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Frequently Asked Questions about Insurance

Frequently Asked QuestionsWhile these questions and answers are not meant to replace a real discussion with your dedicated insurance consultant at The Right Choice Insurance Agency, the following commonly asked questions might satisfy some things you’ve wondered about insurance policies, coverage and limits.

Call TRC for more information on these and any other questions or click here to contact us.
 

FAQ Questions & Answers

What liability limit should I select?
That is a very difficult question to answer but typically you should choose a limit that provides you with the best protection against a catastrophe. Liability refers to someone suing you for bodily injury and/or Personal Injury, or paying for any property damage to another person’s property. You should always ask for options as the cost to increase liability limits for any policy (auto, home, business, etc.) may be a very small additional premium.
 
TRC Insurance Agency always recommends obtaining the highest liability limit that you can obtain. If you wish to lower your premium, look to increase your deductibles on your property insurance or comprehensive and collision coverage for your auto. Typically we recommend at least $300,000, $500,000 or $1,000,000 in liability limits and the purchase of an Umbrella Policy that provides for additional liability limits.

Is it true that if I buy low liability limits and I get sued, that I will only be responsible for paying what I have in insurance even if the person that sued me was awarded more?
That is not necessarily a true statement, especially if you have low liability limits. If the person is awarded more than the limits you are insured for, you may still be responsible for payment. The person suing you can request the judge award access to personal assets you have, garnish your wages, company stock or find other remedies to obtain the court awarded amount.

My agent says that I have an ALL-RISK policy. Doesn’t that mean that I am covered for anything that happens?
The simple answer is NO. There are three types of coverage forms for property coverage: Basic, Broad and Special. The best form to obtain is Special as it provides for coverage against most items except items that are specifically excluded. Typical exclusions would be flood, earthquake, insect/vermin, war, nuclear peril and a host of others. You should review the exclusions to understand what items are excluded.
 
The Basic and Broad forms define the coverage that the insurance company will insure against and are very limited. QWW generally recommends insuring on a Special form basis.

Is anyone who drives my car covered?
Typically anyone that you give permission to drive your car is covered if they are in an accident. There are some exclusions and it is always important to understand who is covered and when they are covered.

If my car is damaged, does the insurance company have to replace the damage to my car with Original Equipment Manufacturer?
In most cases the insurance company is ONLY obligated to replace the damaged parts with like kind and quality. That means that often times and in most cases they replace damaged items with what commonly is known as after markets parts or rebuilt parts, or other similar items. Some insurance companies now offer an endorsement that will provide for Original Equipment Manufacturer parts and not after market or rebuilt items. Again, check with your agent/broker to see if your insurance company will offer this coverage.

What is the difference between insuring on an Actual Cash Value (ACV) basis versus Replacement Cost (RC)?
Actual Cash Value (ACV) is the value the item(s) have after taking into account depreciation. It is commonly referred to as replacement cost minus depreciation. The depreciated amount is determined at the time of loss. If you insure on an ACV basis, the limit you insure for would be less than what you would insure for on a Replacement Cost basis. If you insure for lower limits, this would usually mean lower premiums. However, if you have a loss you may get substantially less in reimbursement than under a replacement cost policy. Even if you replace the item, if you have an ACV policy, you would have to pay the difference to actually replace the item.

I own a business. Do I need to have Workers’ Compensation coverage?
YES. If you have employees, you must have a Workers’ Compensation policy. The premium is determined by the payroll and classification for each employee. In most instances if the owner is the only employee, you would not need to purchase a Workers Compensation policy, although often times, businesses that you do business with may require you to purchase a policy if you want to do business with them. Also, in many cases if you are a small corporation, executive officers and owners have the option to be included or excluded under a Workers Compensation policy. If you exclude any of these people, you need to complete a form that you must sign agreeing that you are excluding all or some of the executive officers. Since every situation and business is different, we recommend that you check with the state to see if you need to have a worker’s compensation policy for your business.

How can I lower my insurance premiums?
For every person and business it’s important to understand the difference between what can sting and what can kill when it comes to lowering your insurance premiums. Sometimes agents advise you to take lower limits to keep your deductibles low. However, if you are at a $250 deductible and raise it to a $1,000 or $2,500 deductible does that sting or would it kill you?
 
If you take a liability limit of $100,000 instead of $1,000,000 and you are sued and lose the lawsuit for $1,000,000, would that sting or kill you? Most times it is not very expensive to raise your limits and conversely by increasing your deductibles, you could reduce your premiums significantly. QWW always recommends that you first consider increasing your deductibles to lower your premiums rather than lowering limits or deleting coverage that is important to running your business.

What is uninsured motorist and underinsured motorist coverage on my auto policy and what limit should I have?
These two coverage types can be confusing
  • Uninsured Motorist – this coverage allows you to collect from your insurance company what you would have been able to collect from an uninsured motorist that was at-fault and injured you or a passenger in your vehicle. This would also apply in the case of hit-and-run accidents that result in you getting injured.
     
  • Underinsured Motorists – this coverage allows you to collect from your insurance company the additional amount that was awarded to you if the at-fault driver that injured you or your passengers does not have enough coverage to pay the awarded amount. 
QWW always recommends that you purchase the same limit as your liability coverage. That means if you have $100,000 of Liability coverage, you can purchase up to $100,000 for uninsured/underinsured motorists coverage. It generally is recommend that you purchase the maximum amount that you are able to purchase.

I own a garage operation (Repair shop, Used Car Dealership, Collision Shop, New Car Dealership), what should I look for when buying insurance?
First and foremost you need to make sure that you have an Agent that specializes and understands your type of business. Your business has many different exposures than a retail store, restaurant or other business. All too often an agent is selected that doesn’t understand the differences so you may not be insured properly.
 
Because you have unique exposures, you will need to have a Garage policy instead of a General Liability Policy. A garage policy and the coverage offered are very different than a General Liability Policy.
 
There are many different exclusions in a Garage Policy that can be eliminated to provide better protection for your business. Additionally, there are many coverage types that must be specified so you are insured properly. As an example, a garage policy will exclude collision coverage for any vehicle driven more than 50 miles. If you want coverage for that, you would need to add a coverage called Dealer Drive Away Collision.
 
Many agents not familiar with writing insurance for your type of business do not know that as well as other coverage that should to be included in order to properly insure your business.

What is Building Ordinance/Law coverage and do I need it?
Over time the building codes may change. If you own your building prior to the changes, you typically do not need to upgrade your building to the new codes. In the event of a loss to the building, most communities now make you conform to the new building codes, which typically means more money. Although you may be insured on a Replacement Cost basis, a standard policy will usually only provide for a small amount of coverage for the additional cost due to building code upgrades. If you want to be protected against this type of potential loss, you should ask your agent what coverage you have under your business standard policy. A great question to ask is: Do any of the additional enhancement endorsements provide additional limits or do I need to purchase this coverage? Call QWW at 602.635.1567 for more information or to verify the answer your Agent provides.

Why do I need an Employment Practices Liability Policy (EPLI)?
Over the last several years we have seen a HUGE increase in employment claims against all-sized employers. It is estimated that 3 out of 5 employers have been sued for employment practices, whether justified or not. Discrimination and harassment can come in many forms. In many cases harassment isn’t intended but a joke, question, termination, or other related type of incident can cause an employer of any size to be vulnerable to a lawsuit from a current, former or potential employee.
 
In the current litigious environment, anyone can sue you even if there is no basis. Employment Practices Liability Policy (EPLI) will pay for defense costs even if there is no settlement paid.
 
Being that these are often taken “personally” by the employer, some insurance companies now offer the option to not settle a claim without the approval of the owner or CEO of the company. There are some limitations to this type of endorsement but QWW recommends that businesses always purchase an EPLI policy and make sure it’s from a company that offers the endorsement that won’t settle without the president or CEO’s consent.

What is the difference between an Independent Agent, Captive Agent, Direct Writer and others that write insurance policies?
Here is a brief explanation of the different types of insurance agents.
  • Independent Insurance Agent – like the ones at QWW, represents you the insured and typically has multiple insurance companies that they can access and place insurance policies through. They are not beholden to any one insurance company and have the opportunity to shop your policy requirements to different companies to obtain the best insurance program for you, taking into consideration everything from coverage and limits to exclusions and pricing.
     
  • Captive Agent – A Captive Agent typically represents the Insurance Company first as opposed to the customer since that is their only market to write insurance through.  As that insurance company changes their pricing and/or coverage, the Captive Agent will usually not have any alternatives for their customers. Yes, there are some Captive Agents that will place policies through an Independent Insurance Agent but they do not control your policy nor can they quote or place coverage with the insurance carrier. They must use the Independent Agent to do all quoting, changes and issuance of the policies. Most Captive Agents are typically well versed in personal lines more so than commercial lines.
     
  • Direct Writer – works for the insurance company and represents that insurance company. They get their direction from the insurance company as to how to sell and what to sell customers. They usually have very little say or “clout” when claims are being handled or in writing a policy as they have no other outlet than their employer, the insurance company. 

Note: Although certain agents may represent the insurance company first, based on their type of license, that doesn’t mean that they aren’t a good agent but rather there is a difference in the definition of responsibility for each type of agent.

Can’t I just purchase my insurance online or through a 1-800 number?
Sure you can, but should you? When considering purchasing insurance through an online resource, a 1-800 number, or with an out of state agent you should be extremely cautious. It’s important to remember that these methods of obtaining coverage is usually less personal—they will know very little about you or your needs. Often times you do not get the same level of service as you would with a live-and-in-person agent, and additionally may not get the same level of expertise that you would find locally. In the event of a claim you usually have to handle it yourself.
 
Further, when calling in for a question or for service, you will have deal with whoever answers the phone as you not usually assigned to one service person that would get to know you, your business or your needs. There is no face-to-face contact or personal service in these modes of buying insurance.

I am a small business with few employees. Why do I need a Cyber Liability Policy?
Regardless of the size of your business, your business’s electronic and paper data is at risk every day. Internal or external hackers or errors can compromise your electronic data and any paper data. Even technology experts will say that no one is ever 100% protected. Even “cloud based” businesses can be attacked.
 
Cyber attacks can happen to companies of any size. In fact, small business and mid-size business are most at risk for cyber attacks. In 2011, nearly 72% of data breaches occurred in companies with less than 100 employees.
 
For more information, refer to our Cyber Liability Insurance Page.

Why do I need to insure my home or building for more than what I can sell it for?
You typically have 2 options for insuring your home or building: Replacement Cost (RC) or Actual Cash Value (ACV). Remember though, to rebuild a home may cost more than the amount at which you can sell your house. If you insure for RC, typically the insurance Company will complete a replacement cost estimator based on the size of your home/building, the construction, additional features of the structure and other items that may be factored in when you replace your home.
 
If you insure for less than Replacement Cost, the insurance company may reduce what they pay to replace your structure by the percentage of what you should have insured for compared to the amount at which you actually insure.

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