Insurance FAQ

Get answers to some of our most commonly asked questions here. Each section is grouped by insurance type.

What are adequate liability limits for my business? What to do in case of a property claim? And what’s BOP insurance anyway? Here are answers to important questions that will help you make good decisions.

General Insurance

What are the differences among the major types of insurers in the United States?

The insurance industry is typified by insurers with a number of different organizational forms. Stock insurers are corporations owned by the shareholders of the firm. The shareholders hire managers to run the company and the insurance product is sold to customers who may or may not be shareholders in the firm. Mutual insurers are companies which are owned by their customers. Any policyowner of the company also owns a portion of the company. Reciprocal insurers or reciprocal exchanges are insurance companies where the policyowners of the exchange agree to insure one another. They are very similar to mutual companies.

Lloyd’s associations are insurance companies where the manager who makes the decisions for the firm also has his/her own personal wealth at stake in the firm. Blue Cross/Blue Shield insurers are typically nonprofit (some may now be for profit), community oriented health insurance providers. Blue Cross/Blue Shield companies typically offer traditional indemnity health insurance. HMOs or Health Maintenance Organizations are companies which provide comprehensive health care coverage to their customers. HMOs, in their simplest form, provide prepaid health care coverage. Once you pay your premium you can use the services of the HMO at little or no further cost to you.

Should I care which type of insurer I purchase insurance from?

From the customer’s point of view, the company which offers you the product and service you want, at the quality you desire, for the lowest cost should be the company you purchase insurance from regardless of their organizational form. Economists have tried in numerous studies to identify which one of its organizational forms can provide the insurance product at the lowest cost and the answers are mixed. Therefore, potential customers should probably base their purchasing decisions on other factors such as the financial quality of the firm.

Some insurance agents I talk to say they are paid employees of the insurance company while other agents says they are independent business people — why the difference? Should I care which one I purchase insurance from?

Insurers deliver their insurance products to policyowners primarily through independent agents or through exclusive agents. Historically, almost all insurance agents were independent business people paid on commission. More recently, many insurance companies have adopted a system where the agent is a paid employee of the firm rather than an independent business person. These agents are referred to as exclusive agents.

Independent agents have the freedom to shop your insurance for you with multiple insurance companies. The reason some companies have paid employee agents is obvious. The exclusive agent companies do not want their agents to be able to compare their policies with other insurance companies.

Also since independent agents are not employees of the company, they have the freedom to offer more objective claims advice and more personal claims service. Many exclusive agent companies require their policyholders to call an 800 number rather than call their agent. Once this number is called, the potential claim goes on a claim record whether or not it is covered by the policy. The personal, customized service provided by independent agents has stood the test of time as the number of independent agencies has grown dramatically in the 21st century.

What do I give up by not using an agent to purchase insurance?

Many property/casualty and life insurance products can be purchased without the use of an agent. Typically potential policyholders will either be contacted through mail or Internet ads, or they can call a 1-800 number to apply for the insurance product. These companies claim to have better pricing, but many times they do not. They claim to save you money by “cutting out the middleman”, but what they do not tell the consumer is they are spending hundreds of millions of dollars on TV, radio, mail, and newspaper ads on their distribution system, as well as employee expenses. Instead of receiving personal, customized, quality local service from a highly trained insurance professional, the consumer is many times buying an inferior product that is based on price only and impersonal service from distant and minimally-trained employees. By purchasing one’s insurance from an independent agent, a consumer can talk to the same people every time.

I understand there are organizations that assign financial ratings to insurance companies. Who are they and what do they do?

Insurance is a product where the insurance company promises to make future loss payments in return for a premium you pay today. It is therefore important that you know the financial health of the insurer when you are deciding how much you are willing to pay for the product. For example, holding all other things equal, people should pay slightly more for a life insurance policy from an insurance company with a higher financial rating, or should pay slightly less for the same policy from a company which is not as financially strong.

In order to make this kind of informed purchasing decision, a number of private organizations, called rating agencies, rate the financial stability of insurance companies. Major insurance rating agencies include the A. M. Best Company, Standard & Poor’s, Weiss Research, Duff and Phelps, and Moody’s. Each of these companies uses data obtained from various sources to rate the financial strength of insurance companies. It should be noted, however, that each organization has its own rating standards and therefore the financial grades from two different rating agencies may be different. The best advice usually given to insureds is to check the financial rating of the insurer from as many rating agencies as possible to determine the range of opinions of the financial health of the company.

Where can information be found on the largest insurance companies in the United States?

The monthly publication Best’s Review (Life and Health Edition) periodically contains information on assets, premium income and products sold by most of the largest life insurance companies operating in the U.S. The sister publication, Best’s Review (Property and Casualty Edition) provides certain statistical information on large property/casualty companies. Both magazines are published by the A. M. Best Company in Oldewick, N.J. Public libraries in cities of medium to large size frequently subscribe to one or both of these magazines.

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, the agent will ask you a number of demographic questions such as your name, age, sex, address, etc. In addition to these demographic questions, 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 offer automobile insurance to a potential policyowner, it will want to know about the person’s previous driving record, whether there have any recent accidents or tickets, what type of car is to be insured and various other types of information.

All of this information will be used for two purposes. First, based upon the responses to these questions, the insurance company will decide whether the profile of the applicant is consistent with the type of risks the insurer is trying to attract. Some insurers specialize in offering insurance to only very safe drivers and therefore will only accept applications from people who fit the profile of a safe driver. Second, once the insurer has decided that your risk profile is consistent with the types of risks it accepts, the answers to the questions will be used to determine which rate to charge you. For example, the insurance company will decide whether you should be offered insurance at the high risk driver rate or the low risk driver rate.

Collectively, this entire process is known as the underwriting process. 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.

Personal Insurance

When my child gets his/her driver’s license must I add him/her to my insurance policy?

Yes. All licensed drivers living in the household need to be listed on the automobile policy unless they have their own automobile insurance elsewhere.

What kind of records are needed to substantiate a homeowner claim?

It is recommend that you keep a booklet detailing the items or a videotape of your personal property. Having a complete inventory record at the time of loss could save you thousands of dollars because no one remembers everything, and unless written down, lost items will go unclaimed. The booklet should be kept in a safe place, preferably not at home. Keep it in a safe deposit box or with your insurance agent. It is also a good idea to retain all bills for major purchases and additions to the structure of your home. These could serve as proof of purchase in the event of a claim and should also be kept in a safe place. Finally, take pictures of or videotape all these items. Lay china and silverware on a table so that the picture will show the number of pieces and other details such as the design. Keep the pictures and all receipts in a safe place.

How can I lower my boat insurance premium?

Safety Equipment Discounts are available for safety equipment. If your boat is equipped with any of the following, check with your agent or broker to see if you qualify: GPS, Ship to Shore, VHF, Depth Sounder, Halon system, Fume detector, Alarm System Loran, and Boating Safety Courses. If you have taken the Coast Guard certification course, check with your current company as to the availability of a discount.

How can I lower my homeowners insurance premium?

Insurers frequently award lower rates to homeowners who guard against theft, accidents and other losses. Companies may provide discounts to insured who have multiple policies with the same insurance company. An example would be having your home owners and automobile insurance with the same company.

Here are some things you can do that generally qualify for lower premiums:

  • Secure your home with dead bolts and window locks
  • Install a security system with outside signal and connection to local police
  • Install and maintain smoke detectors
  • Install a sprinkler system for fire
  • Install a fire alarm that automatically alerts the local fire department
  • Stop smoking
  • Keep walks and entrance ways clear of snow and ice
  • Purchase your automobile and home insurance from the same company

When renting a vehicle, should I buy the insurance coverage offered by the car rental company?

If you have automobile insurance protection on your personal vehicles, you do not need to buy extra insurance.

If my car is in the shop and I need to rent a temporary vehicle, is the rental car covered on my automobile insurance policy?

Rental car coverage is only for vehicles that have been in an accident, not for cars experiencing mechanical failure.

What’s “full coverage”?

The term “full coverage” is a term that means the legally required or most commonly requested coverages. The term “full coverage” does not mean that everything is covered no matter what happens. “Full coverage” typically includes Bodily Injury, Property Damage, Uninsured and Underinsured Motorist, Damage to a covered vehicle (also known as Comprehensive and Collision) and any other coverages available such as: rental car towing, road service or additional equipment coverage. Your automobile insurance policy declaration page lists the coverages you have selected.

Who is usually covered under an automobile insurance liability policy?

An automobile insurance liability policy usually covers the following people:

  • Named insured — the person or persons named in the policy, no matter what car they are driving
  • Spouse — even if the spouse of the named insured is not named on a policy, liability insurance almost always covers him or her, unless the couple does not live together
  • Other relative — anyone living in the household with the named insured related to the insured by blood, marriage or adoption, usually including a legal ward or foster child
  • Anyone driving the insured vehicle with permission — someone who steals the car is not covered

Am I covered if I drive someone else’s vehicle?

The coverage provided varies from state to state and you should consult with your insurance agent for details. Generally, you are covered only for liability to the third parties unless the owner is a resident of your household, or the vehicle is furnished for your regular use. In many states, you are not covered for physical damage to the borrowed vehicle. Any coverage provided is over and above the collectible coverage provided by the owner of the vehicle.

Business/Commercial Insurance

What are adequate liability limits for my business?

This question has received considerable attention over the years by insurance professionals and legal advisors without resulting in definite answers. The question is somewhat akin to posing the query “How high is up?” Nevertheless, there are some perspectives which may be helpful in determining the amount of liability insurance limits to purchase. These might include:

  • Attempt to ascertain the largest judgment rendered against your type of business within the judicial area in which you are located or in which you sell your product or service. (Even then, you may not be willing or able to afford the cost of purchasing insurance to provide sufficient liability limits to cover any such awards.)
  • Examine your balance sheet (assets vs. liabilities) to determine what you have to lose and thus need to protect. Remember, however, that liability losses resulting in judgments or out-of-court settlements generally have no respect for wealth or lack of it.
  • Similar to setting liability limits based on your balance sheet, use your income statement for the same purpose. However, the same concern regarding losses vs. wealth still applies.
  • Consider liability limits you can afford or with which you feel comfortable. Unfortunately, this practical approach does not provide “a quiet night’s sleep” for most business owners, especially if you realize that the next verdict could easily exceed your limits several times over.
  • Review all business contracts you have signed, including premises and/or equipment leases, etc. for their specific liability limit requirements — most contracts will have them! This may determine at least the minimum liability limits you should carry just to comply with the contract provisions.
  • Consider what level of liability protection is being carried by other area businesses and competitors similar to yours. While we cannot disclose confidential client information, our agency is a good source of general information of this nature because of the number and cross-section of businesses we insure.

All of this causes one to ask what a business owner can do to determine proper liability limits if the techniques previously listed are filled with uncertainty. There is no one acceptable and simple method. It requires an examination of the legal climate, or perhaps various legal climates, the type of exposures presented, and all of the previously suggested parameters.

In commercial insurance, are there policies that provide or combine the various kinds of coverages like a homeowners policy does with personal insurance?

Yes, there are various “package” policies available. Programs such as the Business Owners Package (BOP), Special Multi Peril (SMP) and insurance company designed packages are constantly being marketed. Many insurers design packages to meet specialized needs, such as, automobile garages, automobile dealers, jewelers, furriers, barbers and beauty salons, and apartment buildings.

What is Workers’ Compensation Insurance?

In general, the current Workers’ Compensation system represents a compromise between employers and employees regarding employment-related injuries or illnesses. Basically, employees relinquish their right to sue employers if they suffer some job-related injury or illness. In return, employers agree to provide state-mandated benefits if such injuries or illnesses occur. To ensure employers will have the money to pay these mandated benefits, most states require that employers demonstrate that they have the financial ability to pay any claims that may arise. Typically, this financial ability is demonstrated through the purchase of Workers’ Compensation insurance.

I read that many businesses are being sued by their own employees for discrimination, wrongful termination, violations of the Disability Act, etc. I try to be careful, but what if one of my supervisors commits the violation or my file is not properly documented? What can I do?

Your Business Liability coverage and your Workers’ Compensation insurance do not pay these types of claims, but you can now buy a new type of insurance called Employment Practices Liability. This would protect your business from employees’ allegations against you. Especially important is the legal defense aspect of the policy, because the legal bills are often higher than the amount of the claim itself.

Can you insure me if I auction ammunition or firearms?

Yes.  However, insurance companies want to be sure that the ammunition is kept separate from the firearms.  They also want to know if auctioning ammunition or firearms is a primary part of your business or incidental.  Incidental would be when you conduct an estate auction and there are a few firearms as part of the estate and perhaps a box or two of ammunition.

Can I have coverage the same day I contact you?

No. Each policy is individually underwritten. We first need to provide you with a proposal (quote). To do this we need a completed and signed application. This will include a copy of your standard auction contract and a copy of your auctioneer’s license (if your state requires it). We will also review your Web site (if you have one). This process usually takes 7 to 21 business days to put coverage into effect.

Is the Businessowners Policy (BOP) available in my state?

It is available in Alabama, Arkansas, Connecticut, Delaware, District of Columbia, Georgia, Illinois, Indiana, Iowa, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Vermont, Virginia and Wisconsin. In other states, coverage is provided by a General Liability policy with premium based on your annual payroll.

Can anyone qualify for a Businessowners Policy if they live is a state where it is available?

No. The policy is designed for smaller operations. If you often auction heavy equipment, firearms, real estate, motor vehicles or any livestock, the General Liability Policy is for you.

If you are insuring a building or contents and you do not have a fire department within 5 miles you do not qualify for the BOP. If you are insuring a building or contents located within 5 miles of a fire department but not within 1,000 feet of a public fire hydrant, we must ask for underwriting approval which may or may not be given depending on your individual circumstances.

If you have no prior insurance and have been an auctioneer for less than 3 years you do not qualify for a BOP but can qualify for General Liability Insurance.

If you have no prior insurance and have been an auctioneer for more than 3 years, you will likely qualify for a BOP based on your experience in the business. We still must obtain underwriting approval which is granted in most cases.

What is the annual cost for a Businessowners Policy?

It can be as low as $575 depending on your state and the value of property you have to insure. The more property you insure the higher the cost. Auctioneers located in larger urban areas will pay more than those in smaller towns.

What if I do not qualify for a Businessowners Policy? Is there something else?

Yes. Your first line of protection is the General Liability Policy. To provide you with a proposal (quote) we need to have a completed and signed application. This will include a copy of your standard auction contract, a copy of your auctioneer’s license (if your state requires it). We will also review your Web site as part of our underwriting. This process usually takes 7 to 21 days to put coverage into effect.

What other coverages should I consider in addition to a Businessowners Policy?

  • Business Automobile Insurance
  • Errors and Omissions Insurance
  • Consignment Property
  • Building Coverage
  • Business Property Coverage (coverage for the inside of your building)
  • Coverage for trailer(s) you may own and use to conduct auctions

What if I only want General Liability Insurance, what does it cost?

The cost varies from state to state and is based on your annual payroll. If you have no payroll, each state has laws that determine an imaginary payroll to establish a cost, which typically starts at $1,000 annually. Depending on your state’s laws there may be a tax or fees added to your annual cost.

What insurance company do you use?

We are independent insurance agents and have access to more than one insurance company. The insurance company we choose for you will be “A” rated by A. M. Best. They have been determining the financial and management quality of insurance companies since 1906.

Someone just asked me to prove I am insured and requests a “Certificate of Insurance.” Do you provide these?

Once we have a policy or policies in place we provide a “Certificate of Insurance” to you and the person or company requesting it at no charge. During normal business hours we can have a Certificate of Insurance E-mailed or faxed to you within 60 minutes of your request. Under certain circumstances this can take as long as 24 hours.

Why should I buy insurance now? I have been an auctioneer for 20 years. No one has ever sued me, I have never had a person injured at an auction nor have I ever damaged someone’s property.

Today’s society is very lawsuit-happy. The best way to protect your business is to have insurance to defend yourself in case of a lawsuit or claim for injury or property damage. One accidental slip and fall may cost you thousands of dollars. Even if you win the lawsuit, you must pay your legal fees. Many attorneys will charge hundreds of dollars per hour just to defend you. With the economy today, people are looking for ways to become a victim and their lawsuit is a golden lottery ticket.

Do you have examples of auctioneer claims that you have paid?

  1. An auctioneer brought in a friend to help prepare a building for an auction sale. As the friend was walking down the stairs, the stairs collapsed, he fell and was paralyzed. The auctioneer claimed he did not have employees and did not purchase Workers Compensation Insurance. The auctioneer received a lawsuit seeking payment for injuries, lost wages, medical bills, rehabilitation, etc. Who will pay? With no Workers Compensation Coverage the auctioneer will be liable.
  2. An auctioneer had a safe stolen from his place of business. Value of the items stolen was over $34,000. This auctioneer had a BOP and was reimbursed in full for his loss.
  3. Lightning struck an auction house, causing damage to the computer system and phone lines. Our policy paid over $4,500 for a new computer and phone system.
  4. During an estate sale, a buyer went beyond the roped-off area and slipped and fell. She later sued the auctioneer for her injuries. She did not win the lawsuit because the auctioneer was not found liable for her injuries. However, the policy paid $2,300 for defense costs. This would have come out of the auctioneer’s pocket had he not had Liability Coverage.
  5. A bank hired an auctioneer to conduct a bankruptcy auction. When the auctioneer advertised it as a bankruptcy, the owner of the bankrupt business filed a lawsuit against the auctioneer for libel and slander, claiming he was not going bankrupt and the auctioneer hurt his business through his advertising. The auctioneer was found not liable and won the lawsuit. But he incurred legal fees of over $5,000. Liability Insurance paid the legal fees for defending the auctioneer.

Health Insurance

Do I have to take a physical exam in order to get life insurance?

Many life insurance companies issue non-medical life insurance, where you simply have to answer a series of questions in an application. However, depending on your answers, the company might require you to take a physical examination for any of the following: seriously impaired health, existence of a terminal illness, or a request for an unusually large amount of coverage. If you refuse to take an examination, then the company has the right not to sell you a policy.

Can an insurance company refuse to insure me if I have a preexisting condition?

Yes, a company can reject you for a preexisting condition with almost no exceptions. A preexisting condition is a medical condition that the insured knows about before applying for coverage. Such a condition might affect either insurability or premium amount.

How much life insurance do I need?

Before buying life insurance, you should assemble personal financial information and review your family’s needs. There are a number of factors to consider when determining how much protection you should have. These include:

  • Any immediate needs at the time of death, such as final illness expenses, burial costs and estate taxes;
  • Funds for a readjustment period, to finance a move or to provide time for family members to find a job; and
  • Ongoing financial needs, such as monthly bills and expenses, day-care costs, college tuition or retirement.

Although there is no substitute for a careful evaluation of the amount of coverage needed to meet your needs, one rule of thumb is to buy life insurance that is equal to five to seven times your annual gross income.

If I develop a serious illness or become disabled. How can I protect my family?

People in their prime working years are more likely to become disabled than to die. Thus, depending on your personal circumstances, one potentially excellent way to protect you, your family, and even your business, is to buy disability insurance. In essence, disability insurance provides a “backup” income if you are temporarily out of work. Most disability plans are pretty flexible, and you can buy coverage for a variety of illnesses or injuries, or exclude specific injuries, such as a bad back.

How many participants does it take to purchase group health insurance?

Within certain participation guidelines, two participants is the minimum number required to set up a group health policy.

Emergencies

What should I do if I have a loss?

Property

  • Report the loss to your insurance agent as soon as possible, providing date of loss and description.
  • Take photographs or videotape of the damage.
  • Keep records of your expenses for emergency or temporary repairs. Separate the damaged items from the undamaged items. The insurance company adjuster will want to inspect the damaged items, so don’t dispose of them without the adjuster’s consent.
  • Make a detailed list of all damaged or lost property, including when and where they were purchased. If possible, provide the original receipts for each item.
  • Obtain estimates for repairs and/or replacement of the damaged or missing items. Should the loss involve theft or vandalism, contact your police department immediately.

Automobile

  • When possible, report the accident to the presiding police department and forward a copy of the report to your agent.
  • Contact your agent , providing date of accident and details surrounding the incident. Obtain a written estimate for damages from the body shop of your choice.
  • You will be contacted by your insurance company to make arrangements for an inspection of your vehicle. No repairs should be made without the insurance company’s authorization.

General Liability

  • Contact your agent, providing date, time, description of incident, names and addresses of all injured parties and/or owners of property damage. Also provide names and addresses of any witnesses.
  • Should you be served with suit papers or any other legal document, forward them immediately to your agent.

Workers’ Compensation

  • Provide for immediate medical services as required by Workers’ Compensation law.
  • Contact your agent for claim reporting procedures. You will need to provide the date, address and Social Security number of the employee, nature of the injury, etc.
  • Upon notification of the claim, the insurance company will contact you with further instructions.
  • Note: If the claim involves a death, be sure to file OSHA reports within eight hours.

What to do in case of an automobile accident?

If anyone is injured, immediately render any possible first aid assistance and call emergency services.

Exchange name, address, and insurance information with the driver of the other car. Record the following information: date, time and place of accident, name and address of owner of the other car, if different from driver driver’s Social Security number and driver’s license number, names and addresses of passengers and witnesses, license number of the other car and the cars of witnesses. Report the accident to the nearest police station and file any necessary reports. Cooperate fully with the police, but do not make any admissions about your liability. Don’t sign any statements for anyone other than an authorized representative of your insurance company. Promptly report the claim to your agent.

Note: If you plan to travel by car in Canada or Mexico, check with your agent for insurance requirements.

What do I do in case of a property claim?

If anyone is injured, immediately render any possible first aid assistance and call emergency services. Take appropriate steps to avoid further damage to the property. Promptly report the claim to your insurance agent.

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