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Category Archives: Insurance Fine Print

INSURANCE FINE PRINT: NOT All Personal Auto Policies are Created Equally!

04 Mar

Fine PrintWhen shopping for car insurance many tend to look for the lowest price they can find.  TV and radio ads fill the airwaves luring people to change companies based on lower premium cost or saving money.   

With anything you buy, it is wise to be certain you are receiving the “best value” for the money you spend.  But even “best value” means different things to different people.  When it comes to insurance, it means lowest premium price for some.  For others it means finding the best possible coverage and, for others, it means the best combination of the two.  

The difficulty with insurance is that you’re not buying something shiny and nice; you’re not buying anything that gives you bragging rights, nothing to enjoy on a nice day, or to show off to your friends.  What you are buying is a contract – a packet of paper that is a promise to pay in the event certain types of loss occur.  It should provide you with security and the knowledge that it will protect you should catastrophe strike. 

“So…why not shop for the lowest price?  After all, all auto insurance policies cover the same types of loss, don’t they”?

That’s true – for the most part.  The law requires all Michigan Auto Insurance policies to include residual bodily injury and property damage liability, personal injury protection, and property protection insurance.  Insurance companies also offer optional coverages like comprehensive, collision and a host of other things.  The question isn’t always what they cover, but how the coverage applies.  You have, no doubt, heard the phrase, “the devil is in the details”.  Car insurance is no different.  There are some “behind-the-scenes” things lurking within the policy wording that vary from one policy to the next – things that aren’t on the declarations page and certainly are not obvious…that is, until you experience a loss that your insurance company does not cover and another may have. These seemingly subtle differences buried within the Insurance Fine Print can cost you a lot of money should the right (or should we say, wrong) set of circumstances come your way.

But first, a little lesson on “Understanding your Michigan Auto Insurance Policy 101”.  Trying to read and understand any insurance policy can be frustrating unless there is a basic understanding of how a policy is constructed.  A typical Personal Auto Policy is divided into at least six major sections (Liability Coverage, Medical Payments Coverage, Uninsured Motorists Coverage, Coverage for Damage to Your Auto, Duties After an Accident or Loss, and General Provisions).  Each coverage section is almost like its own little policy within a policy and each has its own insuring agreement, definitions and exclusions.  It is important to know which section is being discussed to understand how coverage applies. 

With that said, this article focuses on how Personal Auto Policies can vary with respect to the way they address certain types of business uses of a vehicle – how not all auto insurance policies are created equally!  We’ll begin by saying that, with very limited exception, vehicles used in the course of business are not eligible to be insured on a Personal Auto Policy.  A Business Auto Policy may be a better fit because language in the personal auto policy could leave a person completely without insurance if a vehicle is being used outside of the policy’s boundaries.  This is not something you want to learn after the loss!

For purposes of our comparison, we examined the Personal Auto Policy from six Michigan insurance companies.  Five out of the six policies contain the following exclusionary wording in the Liability Coverage section: “We do not provide Liability Coverage for any “insured” for that “insured’s” liability arising out of the ownership or operation of a vehicle while it is being used as a public or livery conveyance.  This exclusion (A.5.) does not apply to a share-the-expense car pool.”  In insurance lingo, a “public” auto is a vehicle used to transport people for a fee. Taxis, limousines, airport shuttles, buses are examples of public autos.  The term “livery” is a broader – it includes the use of a vehicle for the transportation of people or goods.  Stated another way, when money is received for moving people or goods from one place to another, the vehicle should be covered by a Business Auto Policy.  On the other hand, if a vehicle is used only to get you or the tools of your trade to the place where you earn money, you are probably OK with the Personal Auto Policy.  There may be other considerations, but this should act as a good rule of thumb. 

Do you ever volunteer for your church or other non-profit organization where you may give someone a ride to the airport, pick up people for church or give a fellow member or a friend a ride to a doctor’s appointment? If your policy contains wording like the above, it is possible that you might not have coverage while using your car for this purpose!  Some of the policies we reviewed (but not all) have modified the above exclusion to allow for this type of vehicle use by adding the following words:  “…or to use the insured car for volunteer or charitable purposes or for which reimbursement for normal operating expenses is received.”  Another company adds even better wording by saying: “…nor does it apply when the vehicle is used for non-remunerative volunteer or charitable purposes or for which the person is reimbursed for normal operating expenses.”  At first glance, this whole exclusion may sound trite.  But the fact that it contains an exception for a cost-sharing car pool or, in some cases, volunteer work, should be a clear indication that it is intended to apply in a wide variety of circumstances.  Imagine being involved in a serious accident while volunteering and being sued for an enormous amount of money only to learn that you have no coverage.  That could certainly ruin your entire day!

Now… think of this.  Have you or someone in the household ever had a paper route and used the family car to make deliveries?  Have you ever thought of taking a job delivering sandwiches or pizza?  You may want discuss this with your insurance agent before taking that job.  Many insurance companies interpret these uses of a vehicle to be “livery”.  In these examples you are being paid for driving which makes this commercial use of your vehicle.  One very popular insurance company takes this exclusion a step further to make their intent crystal clear.  The exclusion in the liability section of their policy says:  “Coverage under this Part I, including our duty to defend, will not apply to any insured person for bodily injury or property damage arising out of the ownership, maintenance or use of any vehicle or trailer while being used to carry persons or property for compensation or a fee, including, but not limited to, pickup or delivery of magazines, newspapers, food or any other products.  This exclusion does not apply to shared-expense car pools”. 

The wording for these exclusions was taken from the Liability Coverage section of the policies but it is important to note that similar exclusions also appear in each of the other coverage sections throughout the policy.

The whole point of writing this article is to emphasize that not all Personal Auto Policies are the same.  Much lies within the “Insurance Fine Print”.  When shopping for auto insurance, price should not be the only deciding factor.  Our advice is to work with a knowledgeable Independent Insurance Agent that can find the policy best suited for your particular circumstances and needs. 

Insurance Planning Service is an independent insurance agency offering a full range of insurance products – auto – home – business – life – health – to individuals, families and businesses throughout Michigan.  Call or visit us on the web today for a quote on your insurance!

734.421.9900  |  800.220.5582  |  www.ipsagency.com

 
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Posted by on March 4, 2012 in Auto, Insurance Fine Print, Uncategorized

 

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INSURANCE FINE PRINT: Vacant Homes

13 Sep

Homes are for sale or rent along most any street you travel on these days.  Many times, the owner has moved out of the home, leaving it vacant.

People are often unaware of the built-in limitations in a homeowner’s insurance policy that automatically kick in when a home is vacant.  They can leave you very disappointed should a loss occur and your claim is denied!  Understanding these limitations before vacating can save you money and aggravation!

First, let’s discuss some vocabulary.  Being “unoccupied” and being “vacant” are two different things when it comes to insurance.  Neither of these words are specifically defined within the homeowner policy, but are generally understood to mean:

Unoccupied – the home is fully furnished, but no one is living there at the time.  An example might be a person who owns both a primary home here in Michigan and a home or condo in Florida.  Part of the year they live in the primary home and part of the year they live in Florida.  Both homes are furnished to the extent they can be lived in and function as a normal home.

Vacant – all or most of the personal property has been moved out and the home is not considered livable.  In other words, leaving a couch and a lamp with a timer in the home is generally not adequate to be considered “not vacant”.

When a home is vacant, risk of loss increases substantially.  If the insurance company’s underwriter becomes aware that the home they are insuring is vacant, they will likely not renew or even cancel the policy.  Premiums charged for a homeowner’s policy simply do not contemplate this increase in risk.

So, why tell the insurance company?  After all, if they don’t know, they won’t cancel. I have paid the premium, I will have my policy, and all will be fine, right?

Not necessarily so!  Here’s where the “Insurance Fine Print” comes in.  According to the standard ISO homeowner’s policy (ISO form HO-3), in the event of vacancy, coverage for glass breakage stops.  Coverage for vandalism and malicious mischief stops.  Depending on the specific version of the HO-3 form in your policy, coverage for these causes of loss can stop after 60 days or even 30 days of vacancy.  In addition, in the event of either vacancy OR unoccupancy, there is no coverage for freezing of plumbing, heating, air conditioning, fire protective sprinkler systems or household appliances unless certain precautions described in the policy are met.  There is no 30 or 60 day time-frame specified in the policy for freezing.

Insurance policies differ and not all use the ISO forms mentioned here.  The key is to read and understand your policy so you know how it works and you know your responsibilities.  If your home becomes vacant, we recommend purchasing specail insurance designed for vacant homes.

Insurance Planning Service is an independent insurance agency offering a full range of insurance products – auto – home – business – life – health – to individuals, families and businesses throughout Michigan.  Call or visit us on the web today for a quote on your insurance!

734.421.9900  |  800.220.5582  |  www.ipsagency.com

 
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Posted by on September 13, 2011 in Home, Insurance Fine Print, Uncategorized

 

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INSURANCE FINE PRINT: Coinsurance

22 Aug

Many commercial property insurance policies contain a coinsurance provision within the policy conditions.  Be Coinsurance 80/20sure not to confuse coinsurance in property insurance with the coinsurance found in a health insurance policy.  With many health insurance plans, you are responsible for meeting a deductible, then you and the insurance company ‘co-insure’ the loss (often 80/20 where you pay 20% of the claim amount and the insurance company pays 80%) until a specified amount is paid, and then the insurance company pays 100%. 

Coinsurance in a commercial property insurance policy works very differently.  Understanding how it works can save premium dollars, but failing to comply with it can cost you a lot of money.

The way coinsurance works is described precisely in the “additional conditions” section of the standard property insurance form (ISO CP-0010) along with some examples.  We’ll try and explain it here in layman’s terms.

Common coinsurance options are 80%, 90% and 100%.  The percentage selected determines the amount of insurance needed in order to meet the policy’s coinsurance conditions.  For example, if the cost to replace your building is $500,000, choosing an 80% coinsurance limit means that you need to purchase at least $400,000 of insurance.  Similarly, choosing a 90% coinsurance limit means you need to purchase $450,000 and $500,000 if a 100% coinsurance limit is selected.  See how easy that is?

Here’s how it works:

Example #1:  Let’s go back to the building above with a replacement cost of $500,000.  You purchase a policy with an 80% coinsurance clause and a $1,000 deductible.  You insure the building for $400,000 and a covered loss causes $100,000 of damage to your building.  Since you have met the coinsurance condition, the insurance will pay your complete loss, less your deductible, or $99,000.

Example #2:  You have the same building as above and your insurance policy still has an 80% coinsurance limit and a $1,000 deductible.  But this time, you think that you would never incur a loss for more than half the value of your building and you’re willing to place the odds in your favor.  You overlook theCoinsurance What? coinsurance condition in the policy and insure your building for $250,000 to save a few premium dollars.  Now, that same pesky $100,000 loss occurs and your insurance company pays $61,500 – a little bit less than you expected.  What happened?  Did that big, nasty insurance company just rip you off?  Not at all – they were following their part of the deal.  The coinsurance condition of the policy was violated because the amount of insurance was less than 80% of the building value and, when that happened, you became a co-insurer with the insurance company.  In this example, you bought only 62.5% of the insurance you should have, so the insurance company paid 62.5% of the claim. Ouch!

A simple formula is used to determine the settlement amount with respect to coinsurance:

Amount of insurance carried
—————————————–     X    Amount of the loss – Deductible = Amount Paid
Amount of insurance required

If we plug the numbers from Example #2 into the formula, it looks like this:

$250,000
————–     =  .625  X  $100,000 = $62,500 – $1,000 = $61,500
$400,000

The bottom line is this:  As long as the amount of insurance purchased is sufficient to meet the coinsurance limit in your policy, the only time you become a ‘co-insurer’ is when the amount of the loss exceeds the amount of insurance in the policy.  The kicker is that, if the amount of insurance is less than the amount required to meet the coinsurance limit, you become a ‘co-insurer’ even on a partial loss.

A question you might ask is:  Why choose to increase the coinsurance limit from 80% to 90% if that would require you to purchase more insurance?  There are two reasons:

1) 80% is the standard coinsurance limit.  If the coinsurance limit is increased from 80% to 90%, it means you need to purchase a higher amount of insurance to meet the coinsurance conditions, but the rate charged for each $100 of insurance is discounted making the cost of the additional insurance minimal. 

2) The policy will not pay more than the limit of insurance.  In the example above, if you purchased $400,000 to insure a $500,000 building and it were a total loss, only $400,000 would be paid and you become the coinsurer for the amount above your policy limit.  Increasing the coinsurance limit enables you to buy more insurance at a lower rate.

Some helpful pointers…

1)  Determine an accurate value of your property because everything hinges on this figure.

2)  Regardless of the coinsurance limit you choose, consider insuring your property to its full value.  This will build in a cushion that can help to prevent a coinsurance penalty in the event the value of your property was estimated too low or unforeseen costs creep in after the loss.  Plus, keep in mind that the calculation of your property’s value and the coinsurance is always done at the time of loss…not at the time the insurance is purchased! 

3)  Settlement amounts can vary due to policy provisions other than coinsurance - such as deductibles, type of valuation (replacement, ACV, etc.), exclusions, limitations and other policies conditions.

4)  Talk to your insurance agent to make sure you understand how coinsurance works, know the coinsurance limit in your policy, and always purchase an amount of insurance that will satisfy the coinsurance conditions in your policy.

5)  Coinsurance provisions can be avoided completely if your business is eligible for a “Business Owners’ Policy” (BOP). A BOP doesn’t usually contain a coinsurance condition.  If not eligible for a BOP, talk to your agent about changing the valuation provision in your policy to “Agreed Value” which will suspend the coinsurance conditions.

Insurance Planning Service is an independent insurance agency offering a full range of insurance products – auto – home – business – life – health – to individuals, families and businesses throughout Michigan.  Call or visit us on the web today for a quote on your insurance!

734.421.9900  |  800.220.5582  |  www.ipsagency.com

 
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Posted by on August 22, 2011 in Business / Commercial, Insurance Fine Print, Uncategorized

 

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INSURANCE FINE PRINT: Vacant Buildings

27 Jul

In today’s economy, it seems that empty offices, stores and industrial buildings are everywhere and marked by signs advertising that the property is “For Sale”, “For Lease”, or “For Rent”.  The building’s owner or tenant can be in for a very unpleasant surprise should peril strike during this time!

While specific language differs a bit from policy to policy, most contain a built-in vacancy provision that is similar to the wording in ISO form CP0010. In short, during vacancy, certain causes of loss are not covered at all and payment for a cause of loss that is covered will be reduced.  This can come as real blow – but it can be avoided!

First, understand the definition of “vacancy” as it is used within your policy.  The CP0010 defines “vacancy” as: 

  1. When the policy is issued to a tenant, a “building” means the unit or suite rented or leased to the tenant.  The “building” is considered vacant when it does not contain enough business personal property (contents) to conduct customary operations.
  2. When the policy is issued to the owner or general lessee of a building, “building” means the entire building, and the “building” is considered vacant unless at least 31% of its square footage is (1) rented to and used by a tenant to conduct its customary operations, or (2) used by the building owner to conduct customary operations.

Second, understand the “vacancy provision”.  If the building where loss occurs has been vacant for more than 60 consecutive days, there is no coverage for vandalism, sprinkler leakage (unless protected against freezing), glass breakage, water damage, theft or attempted theft.  Then, if a covered cause of loss occurs that is other than these that have been excluded, the amount normally paid for the loss will be reduced by 15%.

The logic for restricting coverage is that buildings that are vacant for extended periods are more vulnerable to vandalism and arson, partly as the result of only occasional maintenance and security oversight. 

So, what can be done?  Contact your insurance agent as soon as your building is vacant as defined by your policy.  Ask to have a Vacancy Permit Endorsement added to your policy in order to suspend or waive the restrictions imposed by the Vacancy Provisions in the policy.  In essence, this endorsement allows the insurance company to charge an additional premium to address the increased exposure and problems are avoided!  If your insurance company will not offer the Vacancy Permit Endorsement, another option is to move your insurance to a company that specializes in writing insurance for vacant properties.

Insurance Planning Service is an independent insurance agency offering a full range of insurance products – auto – home – business – life – health – to individuals, families and businesses throughout Michigan.  Call or visit us on the web today for a quote on your insurance!

734.421.9900  |  800.220.5582  |  www.ipsagency.com

 
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Posted by on July 27, 2011 in Business / Commercial, Insurance Fine Print, Uncategorized

 

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