekends.
|| What are the advantages to using an
agent to purchase insurance?
By using an agent to purchase insurance, the
policyholder receives more personal service. An agent with
whom there is direct contact can be vital when purchasing
a product and absolutely necessary when filing a claim. A
local, independent agent is able to deliver quality insurance
with competitive pricing and local personalized service.
|| What should I consider when purchasing
There are a number of factors you should consider
when purchasing any product or service, and insurance is no
different. Here is a checklist of things you should consider
when purchasing automobile insurance.
1. Don't base your decision on price alone.
Base your decision on value - what you get for what you pay.
Consider the quality of the company's claims service and consumer
2. Purchase the amount of liability coverage
which makes sense for you.
3. You should decide which optional coverages
you want. For example, do you want optional physical damage
coverages or is the market value of your car too low to warrant
4. Once you have decided what you want in your
automobile insurance policy, you can now decide from whom
you would like to purchase the insurance. For example, you
may decide you like the idea of purchasing insurance from
a mutual company rather than a stock company.
|| What are some practical things I can
do to lower my automobile insurance rates?
There are a number of things you can do to
lower the cost of your automobile insurance. The easiest thing
to do is to shop around.
It is not surprising to find quotes on automobile
insurance that can vary by hundreds of dollars for the same
coverage on the same car. When you shop, be careful to make
sure each insurer is offering the same coverage. Many insurers
use the ISO policy forms, but this is not always the case.
Another way to lower the cost of your automobile
insurance is to look for any discounts that you may qualify
for. For example, many insurers will offer you a discount
if you insure multiple cars under the same policy, or if you
have had a driver education class in the last five years.
Be sure to ask your agent or your company about their discount
Another easy way to lower the cost of your automobile insurance
is to increase the deductible. Simply raising your deductible
from $250 to $500 can lower your premium sometimes by as much
as five or ten percent. However, you should be careful to
make sure that you have the financial resources necessary
to handle the larger deductible.
|| Suppose I lend my car to a friend, is
he/she covered under my automobile insurance policy?
Whenever you knowingly loan your car to a
friend or an associate, he or she will be covered under your
automobile insurance policy. In fact, even if you do not give
explicit permission each time a person borrows your car, they
are still covered under your automobile insurance policy as
long they had a reasonable belief that you would have given
them permission to drive the car.
|| What is the difference between collision
physical damage coverage and comprehensive physical damage coverage?
Collision is defined as losses you incur when
your automobile collides with another car or object. For example,
if you hit a car in a parking lot, the damages to your car
will be paid under your collision coverage.
Comprehensive provides coverage for most other
direct physical damage losses you could incur. For example,
damage to your car from a hailstorm will be covered under
your comprehensive coverage.
It is important to know the differences between
the collision and comprehensive coverages for a couple of
1. In order to make an informed purchasing
decision about these optional coverages, you need to know
the difference between them.
2. The deductibles under the collision and
comprehensive coverages are often different in amount.
|| What factors can affect the cost of
my automobile insurance?
A number of factors can affect the cost of
your automobile insurance - some of which you can control
and some which are beyond your control.
The type of car you drive, the purpose the
car serves, your driving record, and where you live can all
affect how much your automobile insurance will cost you.
Even your marital status can affect your
cost of insurance. Statistics show that married people tend
to have fewer and less costly accidents than do single people.
|| What is homeowners insurance and who
should buy this type of coverage?
Homeowners insurance is one of the
most popular forms of personal lines insurance on the market
today. The typical homeowners policy has two main sections:
Section I covers the property of the insured and Section II
provides personal liability coverage to the insured. Almost
anyone who owns, rents or leases property has a need for this
type of insurance. And many times, homeowners insurance is
required by the lender as part of the requirements in obtaining
|| What is the difference between "actual
cash value" and "replacement cost"?
Covered losses under a homeowners policy
can be paid on either an actual cash value basis or on a replacement
cost basis. When "actual cash value" is used, the
policy owner is entitled to the depreciated value of the damaged
property. Under the "replacement cost" coverage,
the policy owner is reimbursed an amount necessary to replace
the article with one of similar type and quality at current
|| What factors should I consider when
purchasing homeowners insurance?
There are a number of factors you should
consider when purchasing any product or service, and insurance
is no different.
Here is a checklist of things you should consider
when you purchase homeowners insurance.
1. First and foremost, purchase the amount
and type of insurance that you need.
Remember that if your policy limit is less than
80% of the replacement cost of your home, any loss payment
from your insurance company will be subject to a coinsurance
penalty. Also, determine the amount of personal property insurance
and personal liability coverage that you need.
2. Second, determine which, if any, additional
endorsements you want to add to your policy.
For example, do you want the personal property
replacement cost endorsement or the earthquake endorsement?
3. Finally, once you have decided on the coverage
you want in your homeowners insurance policy, you can now
decide which insurer you would like to purchase the insurance
|| What are some practical things I can
do to lower the cost of my homeowners insurance?
There are a number of things you can do to
lower the cost of your homeowners insurance. The best thing
to do is to shop around.
It is not surprising to find quotes on homeowners
insurance that vary by hundreds of dollars for the same coverage
on the same home. When you shop, be careful to make sure each
insurer is offering the same coverage. Many insurers use the
ISO policy forms, but this is not always the case.
Another way to lower the cost of your homeowners
insurance is to look for any discounts that you may qualify
for. For example, many insurers will offer a discount when
you place both your automobile and homeowners insurance with
the them. Other times, insurers offer discounts if there are
deadbolt exterior locks on all your doors, or if your home
has a security system. Be sure to ask your agent or company
about discounts any that you may qualify for.
Another easy way to lower the cost of your
homeowners insurance is to raise your deductible. Increasing
your deductible from $250 to $500 will lower your premium,
sometimes by as much as five or ten percent. However, be careful
to make sure that you have the financial resources necessary
to handle the larger deductible.
|| What are the policy limits (i.e., coverage
limits) in the standard homeowners policy?
[Note: this answer is based on the Insurance
Services Office's HO-3 policy.]
Coverages A and B provide protection to the
dwelling and other structures on the premises on an "all
risks" basis up to the policy limits. The policy limit
for Coverage A is set by the policyowner at the time the insurance
is purchased. The policy limit for Coverage B is usually equal
to 10% of the policy limit on Coverage A. Coverage C covers
losses to the insured's personal property on a named perils
basis. The policy limit on Coverage C is equal to 50% of the
policy limit on Coverage A. Coverage D covers the additional
expenses that the policyowner may incur when the residence
cannot be used because of an insured loss. The policy limit
for Coverage D is equal to 20% of the policy limit on Coverage
A. The coverage limit on Coverage E - Personal Liability -
is determined by the policyowner at the time the policy is
issued. The coverage limit on Coverage F - Medical Payments
to Others - is usually set at $1000 per injured person.
|| Where and when is my personal property
Coverage C, which provides named perils coverage,
applies to all your personal property (except property that
is specifically excluded) anywhere in the world. For example,
suppose that while traveling, you purchased a dresser and
you want to ship it home. Your homeowners policy would provide
coverage for the named perils while the dresser is in transit
- even though the dresser has never been in your home before.
|| Do I need earthquake coverage? How can
I get it?
Direct damages due to earthquakes are not
covered under the standard homeowners insurance policy. However,
unless you live in an area that is prone to earthquakes, you
probably do not need this coverage. If you do live in a part
of the country with high earthquake activity you may want
to consider adding an earthquake endorsement to your homeowners
insurance policy. This endorsement will cover damages due
to earthquakes, landslides, volcanic eruptions and other earth
|| Do I need Flood Coverage?
That depends on whether your properties lies
in a flood plain as determined by US Government Flood Maps.
We have these maps available and can provide flood coverage
should it be required or desirable.
|| What is fire legal coverage?
Fire legal coverage provides coverage to
for you if you rent a business space and are held responsible
for fire damages to that rented space. It does not apply to
all business risks.
|| What is the difference between Replacement
Cost (RC) and Actual Cash Value (ACV)?
Replacement Cost is the current cost to replace
property. Actual Cash Value is the replacement cost less depreciation.
|| What does 80% co-insurance mean?
Insurance carriers require that an insured
party pay 80% of the replacement cost in order to collect
a partial loss in full. This is the way the insurance company
encourages all insureds to adequately insure their property
in relation to other insureds.
|| Does my policy cover physical damage
to a vehicle I rent?
This damage will be covered only if that
type of coverage is purchased.
|| Can other people drive my business vehicle?
Other people may drive your vehicle with
your permission. It is important that they be listed on your
policy if they are regular drivers of the vehicle.
|| How does an audit work?
At the end of the policy term, the insurance
company will review the policy and either charge or credit
the policyholder based upon an audit of estimated figures.
Examples of estimated auditable items include sales and payroll.
Audits can be performed onsite by an auditor or via mail or
telephone. A premium is charged for audit estimations.
|| Why do I need certificates of insurance
An audit may require you to show proof that
sub-contractors had their own insurance coverage. The sub-contractors'
certificates of insurance will prevent you from being charged
for their exposure.
|| What is General Liability?
General Liability provides coverage for other
individuals who are on your property and/or exposed to your
|| What does Products/Completed Operations
Products/Completed Operations refers to the
liability coverage for damages caused by your operation or
products after the point at which you no longer have control
Q: What is Business Interruption/Extra Expense coverage?
|| What is Business Interruption/Extra
Business Interruption/Extra Expense coverage
provides coverage for income loss and the expense of establishing
a temporary site during repairs due to damages related to
a fire or compensable loss.
|| What is the difference between "Named
Insured", "First Named Insured" and "Additional
Named Insureds are those listed by name in
the relevant block of the policy's declaration page. Although
the named insured is commonly one person, partnership, corporation
or other entity with insurable interests, multiple named insureds
may be included.
The First Named Insured is the first "named
insured" listed on the policy declarations (front page
of the policy). This insured acts as the legal agent for all
named insureds in initiating cancellation, requesting policy
changes or accepting any return premiums. The first named
insured may also be responsible for payment of the premiums.
An additional insured is an entity to which
a policy's coverage is extended. An additional insured must
be added to the policy prior to a claim being paid. There
must be a tied to relationship between the additional insured
and named insured. Being an additional insured on another's
policy does not eliminate the need for someone to have his/her
own Commercial General Liability policy.
Business Property Insurance FAQs
|| What is a peril?
A peril is the cause of a possible loss (examples
include fires or windstorms).
|| What is Business Income Coverage (Time
Business Income Coverage provides coverage
for loss of earnings and ongoing expenses when operations
are curtailed or suspended due to property damage resulting
from a covered cause of loss.
|| Should I purchase special coverage for
my computer equipment?
Electronic Data Processing (EDP) equipment
can be covered as unscheduled business personal property in
"commercial property" forms such as the building
and personal property coverage. An EDP equipment floater can
provide added benefits. Many EDP floaters cover special perils
such as mechanical or electrical breakdown and typically cover
property in transit.
|| What is co-insurance?
In property insurance, co-insurance is a
clause under which the insured shares in losses to the extent
that he/she is underinsured at the time of a loss. You may
have heard of co-insurance relative to health insurance; this
is a provision in which the insured and the insurance company
will share covered losses in an agreed proportion.
Business General Liability FAQs
|| What is a third party
A third party claim is
a claim brought against you by someone other than an insured.
|| Does my General Liability
Policy provide coverage if my company is sued for pollution?
This insurance does not
apply to bodily injury, property damage, advertising injury
or personal injury arising out of the actual, alleged or threatened
discharge, dispersal, seepage, migration, release or escape
|| Does my General Liability
Policy provide Liquor Liability Coverage?
Yes, your General Liability
policy provides liquor liability coverage unless you are in
the business of manufacturing, distributing, selling, serving
or furnishing alcoholic beverages. These types of businesses
need to purchase additional coverage specific to liquor liability
|| What is Fire Legal
Fire Legal Liability provides
coverage against liability for fire damage to premises rented
to the named insured or temporarily occupied by the named
insured with the owner's permission. Most Commercial General
Liability policies provide a separate limit of $50,000 to
cover this exposure.
|| Will my liability
insurance cover me if I am sued in another country?
Most liability policies
provide coverage for lawsuits only if they are brought in
the United States, its territories and Canada.
|| What is the difference
between Employee Benefits Liability Coverage and a Fiduciary
The Employee Benefits
Liability policy was designed primarily for a variety of benefit
plans to provide coverage for administrative errors and omissions.
The Fiduciary Bond policy was designed to cover a fiduciary's
ERISA (Employee Retirement Income Security Act) exposures
that are caused by a "wrongful act." Fiduciary coverage
responds to claims for damages arising out of improper investments
as well as plan and employee advice.
|| What is an Umbrella
An umbrella policy provides
additional limits of insurance over and above underlying coverages
found on a General Liability, Automobile or Workers' Compensation
policy. If there is a claim, the underlying policy will pay
its limits of liability and the umbrella policy coverage would
then be activated.
|| When do I need to
purchase Workers' Compensation Insurance?
Most states require an
employer to purchase workers' compensation insurance as soon
as they have employees. These states also consider a corporate
entity to have employees from the moment the corporation is
Workers' compensation insurance
will provide medical expense and disability income for injured
employees as required by the laws of each state. In addition,
the insurer will defend any claim proceeding or suit against
the insured for benefits payable under the policy.
Premium shall be computed
on the basis of the total remuneration (payroll) paid or payable
by the insured for services covered by the policy.
|| What should be included
in the remuneration?
In addition to ordinary
wages or salaries, remuneration includes several other types
of compensation. These include:
• Extra pay for overtime work except as provided in
• Pay for holidays, vacations or periods of sickness
• Payment by an employer of amounts otherwise required
by law to be paid by employees to statutory insurance or pension
• Payment to employees on any basis other than time
worked, such as piece work, profit sharing or incentive plans
• Payment or allowance for hand tools or power tools
used by hand and provided by employees and used in their work
operations for the insured
• The rental value of an apartment or house provided
for an employee based on comparable accommodations
• The value of lodging received by employees as part
of their pay
• The value of meals received by employees as part of
their pay to the extent shown in the insured's records
• The value of store certificates, merchandise, credits
or any other substitute for money received by employees as
part of their pay
Items not included are:
• Tips and other gratuities received by employees
• Payments by an employer to group insurance or group
pension plans for employees other than payment covered by
• The value of special rewards for individual invention
• Dismissal or severance payments except for the time
worked or accrued vacations
|| How much life insurance
should an individual own?
Rough "rules of thumb"
suggest an amount of life insurance equal to 6 to 8 times
annual earnings. However, many factors should be taken into
account in determining a more precise estimate of the amount
of life insurance needed.
Important factors include:
1. Income sources (and amounts)
other than salary/earnings
2. Whether or not the individual
is married and, if so, what is the spouse's earning capacity
3. The number of individuals
who are financially dependent on the insured
4. The amount of death benefits
payable from Social Security and from an employer sponsored
life insurance plan
5. Whether any special life
insurance needs exist (e.g., mortgage repayment, education
fund, estate planning need), etc.
It is recommended that a
person's insurance advisor be contacted for a precise calculation
of how much life insurance is needed.
|| What about purchasing
life insurance on a spouse and on children?
In certain circumstances,
it may be advisable to purchase life insurance on children;
generally, however, such purchases should not be made in lieu
of purchasing appropriate amounts of life insurance on the
family breadwinner(s). It is of utmost importance that the
income earning capacity of the primary breadwinner be fully
protected, if possible, through the purchase of the required
amount of life insurance before contemplating the purchase
of life insurance on children or on a non-wage earning spouse.
In a dual-earning household, it is important to protect the
income earning capacity of both spouses. Life insurance on
a non-wage earning spouse is often recommended for the purpose
of paying for household services lost at this individual's
|| Should term insurance
or cash value life insurance be purchased?
Although a difficult
question--one whose answer will vary depending on circumstances--several
principles should be followed in addressing this issue.
It must first be recognized
that in any life insurance purchasing decision, there are
at least two basic questions that must be answered:
1. "How much life insurance
should I buy?" and
2. "What type of life
insurance policy should I buy?"
The question contained in
(1) involves an "insurance" decision and the question
contained in (2) requires a "financial" decision.
question should always be resolved first. For example, the
amount of life insurance that you need may be so large that
the only way in which this needed amount of insurance can
be afforded is through the purchase of term insurance with
its lower premium.
If your ability (and willingness)
to pay life insurance premiums is such that you can afford
the desired amount of life insurance under either type of
policy, it is then appropriate to consider the "financial"
decision--which type of policy to buy. Important factors affecting
the "financial" decision include your income tax
bracket, whether the need for life insurance is short-term
or long-term (e.g., 20 years or longer), and the rate of return
on alternative investments possessing similar risk.
|| How does mortgage
protection term insurance differ from other types of term life
The face amount under
mortgage protection term insurance decreases over time, consistent
with the projected annual decreases in the outstanding balance
of a mortgage loan. Mortgage protection policies are generally
available to cover a range of mortgage repayment periods,
e.g., 15, 20, 25 or 30 years. Although the face amount decreases
over time, the premium is usually level in amount. Further,
the premium payment period often is shorter than the maximum
period of insurance coverage--for example, a 20-year mortgage
protection policy might require that level premiums be paid
over the first 17 years.
|| Can an existing life
insurance policy be used to provide for the repayment of an
outstanding mortgage loan?
Yes; the purchase of
a new mortgage protection term insurance policy is usually
not required by the lender. An existing policy, either term
or cash-value life insurance, can be used for many purposes,
including paying off an outstanding mortgage loan balance
in the event of the insured's death.
Credit life insurance is
frequently recommended in conjunction with the taking out
of an installment loan when purchasing expensive appliances
or a new car, or for debt consolidation. Is credit life insurance
a good buy?
Credit life insurance is
frequently more expensive than traditional term life insurance.
Further, if you already own a sufficient amount of life insurance
to cover your financial needs, including debt repayment, the
purchase of credit life insurance is normally not advisable
due to its relatively high cost.
|| Why would I want
to buy renters insurance?
If you live in an apartment
or a rented house, renters insurance provides important coverage
for both you and your possessions. A standard renters policy
protects your personal property in many certain cases of theft
or damage and may pay for temporary living expenses if your
rental is damaged (including loss of use). It can also shield
you from personal liability. Anyone who leases a house or
apartment needs to consider this type of coverage.
|| How does a renters
policy protect my personal property?
A renters policy provides
named perils coverage. This means your property is protected
from all the perils that are specifically listed on your policy.
These usually include:
• Fire or lightning
• Windstorm or hail
• Vandalism or malicious mischief
• Falling objects
• Weight of ice, snow, or sleet
• Accidental discharge or overflow of water or steam
• Sudden and accidental tearing apart, cracking, burning,
• Sudden and accidental damage from artificially generated
• Volcanic eruptions (but this doesn't include earthquake
Renters coverage applies to your personal property no matter
where you are in the world. This means you're covered when
you are on vacation as well as at home.
|| Why do some apartment
complexes require tenants to have renters insurance?
The owners of these apartment
complexes require their tenants to have renters insurance
to ensure that they have personal liability coverage. Owners
of apartment complexes carry property insurance to protect
themselves in the event that the apartment building is damaged.
However, if a negligent tenant causes damage, the owner's
insurer will sue the responsible tenant for the amount of
damage they caused. The owner wants to make sure that the
tenant has insurance coverage that will protect him or her
in this event.
|| What if I share my
apartment with a roommate? Do we both need to have renters insurance?
Standard renters policies
cover only you and relatives that live with you. If your roommate
is not a relative, each of you will need your own renters
policy to cover your own property and to provide you liability
coverage for your own actions.
|| What is a personal
umbrella liability policy?
The personal umbrella
liability policy is an insurance contract designed to accomplish
1. First, it increases the liability protection beyond what
the policy owner already has in his or her homeowners and
automobile insurance policies.
2. Second, the personal
umbrella policy is designed to fill in the gaps in a policy
owner's liability coverage since several types of liability
exposures exist that are not covered by automobile and homeowners
Together with homeowners
and automobile insurance policies, broad personal liability
protection is attained through the purchase of a personal
|| How do I know if
I need a personal umbrella liability policy?
It used to be that the
only people who needed personal umbrella liability policies
were wealthy individuals who had sizable amounts of personal
assets that would be at risk in a lawsuit.
However, in our very litigious
society, many people are realizing that they have a need for
more liability insurance than what is provided under their
homeowners and automobile insurance policies. The personal
umbrella policy is ideally suited to provide this protection.
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IMPORTANT NOTE: This Web site provides only a simplified description
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apply in all states. For complete details of coverages, conditions,
limits and losses not covered, be sure to read the policy, including
all endorsements, or prospectus, if applicable. Please feel free to
contact us for further information.