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 say they are independent businesspeople–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 businesspeople 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 businessperson. 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 auto 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.
Life & Health Insurancedanwu.bmsd2021-03-02T08:22:24+00:00
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 be fatally injured. Thus, depending on your personal circumstances, one potentially excellent way to protect you, your family and even your business is to acquire disability insurance. In essence, disability insurance provides a “backup” income if you are temporarily out of work. Most disability insurance plans are somewhat 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.
Insurers frequently award lower rates to homeowners who guard against theft, accidents and other losses. And companies may provide discounts to premium for multiple customers (home and auto). 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.
Purchase your auto and home insurance from the same company.
What kinds of records are needed to substantiate a homeowner claim?
It is recommended 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 does the location of the home impact my insurance premiums?
Some areas have more crime than others. Weather can be a greater concern in some areas. Access to water (in the event of a fire) can be a concern. Insurance companies use statistics to weigh out the risks for a location and determine a cost associated with it.
Some wonder why their home insurance keeps going up if they haven’t had any losses. This is because insurance is based on the concept of pooling all policy holder money together and using these funds when a claim is paid out. There are several factors that have been impacting rates.
Weather has been a key factor. Weather related losses have been rising every year in both severity and frequency. This has resulted in far more significant home claims. If there are a lot of losses in an area, this will impact everyone’s insurance cost. In recent years there have been very large losses happening across the United States. Everyone is impacted by these weather events.
When a large weather loss event occurs the supply and demand go up. When a large hailstorm happens, there are many people in need of repairs. This will then create an inflated cost for repairs. Material and labor costs will both go up in that area. The result is that the insurance company is paying a much higher cost and that is then passed on in our insurance cost.
Credit – Your insurance score has gone down and this will make your insurance premium go up. Insurance companies believe that your credit score is a predictor of your likelihood that you would file a claim.
Are all homeowner policies the same?
No, they are not all the same. All home policies will at least meet a minimum amount of coverage, but there can be very big differences from company to company. Most people when comparing companies look mainly at the value of the home and the deductible. The tough part about homeowner insurance is that the differences can be in the fine print. What coverage should you ask about? Here is a list of coverages that may be additional cost, included or not available at all. When obtaining a quote, they should be asked about to determine if they are included.
Guaranteed Replacement Cost on the Dwelling
This coverage used to be pretty standard with a homeowner policy. Today, many companies are no longer automatically offering it. This coverage will guarantee that your insurance company will pay whatever the cost is for rebuilding your home if it was completely destroyed even if it is more money than your home was insured at.
Replacement Cost on Personal Property
This coverage would pay the amount to actually replace your property at current market. If you have a 50-inch TV and it is five years old, they would settle the claim based on the cost for a brand new 50-inch TV.
Sewer Back Up
This coverage is defined as water that rises in your home from drains or plumbing fixtures (such as sinks or toilets). It is normally excluded on a home policy but many companies offer it at an additional cost.
This includes earth movement. This is normally an add-on to a policy and not automatically included.
Ordinance of Law
This will take into account changes in building codes. If your municipality had changes in their code, they may require that these changes be adhered to when a home is being repaired. This can be costly for a homeowner if they do not have this coverage.
Identity Theft is on the rise and it can be both expensive and time consuming to deal with. This coverage provides assistance with correcting the records.
This can be really important for a homeowner that is part of a home association. If the home association has a covered loss and they assess all members a part of that loss, this coverage will take care of this.
This provides coverage for any structure that is not attached to your house (such as a detached garage, shed or fence).
Loss of Use
Loss of use is the coverage that is used to pay for all the additional expense associated with having to live somewhere else due to a covered loss. If you are not able to live in your home while it is being repaired, you will have many additional expenses. This coverage can pay for things like rent, electric, transportation and storage. When considering a home policy, these coverages should all be considered and discussed. They can make a big difference in your claim result.
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 homeowner’s 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 auto garages, auto 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’ve read that employees are suing their own companies for discrimination, wrongful termination, and 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 buy insurance coverage called Employment Practices Liability Insurance or EPLI. This insurance protects your business from employees’ allegations against you and your business. Especially important is the legal defense aspect of the policy, because the legal bills can often be higher than the amount of the claim itself.
Be sure to talk to your insurance agent about available discounts on car or auto insurance such as: multi-car, renewal, claim-free, student discounts, driver training, defense driver course, anti-lock brakes, air bags, anti-theft devices and auto/home discounts. Ask how much you can save by increasing your deductibles.
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 auto insurance policy declaration page lists the coverages you have selected.
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.
When renting a vehicle, should I buy the insurance coverage offered by the car rental company?
It may not be necessary to purchase the insurance from the rental company. In many cases your personal auto policy would already provide you with this coverage. Talk to your agent to confirm that you would have this coverage.
If my car is in the shop and I need to rent a temporary vehicle, is the rental car covered on my auto insurance policy?
Rental car coverage is only for vehicles that have been in an accident, not for cars experiencing mechanical failure.
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 auto policy unless they have their own auto insurance elsewhere.
Who is usually covered under an auto insurance liability policy?
An auto 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.
Report the loss to your insurance agent as soon as possible, providing date of loss and description.
Take photos 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.
Auto / Car
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.
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.
Provide for immediate medical services as required by workers’ compensation law.
Contact you 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 auto 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 should I do in the 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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