MONDAY, FEBRUARY 19, 2018
JIM: I think auto and home owner’s insurance is something that a lot of people just kind of file away once they’ve got the insurance and then when they get a renewal premium that’s when they took a look at it if the rates went up. Today, we have a true auto and home owner’s counselor, not just an agent, joining us today to discuss a lot of frequently asked questions that people have regarding their auto and home owner’s insurance as well as giving you insight on ways that you can save money without sacrificing protecting yourself and your family in the future. Welcome, Gretchen.
GRETCHEN: Thank you for having me, Jim and Tony. It’s great to be here and I thought today we’d talk a little bit about this mystery that we call insurance. Sometimes we just hear the word insurance and we just want to turn it off, we don’t want to go there, but when you know the terminology and have your agent or your insurance professional explain what some of these issues are, it’s not such a scary place anymore.
TONY: That sounds great, Gretchen, and thanks for joining us again, so let’s start with one of those frequently asked questions I’m sure you deal with. Let’s talk about a home owners for a second. Is it important for me to have water damage covered under my home owner’s policy?
GRETCHEN: Absolutely, but when we talk about water damage that is one of the most confusing areas of claims, because you have interior water damage such as a hot water heater bursting or a washing machine overflowing versus flooding, which is the surface water. Flooding typically is not covered on a home owner’s policy. You need to purchase a flood policy, however, water damage from an interior source that typically is covered – so water is one of those mystery things, but it doesn’t have to be.
TONY: Gretchen, can you clarify, though; what if I’m, let’s say, not in a known flood plain, where do I get flood insurance from and can I get it no matter where I am in the country?
GRETCHEN: You can get it provided you fall into certain parameters. The community you live in must subscribe to the National Flood Insurance Program. When that happens, then you can get flood insurance regardless if you’re next to a river or a lake or up on a higher hill.
JIM: And sewer and drain backup, that’s different than flood, or is that flood insurance?
GRETCHEN: No, that’s different again. That’s water damage coming from an interior source, so again we have an issue where you have a finished basement and now you have a backup for whatever reason and it’s coming up through the drains or the sewer. That’s call backup coverage. Now, it’s not automatically included on a home owners’, that’s an extra coverage, so again as your purchasing your insurance, reviewing your insurance, which we talk a lot about, that’s one area that you should be asking questions about, and does your policy include that.
JIM: Another question, as we’re talking about home owners that I hear come up all the time is replacement cost coverage, and I know for part of the country that we’re in right now, material costs have gotten quite high. You share with me all the time, with clients that we work with together, circumstances where their house is out of whack and if they had a problem, they might sadly find out at the wrong time that they’re not going to be able to rebuild that house the way it was. Talk a little bit about replacement cost coverage.
GRETCHEN: There’s two parameters that are used for replacing or rebuilding your home and how the claim’s going to be settled. You’ve got the dwelling replacement cost or personal property replacement cost versus the actual cash value. The actual cash value at the time of a claim is what it would take to replace your home or property after depreciation, so remember, if you’ve had belongings for quite some time, we’re going to depreciate that, okay. Replacement cost is exactly what it says. We are going to replace it. There’s no depreciation taken, so you will have the ability to go out, replace your property, rebuild your home at today’s cost of labor and materials, so you always, always want your policies to have replacement cost.
TONY: Can you have replacement cost on the structure, but then actual cash value on the contents?
GRETCHEN: You can. You can, and, again, there’s an endorsement for each, so if you want replacement cost on both, you need to make sure that was added to your policy, again, not automatic.
TONY: And of course it makes sense when you’re working with your insurance professional to ask them, gosh, what’s the difference in cost? Ultimately, you got to be a smart consumer and cover yourself the way it’s important to you, but I’m sure those costs can vary. Example would be if you were to just take cash value on your house and be subject to the depreciation factor that has to be a big difference premium versus replacement cost.
GRETCHEN: Yes, as a matter of fact, it is. When you purchase a policy, a lot of people, they focus on cost, not quality, and when you do that, you’re missing some valuable coverages, so sometimes you’re pennywise pound foolish, but you need to know if the unforeseen happens; if your home is destroyed, partially destroyed because of a claim, how are you going to replace the home, how are you going to replace your contents? Do you want everything depreciated? Do you want the ability to go into a store and buy new? That’s the mindset you have to have when you’re purchasing insurance policies: what would you do if the unforeseen has happened?
TONY: And if you have a home owner’s policy, let’s say the house is insured for 300,000; isn’t the contents usually a ratio of the value of the home, because you’re not asked to provide a list of all the contents and its current value; do most insurance companies just assign a percentage of the overall home protection to the interior contents?
GRETCHEN: Yes, they do – so it’s very, very critical that you establish the correct value on the home, the replacement cost of value of the home and then your other structures and your personal property is a percentage and typically they range anywhere from 50% up to 75%. Now that being said, if you have jewelry, if you have guns, if you have specific items, you can schedule those and then that value would be increased accordingly.
JIM: And it’s probably a good idea, and I’ve heard you mention before, video tape what your contents is, or have receipts that you might keep that information off premises, because at claim time, it might be your burden of proof to even prove you had some of these items in the household. Is that true?
GRETCHEN: That’s true. I mean if it’s a typical thing, you have a fire, we know you have a couch and a TV and a stereo and a kitchen table and bedroom sets. What we don’t know is, okay, you had a 52 inch color TV, you’ve had an expensive gun collection, you have a lot of jewelry. Those things you’re going to have to come up with some kind of proof somewhere that in fact you own these things.
TONY: And in fact if you’re adding those things as you might refer to it as a rider or optional coverage, generally the insurance company is asking for some type of proof of value up front, so they can properly cover its value. Is that correct? I mean - -
GRETCHEN: That’s right.
TONY: - - like on an appraisal or something like that.
GRETCHEN: That’s correct.
JIM: Another issue is deductibles. Now I know a lot of people are familiar with deductibles, typically with, like health insurance, you might have one deductible per year, but with home owner’s, doesn’t it come to one deductible per incidence?
GRETCHEN: Yes. It is a per occurrence thing and remember your deductible is always, always your out-of-pocket. That’s the amount you have to pay first before your insurance company steps in. Now, when I do my annual reviews with my clients, we talk about how we can save money, and deductible always comes up, however, if you increase your deductible to 2000 and you can’t afford to have your deductible at 2000, it doesn’t help you any, because you’ve got to pay your portion first before the company steps in, so you have to equate, get some quotes, what’s the difference between a 500 deductible and a 2000 deductible; the difference between a 1000 and 2000. Sometimes it’s not worth the jump, but you get those quotes.
JIM: And another thing that considers, if you do have a claim and you’re close to that deductible, whether or not you want to file, because if you have a lot of claims, is that going to affect your premiums or insurability in the future?
GRETCHEN: Oh, absolutely, and that’s both on home and auto. You’ve got a 500 deductible, your claim is 700, are you really going to turn in a claim for 200 knowing that your rates will increase for three years – so there’s a part of, you know, you’ve got to think of these things logically. Insurance should be there for, again, the big one. You don’t want to nickel and dime the insurance company and then jeopardize your insurability, your renewals, those kinds of things.
TONY: That’s great information, Gretchen. Let’s talk about medical payments coverage. Jim mentioned health insurance a minute ago. Well, auto insurance and home owners certainly isn’t health insurance, but how do those kind of coverages tie into medical payments coverage?
GRETCHEN: Medical payments coverage is included both on your home owners and your auto insurance, but it’s viewed very, very differently on each one, so under the home owner’s policy, your medical payments is for people other than family members or people that live with you that get hurt on your property and it’s regardless who is at fault. They tripped on the steps, they slammed their finger in a door; those kinds of things. Typically the cap on that is somewhere between 5000 and 10,000. It’s not there for the liability. You didn’t cause the incidence. They were clumsy, they weren’t paying attention, they got hurt, and there’s a limit for that. On the auto side, medical payments is for the named insured or family members. You’re involved in an accident and the people in your vehicle got hurt, so very, very different explanation, but again there’s caps on them. It’s not to be confused with liability. Liability is you are at fault. The steps to the basement don’t have a railing and now someone fell; yes, you are liable for that. The lighting on the steps going to the basement, the light buld is burned out, you didn’t change it; you’re liable for that. Medical payments is: you are not liable, someone got hurt.
JIM: Well, let’s take a short break and when we come back, let’s transition to auto coverages. This might be a good time to do that as we continue to meet with Gretchen Evans, someone who has 25 years plus of experience in counseling clients in these matters. Please stay tuned.
JIM: Welcome back as we continue to meet with auto and home owners’ insurance expert, Gretchen Evans. Before the break, we were talking about a lot of things to consider when looking at home owner’s coverage and we started getting into medical payments where we were talking about how that can be a factor, both on home owners and auto, so let’s switch gears now and talk about some of the things that people should be considering when considering what coverages they’re going to have for auto insurance and let’s start out with one misunderstood concept and that is what is the difference between comprehensive coverage and collision coverage on an auto policy?
GRETCHEN: Collision and comprehensive coverage has to do with the physical damage of your vehicle. It is not the vehicle that you hit or were involved with an accident. It is a collision and the comp, the damage on your vehicle, and each of them covers something different, so collision, for example is you collide with something. It could be another vehicle; it could be property, such as you run off the road and hit someone’s garage. It could be a bridge; we’ve had that time and time again, and then comprehensive is everything else: fire, glass breakage, hail, hitting an animal, and you pick and choose. Now, there are typically deductibles associated with these, so again remember, deductible is your out-of-pocket.
TONY: So let’s say I’m driving an old car, what would be the type of coverage I might consider not having because the car isn’t worth a whole lot in case there was an accident?
GRETCHEN: That would be collision, so in the event you have an accident with someone else and your vehicle is totaled and the value is 1500, okay, you need to think about, do you really want to pay all this money for collision coverage when the value is minimal and you’re going to junk the car anyway; however, you may want the glass coverage, which is comprehensive. You get a crack in the windshield, you may want that repaired; that’s comprehensive along with someone steals the car, catches fire, hit by hail or you hit an animal.
TONY: Now let’s say I buy a brand spanking new car and it’s worth quite a bit of money and of course I didn’t pay cash for it, so I have a bank that’s providing me financing, usually what kind of coverage do I need for that situation?
GRETCHEN: That lender, that bank, they are going to require both. They’re insuring their interest, so until you pay that off, they own the vehicle and they want to make sure, you have an accident, it will be repaired, so you need both comp and collision and typically they will tell you the maximum deductible they will allow, so in those circumstances, just talk a little bit with your bank or whoever you’re financing through and make sure you know what their requirements are.
TONY: And you usually have to provide them proof of insurance or some type of certificate from your insurance professional that they know they’re covered.
GRETCHEN: That’s correct.
JIM: As we’re talking about collisions and how things are covered, if someone had their car totaled and didn’t get what they thought their car was worth, why does that happen?
GRETCHEN: Unlike the home owner’s policy, the auto policy is settled on an actual cash value basis, so it is the market value of the vehicle at the time of the accident. It’s not what you paid for it. We have no control over what you paid for it. It is the market value of that vehicle at the time of the accident. Now, suppose right before you had the accident, you had new tires put on, you had the transmission replaced; as long as you haver receipts that can add to the value and the settlement, but it is not replacement and it is not what you paid for it – it is the market value – so the quickest way to find out, should I remove that collision coverage is to go on the internet, look up Kelly Blue Book; there’s many other sources out there and find out what the value is. Put in your miles, put in all the features on your vehicle and then come up with a market value of that vehicle and then decide.
TONY: So let’s talk about my driving record. Not mine, personally, but I’m sure you get the question all the time: how does my driving record affect my monthly premium?
GRETCHEN: Your driving record has a lot to do with your insurance, because people that have ongoing speeding tickets and accidents, chances are they’re going to continue to drive that way and you are surcharged for every incident that the insurance company is made aware of. The surcharges will be on your policy at least three years and then it’ll fall off, but they’ll take in up to a five-year driving history of all the states you may have lived in. For example, you just moved to Wisconsin, you came from Michigan, we will pull the record in Michigan to get a five-year history of your driving.
JIM: So one thing, not necessarily speaking from personal experience, but if you get some tickets, a lot of times people just pay those tickets. Sometimes it pays to fight those tickets to get them reduced or removed, because that’s going to impact your premiums in the future.
GRETCHEN: Oh, absolutely, yes. If you feel that you’re in the wrong or you want to fight it and see where it goes, it’s well worth it, especially if you have a driving record where you’ve got a couple incidents on there. I mean that could be the difference between being offered a renewal and not.
TONY: Let’s say I’ve gotten my auto coverage; what about people I give permission to drive that vehicle and of course, we can’t check their driving records, so how does the insurance company cover me if I let someone else drive my car?
GRETCHEN: The first thing is you should always, always call either your insurance company or your insurance professional to make sure that if a driver is not listed on your policy, they are covered. I think there’s an assumption out there that anybody can drive your vehicle, because you have insurance on it. That may or may not be the case. Some companies say they have permissive use, which means if I gave you permission to drive my vehicle, you’re covered, but not all do and you certainly don’t want to find that out after an accident has occurred and now you weren’t driving the vehicle, therefore your claim is not covered, so it doesn’t hurt to make a phone call, check with your insurance company or your insurance professional just to make sure. Now, you have to have all of the drivers in your household listed on your policy unless they have their own policy. We have to account for anyone who can jump in that vehicle and go for a ride.
TONY: Even if they have their own policy though, isn’t that still a possibility? I can think of a client of mine who their granddaughter lives with them currently while she’s just finishing up school. She graduated, she has now a full-time job, has her own vehicle, but I think her grandparents’ policy still has her listed on their policy. Is that a safer way to do it, and will that really affect their premium much?
GRETCHEN: Well, it depends how those vehicles are all titled, so typically your insurance policy should follow how the vehicle is titled. If, in your case, Tony, Grandma and Grandpa own all the vehicles and she’s using them, you list her as a driver; everything’s very upfront, very forthright to the insurance company, you’re good to go, however, if they’ve now given that granddaughter or another family member the title to the vehicle and now it’s in their name, they can still be in the household, but they need their own policy. They can still drive the other vehicles, provided again that permissive use is included.
JIM: And that’s something, definitely, to ask, because I can imagine certainly with the weather we’ve had here up north recently, a lot of cars aren’t starting in the morning, and so if she maybe had to borrow Grandma and Grandpa’s car to get to work, you’d want to make sure that permissive use was well-defined in their policy.
JIM: When I see this happen all the time when I’m talking to clients and I encourage them to talk with their insurance professional and confirm things, but there’s always this kind of idea of well, if I don’t tell them, it won’t hurt me, so I’ll just kind of keep that to myself, but, boy, you really could risk not having a claim covered and the worst time to find out what your coverages are or are not is when you have a claim.
GRETCHEN: Oh, absolutely. I meant that’d be one of the worst possible scenarios, is you want to skate under the radar of the insurance company, then you have an accident and someone got either critically injured or killed, okay. If you would have been upfront, maybe add a couple dollars to the premium, now we’d be covered, so you’re playing with fire. You need to be clear on what you’re covered with before versus after.
JIM: Now, fire, that’s home owner’s coverage, right?
GRETCHEN: And comprehensive.
JIM: There you go.
TONY: Hey, so right now, I’ve got in my household a teenager who is practicing driving to get her license and strangely enough, I think back when I was a teenager, I couldn’t wait to get my car keys, so I could have that freedom I so desired, but my teenager, believe it or not, she doesn’t want to get her driver’s license. She doesn’t really care to drive, so maybe I’ve spoiled her by driving her to school – so let’s say my teenager now gets their license; let’s say I don’t allow that teenager to drive or she chooses not to, do they need to be insured?
GRETCHEN: Yes, they do, because, they are a licensed operator in the household. What’s to prevent that child from: you’re out for the evening, the keys are hanging there, she’s got her license, she needs to run to the store, see a friend, whatever, and they get in the car and go. The insurance companies need to rate for the exposure and that’s why they need to be listed. If truly they don’t want to drive and you’re not going to let them drive, then don’t have them get licensed and then you don’t run into that problem, but as long as they have a valid license, they need to be rated on a policy.
TONY: So the key is not the fact that she’s driving age and likely the insurance company has in their database the date-of-birth to kind of make sure they’re following up on that. It’s really her getting licensed and being able to drive creates that trigger. What about during that temporary phase, where right now, she has her temps, she can only drive with someone in the car; my insurance premiums haven’t been adjusted for that yet. Is it only once she gets her official driver’s license?
GRETCHEN: Yes. The rate, typically, typically, is only when they’re a licensed operator. Some companies will require that as soon as they get their temps, they’re made aware of it. It won’t increase your rates, but they want to be aware that someone is going to be licensed and there’s no time limit on that. They could have their temps, they could renew their temps several times, that’s fine. It’s only when they are officially a licensed driver that they need to be put on the policy.
TONY: And how will the company know? Is it my responsibility to notify my insurance professional that my child now has her driver’s license?
TONY: And that’s also another reason to have this annual review that we always talk about with you. When things change in your life, you don’t always think to call your insurance professional. You’re happy your child has that next phase of their life accomplished and you don’t think, ooh, that’s right, I’ve got to call my insurance professional, so make sure you also have an annual review to make sure those things are always addressed.
GRETCHEN: And the other scary thing is, too, we all know, you have a young child who gets their license, what’s going to happen to your rates? They’re going to take a jump, so nobody wants to make that phone call, but you need to make the phone call. If you have an accident, you want the insurance company to be there for you so you need to let the insurance company know what’s going on in the household.
JIM: Does everyone have to have auto insurance, Gretchen? I know we had a change in our state that now requires you to have proof of insurance with you in the car. Is that everywhere?
GRETCHEN: Well, there’s one of two things. You either have to have automobile liability insurance or proof of financial responsibility, so if you don’t want to have insurance and you have a huge bank account that if you have a serious accident and you’re involved in a lawsuit, if you financially can afford to pay for that, that’s your financial responsibility. Most states, close to all, do now require automobile liability insurance.
JIM: It’s just a good idea to have. Transfer that risk to the companies that have deeper pockets.
GRETCHEN: Absolutely. If you have a large bank account, don’t you want to keep it? Let’s pay the premium, let the insurance company handle it, and save your estate.
TONY: Well, this is a question I know that has to be a concern is sometimes people, of course, they want to know they’re covered and that when that accident happens, they want to know that they’ve been taken care of, but the real concern is: now that I’ve had that accident and file a claim, will I get cancelled?
GRETCHEN: There’s no guarantee for anything. I will tell you from my experience over the last 25 years, is normally one accident will not get you cancelled, but remember it depends on the circumstances. You’re stopped with driving while intoxicated, under the influence of drugs. Those are very, very serious accusations and tickets – yeah, that might get you cancelled – so each case is different, but typically you weren’t paying attention, you slammed in the back end of a car that was stopped at a red light, that will not get you cancelled. It’s the extenuating circumstances surrounding it that could.
TONY: Or some repetitiveness and that kind of situation.
GRETCHEN: That’s correct, yes.
TONY: Does it also matter if you’re at fault? I can think in my own household, my mother, I don’t know what it is, she just is, has got the worst luck. She’s been in at least six accidents in the last 15 accidents, all rear-ended by someone else at their fault and her carrier has still continued to cover her, because they understand it wasn’t her fault, but she seems to have a knack for being at the wrong place at the wrong time.
GRETCHEN: And sometimes, it’s the incident. It’s not how many at fault tickets you have or at fault accidents. It’s the incident rate. If you typically have one accident every year or one accident every six months, the insurance company tends to wonder what are your driving habits. Why do people keep slamming in the back end of you, so they question that, so you need to be careful, not only what things you are at fault for, but what incidents you are involved in?
JIM: We’re talking about accidents and things like that. I’m sure that has a tremendous impact and claims have a tremendous impact on what you pay in premiums. What are some of the other factors that might impact how much I pay or how little I pay when it comes to insurance premiums?
GRETCHEN: Well, insurance companies incur the same cost as you and I do, and some of those are increasing medical cost. If you’re involved in an accident and you injure someone, what are medical costs, a stay at the hospital, an emergency room, getting, you know, broken bones, getting stitches, those kinds of things, so partly again it’s based on medical cost, auto repair cost, labor and parts. Every year, those go up. What are they? Inflation, adjusting claims – you’ve got claims adjusters you’ve got to pay for, you’ve got estimators out there. Those costs keep going up that’s reflective on your insurance policy. Financial history; how you manage your finances; that can follow you from the minute you have a credit history on.
JIM: Now, just to comment on that, Gretchen, I didn’t realize until you shared it with us about the credit report actually could have an impact on your premiums. We’ve had people on this program who talks about interest rates that you pay for a home mortgage, getting car loans, your credit cards, all those things and we’ve seen the clients before where they say, well, you know, I’m going to save the stamp and pay my bill next month, but that can have such an impact and far reaching, even right down to your car and home owner’s insurance, right?
GRETCHEN: Absolutely. It’s how you manage your finances. The financial history that an insurance company uses is very, very different than a lending institution. We are more concerned with do you pay your bills on time or are you chronically late? It is going to have an impact on it. It’s how you manage your finances, how much available credit you have, those kinds of things, so always, always if possible, pay everything on time, start to get a good credit history and then of course your insurance costs are less as well.
TONY: Hey, let’s say that last, most frequently asked question for what is probably a very misunderstood type of coverage: what is umbrella insurance?
GRETCHEN: Umbrella insurance is above everything underneath it. For example, you’ve got home insurance, you’ve got auto insurance, you’ve got snowmobile insurance and one of those horrific claims have happened and you max out the limits of liability on your policies, your umbrella is on top of that. It’s over and above, and it protects your estate and your assets – so umbrella policies are available, typically starting at 1 million on up – they are not expensive, and if you don’t have one, you should at least talk to your insurance professional, get a quote, find out how it protects you and most likely, purchase one.
JIM: You know in our state, wrongful death is an automatic payment. There’s no debating or getting attorneys or defending; it’s a 500,000 per child, 350 per adult – so if you take out a soccer mom that’s carrying three, four kids in the vehicle and they all get killed, you’re talking multi millions of dollars and a lot of times people say, well, I don’t have assets, what I do worry about? Well, if you have income, they can garnish wages and what I’ve always explained to people, what insurance companies will do is if they already know that you’re at your policy maximum, no defending will lower that bill, they’re just going to pay it out and not spend a dime of legal defense costs. If you have an umbrella, and they feel they can debate some room between what your umbrella coverage and what the liability could potentially be, that insurance company will more than likely stay on your side and invest in those legal defense costs, because it can save them money, so it’s a real important thing to think about and talk about. I think that’s probably one of the most important coverages that most people go without, because it is misunderstood.
GRETCHEN: I agree with you, Jim, and also remember those caps. They’re not on pain and suffering, and typically, when you have one of these horrific claims, pain and suffering comes into play, so remember the cap is not on injury or the pain and suffering, so that’s something to keep in mind. Again, in today’s society, anybody can be sued for any reason and if even if their suit is not justified, you have to pay legal defense costs, so why not shift that cost onto the insurance company versus your pocketbook?
TONY: Well, and you really should match, then, your liability protection with what your assets are worth and what your exposure is, so don’t be surprised if your insurance professional wants to know what you’re worth, because they then know what to cover. If they’re asking what the value of your home is, but they’re not determining all the other toys that you have, then they could be missing important coverage that should be in place. I know that many times people think a million dollar umbrella, but that’s on top of your underlying limit, so it layers it on top – so if I have a $500,000 underlying limit, my umbrella is on top of that for 1.5 million; is that correct?
GRETCHEN: That’s correct, and then it’s the same thing as your home owners. If you have 300,000 on your home owners, you have 1.3; if you have snowmobiles, it’s on top of that. If you have a boat, it’s on top of that, so that one umbrella policy is literally on top of every single one of those other types of policies.
TONY: So if you haven’t had that discussion yet with your insurance professional about how an umbrella could benefit you, either ask them or get advice somewhere else, because at least it should be discussed when you’re doing analysis of your own personal circumstances. Gretchen, this has been a wealth of knowledge, we could probably go another hour at least, but that’s a great reason to invite you back.
GRETCHEN: Thank you, Jim and Tony.
JIM: Thanks for joining us this week and tune in again next week as we explore another phase of the Real Wealth process and remember, if anything you heard in today’s show, you’d like to get more information about, contact your Prism Insurance Agency Advisor. Also, if you feel that any of this information would be helpful to a friend or family member, just click the forward to a friend button.