Stocking & Cozzi Insurance

What kinds of questions should I be expected to answer when I am applying for an insurance policy? Why do insurers ask all of these questions?

When you apply for an insurance policy, you will be asked a number of questions. For example, your name, age, sex, address, etc. In addition, you will be asked a number of other questions which will be used to determine what type of risk you are.

For example, when an insurance company is deciding whether or not to supply automobile insurance to a potential policy owner, it will want to know about the person's previous driving record, whether there have any recent accidents or tickets, annual miles driven, distance to work, and what type of car is to be insured.

Collectively, this entire process is known as the underwriting process and every insurance company has one. The primary function of the underwriting department in an insurance company is to decide whether or not to offer insurance to a person who has completed an application.

If the answer is yes, then the underwriting department seeks to determine the "quality" of that risk so that the proper premium can be charged. That is, high risk people should pay more than low risk people because of the greater possibility of experiencing a loss.

The disadvantage of not using an agent to purchase insurance is that the policyholder does not receive as much, or often any, personal service. A licensed agent with whom there is direct contact can be vital when purchasing a product and absolutely necessary when filing a claim. Without an agent to act as your personal advocate during the claims process, you are left to take care of the details on your own... not sure who to contact at the insurance company or who you can really trust to help you during the times in life when you need help the most. Without an agent you are on your own to absorb the frustration and expense of resolving your problems.

Many "direct writing" insurance companies/providers fail to tell you that the "call center personnel" who will take your information and issue the policy ARE NOT licensed to sell insurance, therefore lacking the professional knowledge to guide you toward an acceptable level of protection. These companies are conducting business using a loophole within the law which allows the company to have 1 license while everyone else works without it. Going this route can place your financial future at risk because unlicensed personnel are trained to simply sell you a policy without being aware of what "real" protection means.

For instance, imagine you own a $150,000 home and your auto insurance policy's liability limits are $50,000. When you purchased the policy you were told this was plenty of protection considering your state's minimum requirement for liability is $20,000. Yet if you have an accident and are sued for $200,000 your policy is only going to pay out $50k, leaving you responsible for the remaining $150k. Since your home would cover the difference, a court judgment could force you into selling your home as a way to settle the suit. If your policy's liability limits had protected you at a minimum of $200,000, the policy would be paying for the total suit.

Because direct writers are typically located hundreds (if not thousands) of miles from where you live, many won't hesitate to sell you a policy with low liability limits as a way to simply make the policy cheaper while convincing you to buy it. Leaving you extremely vulnerable to financial disaster.

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.

What are some practical things I can do to lower my automobile insurance rates?

If you do shop around, 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. While other insurers will lessen certain protections in order to make the policy cheaper, so you'll buy it. It's in these time where we need to remember that cheaper doesn't mean it's better. The best advice is not to buy insurance based on anyone's quote, but wait until any new policy is issued before comparing your new policy to your old one... and make sure you received the coverage you wanted before canceling your old policy.

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 us about discount plans.

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.

I have an older car whose current market value is very low - do I really need to purchase automobile insurance?

Most states have enacted compulsory insurance laws that require drivers to have at least some automobile liability insurance. These laws were enacted to ensure that victims of automobile accidents receive compensation when their losses are caused by the actions of another individual who was negligent.

Except for the minimum liability coverages that you may be required to purchase, many people with older cars decide not to purchase any of the physical damage coverages. It is often the case that the cost of repairing the damages to an older car is greater than its value. In these cases, your insurer will usually just "total" the car and give you a check for the car's market value less the 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 unless you have a "Named Operator Endorsement", or the driver is specifically excluded. 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 reasons.

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, annual miles driven, distance to work, now long you have had your drivers license in force, your age, and where you live 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.

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 or leases property has a need for this type of insurance. And most often, homeowners insurance is required by the lender as part of the requirements in obtaining a mortgage.

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 prices. The choice of which policy best suits your needs or desires is up to you when purchasing a homeowners policy, although if you currently have an actual cash value policy we can upgrade your protection to replacement cost for additional premium.

There are a number of factors you should consider when purchasing any product or service, and insurance is no different.

Here is a short list of things you should consider when you purchase homeowners 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.

One 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 us about any discounts 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?

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.

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.

Direct damages due to earthquakes are not covered under the standard homeowners insurance policy. However, unless you consider yourself living in an area that is prone to earthquakes, you may not want 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 movements.

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 should consider this type of coverage.

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:

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.

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.

Personal Umbrella Liability Insurance Questions

What is a personal umbrella liability policy?

Personal umbrella liability insurance is designed to protect you against a catastrophic lawsuit or judgment. It provides expanded coverage and increases the amount of your liability protection beyond the basic coverage provided under your homeowners/renters and auto insurance policies.

Unlike other types of liability coverage, personal umbrella liability insurance can be purchased as a separate policy. However, your insurer will require that you have underlying basic liability coverage (homeowners/renters insurance, auto insurance, or both) before you can purchase an umbrella liability policy. If you are found to be legally responsible for injuring someone or damaging someone's property, the umbrella policy will either pay the part of the claim in excess of the limits of your basic liability coverage, or pay for certain losses not covered by your basic personal liability insurance.

Why do you need it?

Standard homeowners policies usually provide $100,000 to $300,000 worth of liability coverage. As well as the fact that most states now require you to carry auto insurance with minimum liability coverage (which varies from state to state). It is possible to purchase additional liability coverage under these policies, but amounts may be limited. In today's society, it's not unusual to hear of $1-million, $2-million, and even $10-million liability judgments against individuals. If someone is injured in your home, or if you cause a serious auto accident, you could be hit with such a judgment. Without a personal umbrella liability policy, anything beyond the liability coverage limits of your homeowners/renters or auto insurance policy will have to come out of your pockets.

How does it work?

Personal umbrella liability insurance supplements the basic liability coverage provided by your other insurance--it's designed to kick in when your other liability coverage is tapped out. Depending on the type of claim against you, your homeowners, renters, auto, or boat insurance coverage would be utilized first. Once the basic liability limit under the applicable policy is reached, your personal umbrella liability policy covers the remaining costs, up to the policy limits. For this reason, umbrella liability insurance usually carries a high deductible. Insurance companies typically require you to have homeowners/renters and auto liability insurance equal to the amount of your personal umbrella deductible.

What does it cover?

A typical personal umbrella liability policy provides the following protection, up to the coverage limits specified in the policy:

Protection for claims of personal injuries or property damage caused by you, members of your family/household, or hazards on your property, for which you are found legally liable
Personal liability coverage for incidents which occur on or off your property
Additional protection above your basic auto policy for auto-related liabilities
Protection against non-business-related personal injury claims, such as slander, libel, wrongful eviction, and false arrest
Legal defense costs for a covered loss, including lawyers' fees and associated court costs

What doesn't it cover?

Personal umbrella liability insurance typically provides extremely broad coverage. Furthermore, if something is not expressly excluded from coverage, it is covered. Although exclusions can vary, the following are some items typically excluded from coverage:

Intentional damage caused by you or a member of your family/household
Damages arising out of business or professional pursuits
Liability which you accept under the terms of a contract or agreement
Liability related to the ownership, maintenance, and use of aircraft, nontraditional watercraft (jet skis, air boats, etc.), and most recreational vehicles
Damage to property owned, used, or maintained by you (the insured)
Damage covered under a workers compensation policy
Liability arising as a result of war or insurrection

How much should you buy?

There is no exact science when it comes to determining the appropriate level of personal liability insurance coverage. You might think that you only need enough liability insurance to protect your assets, but this figure is practically irrelevant when deciding how much liability coverage you need. A large judgment against you could easily wipe out your assets and put your future earnings in jeopardy. Instead, consider factors such as how often you have guests in your home, whether you operate a home-based business, how much you drive, whether you have teen drivers in your home, and whether your lifestyle gives the impression that you have "deep pockets."

Coverage limits vary, but a typical policy will provide $1 million to $10 million worth of liability coverage. Of course, as your coverage limit increases, the premium will also increase.

Life Insurance Questions

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:

Income sources (and amounts) other than salary/earnings
Whether or not the individual is married and, if so, what is the spouse's earning capacity
The number of individuals who are financially dependent on the insured
The amount of death benefits payable from Social Security and from an employer sponsored life insurance plan
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 adviser 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 death.

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:

"How much life insurance should I buy?" and
"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.

The "insurance" 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 requirements.

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 insurance?

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. Therefore when purchasing Term Life Insurance, it's always good advice if you consider purchasing enough to cover more than your current debts and needs. The reason being, should you require Credit Life in the future you would be more likely to have the additional coverage built in to your current level of protection. Which could easily save you the cost on additional short-term (high cost) additional coverages.

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