FAQ About Property Insurance

  • What should my agent ask and tell me about property insurance, and what should I ask and tell my agent? Most reputable agents will ask you details about yourself and the item or business to be insured, and will try to gauge your needs and your budget. They will have an arsenal of products available to offer you but most likely will try to sell you only what they think you need. The more information you can give the agent about yourself or your business, the better he or she will be able to focus on what you need. Property insurance policies are highly regulated by the states, so don’t be afraid that you won’t get a “good” policy. All policies are “good,” but they won’t all cover the same items for the same amount of reimbursement; they can vary greatly, so be careful, and read all the specifications. Ask your agent leading questions about the contract and make sure that you review all the details, limits, exclusions, and dollar amounts of the policy you are buying.
  • Do I need property insurance? If you own a vehicle, boat, or mobile home — or own or rent a house, condo, apartment, or any property associated with a business — you will need property insurance in order to alleviate a financial loss if any of these properties are damaged or burglarized. Certain property insurance is required by a lending institution when a new car or home is financed or mortgaged so that the lender’s monetary risk is covered. Most states have laws that require, at minimum, a limited auto liability insurance policy when a person is operating a vehicle. Some states require a form of workers’ compensation insurance if a business owner hires staff, to cover medical costs for injured employees as well as the cost of replacing the injured person’s income. Most business owners will also purchase business liability insurance to limit their exposure to lawsuits against the business in the event of injury to a person on the business property.
  • Is property insurance expensive? Like any insurance, pricing and rates depend on what specifically you are insuring, the risks involved, the value of the item, and how much and what type of coverage you wish to obtain. You can purchase a liability-only auto insurance policy (that pays a limited amount for the other person’s damage if you cause an accident in your auto but that doesn’t cover any damage to your vehicle) for much less money than a complete replacement value with high liability limits policy. A business owner can purchase a property insurance policy with bundled coverages that are comprehensive and fairly inexpensive but that have limited liabilities and general dollar amounts; or the owner may purchase separate policies with higher dollar limits and more listed coverages, which will most likely charge higher premiums than the bundled policies. Talk to your business insurance agent about your various options.
  • How does property insurance work? The main components of property insurance are the item to be insured, the contract for insurance listing the perils to be covered, and the amounts available for reimbursement in the event of a covered loss or damage. For identification, the item is described in detail (a home’s city plat address, an automobile’s VIN number) on the insurance contract’s declaration page, which also contains the purchaser’s or policyholder’s personal identification. The declaration page will also list the type of coverage (i.e., homeowner’s all perils policy), the dollar limits per line of coverage, any deductible responsibilities of the policyholder, and the premium amount. The contract will outline all the details of coverages, limitations, exclusions, and procedures for filing a claim, and include contact information and details about how to file an appeal if a claim is denied. As long as the premium is paid and received on time, the policy is in force. In the event of a covered loss or damage, the policyholder may file a claim with the insurance carrier, asking for reimbursement of the repair or replacement, according to the contract benefits. Carriers can differ significantly in their claim procedures, but most states have rules and laws in place that require carriers’ timely responses to claim requests.
  • How do I determine how much property insurance I need? First, determine the items or business details to be insured and assess the value of the items. Next, determine if you want insurance coverage reimbursement to be for a fair market value or for replacement value. Replacement value insurance is always more expensive than fair market value coverage, but a replacement value policy pays to replace the damaged or stolen item with a similar item, even if the replacement cost is higher than the fair market value. You should also determine if liability or umbrella coverage is also needed, particularly if the insurance is to cover the property of a business, or to protect the assets of the business and/or the policy owners.
  • What is the minimum for property insurance? Most states have laws that regulate minimum automobile and homeowners’ insurance coverages, to protect the purchasers and to make certain that the customers are obtaining a policy deemed by the state to be the least amount of coverage allowed by statute to be sold by a carrier within a set type of policy. Typically, minimum-coverage policies do not completely cover all perils or reimburse totally; therefore, a prospective purchaser should carefully review the options when buying a minimum policy. Minimum-policy statutes vary significantly by state; however, an experienced agent can review and detail the limits required by your state and offer affordable options within your budget.
  • Does property insurance have to be with the same company as my other insurance? No, it does not. In many cases, the best health or life insurance carrier may not be able to offer many options for your property insurance policy. Whenever purchasing any insurance policy, the best suggestion for all consumers is to obtain quotes and options from a variety of carriers and agents, and to review and compare policy details versus cost. Always do your research on both the carrier and agent thoroughly, in order to be certain to obtain the best benefits for your needs. However, many carriers will discount policies if multiple types of insurance are purchased and may also give discounts to returning customers. Many purchasers of auto and home property insurance bundle these two common policies together from one carrier.
  • What questions will my agent ask me when I call? An agent will always begin the conversation with asking your name, if you were referred to him or her and by whom, and what type of insurance you are seeking. Next, the agent will ask for details about the property (auto or boat, home or house, business or business property) that you need to insure. You will need to have the address for the property as well as its physical information (i.e., the age of the property or when it was constructed, type of construction and roof, number of rooms or square footage) handy. When the policy is requested for a business, the agent must determine the type of business or business classification that will be used for the quote, so you may be asked details about your business activities. For vehicles, boats, or mobile homes, you will need to disclose where the property is garaged and the approximate value of the property. You should be able to tell the agent the current replacement value of the property (excluding land values for real estate but including any improvements to the property), particularly if items are unusual, antique, or expensive to replace. Some carriers will also ask for personal and financial details, since the premium rates that they will charge may be affected by your credit scores, claim history, and driving record.
  • What does the rating system mean, and how can I find out how my insurance company is rated? All large insurance companies are independently rated by a number of ratings companies. A.M. Best, Standard & Poor’s, and Fitch Ratings are three of the more highly respected ratings companies that research and review insurance companies and their financial strength. Most insurance companies list the ratings received by at least two ratings companies with each quote that they release. If your quote does not show these ratings, the ratings companies’ websites list all insurance carriers that they have rated, along with their ratings and general standards for the ratings. If your carrier is not listed, it may be that it is too small to be rated or has not agreed to disclose financial details to the companies to be rated. Ratings illustrate the carrier’s financial strength, debt rating, claims-paying ability, and the reviewers’ opinions of its creditworthiness. The different ratings companies have similar rating standards, but their ratings are not listed identically. An A rating from one company can be the same as a B rating from another with similar standards. Since the recent downfall and bankruptcy of insurance giant AIG, which enjoyed consistently high ratings from all ratings companies while experiencing significant financial losses, standards for review are being scrutinized and tightened to protect the public.

Last Updated: 08/20/2013

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