|
Part One
Can Someone Explain
These Automobile Coverages?
 A driver who's unlucky or careless can maim or kill other
persons and severely damage or destroy property. This deadly potential is a primary reason for having auto insurance. In fact, most states have versions of financial responsibility laws which require proof that you are
financially able to pay for any damage that you may cause while driving. Insurance policies are the most common method of complying with these laws. More specifically, drivers are typically required to carry liability
insurance at some minimal limit which varies by state.
Bodily Injury Liability
This covers damage or injury that you may cause to other persons. The key
is that it involves your being held financially responsible for injuries to other persons as a result of the way you operated your car. This coverage does not apply to your injuries.
Property-Damage Liability
This covers damage that you may cause to the property of others. The key is that it involves your being held financially responsible for property you
may damage or destroy as a result of the way you operated your car. This coverage does not apply to damage to your property.
Uninsured motorist coverage
The limits and coverage details also vary widely by state. It typically pays for your expenses that result from an accident caused by an uninsured
driver. Now be careful with this coverage. An uninsured driver must be the one who is responsible for causing the loss. "Uninsured" is typically defined
to include a person who has no insurance; a person who can't be located ("hit and run drivers");a person who has insurance, but their insurance
company is financially incapable to provide coverage; plus other situations which may be considered to involve an "uninsured" motorist. IMPORTANT: The amount of protection under this coverage may depend
upon state law. Payment under this coverage part may be controlled by the limits mandated by the state's financial responsibility law. Or, a particular
state may have specific uninsured motorist legislation that dictates what limit or limits must be offered to insurance consumers. In some cases, a
consumer may choose to reject the coverage. Typically, the rejection must be in writing.
Underinsured motorist coverage
Although the coverage concept is similar to uninsured motorist, this coverage is for injuries caused by a driver who is inadequately insured.
Basically, it operates as excess insurance, paying for your expenses which
exceed the amount of insurance protection available from the other
driver's policy. For example. you are seriously injured by a person who carries a bodily injury liability limit of $25,000. Your injuries amount to
$50,000. Your Underinsured Motorist Coverage limit is $100,000. If the loss circumstances qualify for coverage per the policy's underinsured
motorist provisions, your policy would pay the difference between $25,000 and $50,000, or an additional $25,000.
Remember that this is merely an introduction to complex policy coverages.
Be sure to contact your agent for detailed insurance information.
Please watch for Part Two of this topic which discusses other, typical auto policy coverages.
Top of Page Part Two
Can someone explain these automobile coverages? Here we continue our brief discussion of typical coverages found in an auto policy. Be sure to see Part One of this topic.
Cars are expensive to buy and repair and their high cost is a strong incentive for protecting them. If you borrowed money to buy your car, the
lender was likely to make certain that you carried comprehensive
(increasingly referred to as "other than collision") and collision coverages to
pay for any damage to the vehicle.
Collision coverage
This covers damage to your own vehicle. The damage has to be the result
of your vehicle running into (colliding with) another object, such as
other vehicles, trees, light poles, mountains, etc.
Comprehensive or Other Than Collision coverage
This also covers damage to your own vehicle. The damage has to be the result of a specific cause of loss. Although causes of loss may vary by
policy, some common causes include fire, theft, hitting an animal, vandalism, earthquake, flood or hail.
Remember that both Collision and Other Than Collision coverages are
subject to deductibles. A deductible is merely the initial dollar amount of
a loss which is paid by you, the policy owner.
Personal Injury Protection or Medical Expense
This coverage, the available financial limits, and the exact details of how such coverage operates vary by state. The coverage typically handles
medical expenses for injuries to you, your passengers or people who are "around" you. It is usually a "per person" limit. It may also cover you
and members of your household if you, as a pedestrian or while riding a bicycle, are struck by an automobile.
Towing and Labor coverage
This coverage is to help pay for your costs to deal with a disabled car. It could help pay for the car to be towed to a service station or for any
repair that occurs at the location of the car's breakdown. Again, this coverage is for labor and not the cost of any necessary parts. Typically the
available coverage amount is minimal (often between $25-$50).
Rental reimbursement
This coverage reimburses you for the expense of renting a car as a temporary replacement. The car being replaced must be an insured car
that's unavailable for use because of that car being damaged or destroyed due to a covered cause of loss.
Remember the above information only touches upon some typical auto
insurance issues. It's always wise to contact your agent and discuss your
coverage questions and needs in detail. If you missed it, please see Part One of this topic which discusses other, typical auto policy
coverages.
Top of Page Part One
Can someone explain these homeowners coverages If you take the time to read your homeowners insurance policy, you should
find at least six different sections of coverage. The names of the coverages may vary by insurance company, but they typically are referred to as Dwelling, Other Structures, Personal Property, Loss of Use, Personal
Liability and Medical Payments coverages. These coverages are usually presented as sections of the policy and are often labeled Coverages A through F. In Part One, we discuss coverages A, B, and C, which protect property
Coverage A--Dwelling
The homeowner policy's first coverage section protects your house and any attached structures, such as garages, decks or fences. The typical policy
covers your home when it is damaged by most common hazards (also referred to as perils or causes of loss) including fires or storms.However, the following causes of loss are usually excluded from coverage under the
homeowners policy:
- Earthquake
- Flood
- Faulty maintenance
- Damage from insects or vermin
- Wear and tear, gradual damage or deterioration
Coverage B--Other Structures
This coverage section protects structures that are not attached to the home,
such as a detached garage, storage or utility shed, playground
equipment and swimming pools.
Coverage C--Personal Property
This covers your possessions, whether they are at your home or away with you on vacation. Personal property is often covered on a named peril
basis. This means that only the causes of loss listed in the policy section are covered. The coverage is also subject to limitations and
exclusions. Types of property having significant value, such as jewelry, fine
arts, collectibles, etc., may require special protection. Talk to your
agent about scheduling (adding ) coverage on a floater which broadens and extends coverage for higher value possessions.
Actual Cash Value vs. Replacement Cost
Coverage under sections A and B is usually granted on either an actual cash value or a replacement cost basis. Actual cash value is defined as
replacement cost minus depreciation. Replacement cost is the actual cost to replace the structure, regardless of depreciation. Check your
policy to see which type of coverage you have. Coverage under section C
is usually provided on an actual cash basis. However, your agent may
be able to add replacement cost to your possessions just like that found in Coverage A.
Remember that this is merely an introduction to complex policy coverages. Be sure to contact your agent for detailed insurance information.
Please watch for Part Two of this topic which discusses other, typical
homeowner policy coverages.
Top of Page
Part Two
Can someone explain these homeowners coverages
Here we continue our brief discussion of typical coverages found in a homeowner policy. Be sure to see Part One of this topic.
In Part One, we discussed the homeowner policy's main sections for
protecting the buildings and structures you may own (and which are used
for residential purposes).. In Part Two, we discuss coverages D, which is also a property coverage; as well as coverages E and F which involve
injuries to people.
Coverage D--Loss of Use
This provides reimbursement for the cost of additional living expenses while
your home is being repaired due to a covered cause of loss.
Additional expenses normally include food, housing, and transportation. However, the expenses must exceed what your family normally incurs.
Coverage E--Personal Liability
This section provides coverage if you are found legally liable for causing property damage or physical injury. Protection includes paying for your
defense costs and any resulting judgment for covered incidents. Check with your agent for specific coverages since certain incidents are
excluded from coverage.
Coverage F--Medical Payments
This coverage provides immediate rapid reimbursement for small injuries to guests in your home. This coverage does not apply to resident
members of the family. For example, if your child and your neighbor's child are both slightly injured while playing and need to go to the
emergency room, this coverage will pay for your neighbor's expenses but
not for your own child. Keep in mind that most coverages are subject
to a deductible and have conditions and exclusions.
This is a brief overview of homeowners insurance. All of the coverage
provided by the homeowners policy is subject to various limitations such
as exclusions, policy limits, basis of coverage and deductibles. Further, the policy has a number of other conditions and duties which affect
coverage. It's important that you discuss the details of coverage and any other insurance questions with your insurance agent. If you missed it,
please read Part One of this topic which covers other typical homeowner coverages.
Top of Page
Jewelry, Furs, Guns, Silver and Goldware, Fine Arts, Antiques and
Other Expensive Stuff. Certain property is subject to special limits of insurance.
The following property is limited only for the cause of loss THEFT.
- $1,000 for loss by theft of jewelry, watches, furs, precious and semiprecious stones.
- $2,500 for loss by theft of silverware, silver-plated ware, goldware, gold-plated ware and pewterware. Included in this category are platedware, flatware, hollowware, tea sets, trays, trophies and the
like, and other utilitarian items made of or including silver, gold or pewter.
- $2,000 for loss by theft of firearms.
Coverage can be increased for THEFT by one of three ways:
- With the Coverage C Increased Limits Endorsement you can increase theft coverage for any or all of the above items. This endorsement increases limits for theft only. It does not improve the
coverage to risks of direct physical loss. With jewelry there is one more limitation loss of a stone from its setting is not covered.
- With the Scheduled Personal Property Endorsement you remove items from coverage under the basic homeowners policy and place them in a new risks of direct physical loss contract. Each individual
item is scheduled or listed and a value is attached to that item. That value is the most that will be paid in the event of a total loss. In the
case of jewelry, guns and furs, insurance companies have vast buying power and can normally replace the article for far less than the retail value and will probably do so. However, if the limit of insurance is
not enough, you can't go back to the homeowners policy for more coverage. The limit of insurance is usually established by an appraisal. The description of the item in an appraisal is usually
transferred to the policy as a very effective way to help the insurance company find a replacement for you after a loss. Appraising valuables every few years is an excellent idea. Jewelry, furs and guns
are covered world-wide. An additional feature of the Scheduled Personal Property Form is that it gives up to $10,000 coverage for newly acquired property in the same class of property that you have
coverage now. Thus, if you have jewelry scheduled, but not guns, there would be up to $10,000 coverage for newly acquired jewelry, but not guns.
- The third option is to cover the item(s) under a special Inland Marine property floater. This kind of coverage is available from insurance companies who specialize in high valued homes and expensive
collections. Considerations such as residential alarm systems, vault storage and special overseas coverage may be necessary for expensive articles. Your agent will know when to recommend a specialty coverage.
Special Considerations for Fine Art
Fine arts are pictures, statuary, sculptures, collectibles, antiques and other items that do not fit into standard personal property definitions. The
problem is value. Personal property is normally
covered at actual cash value - replacement cost at the time of loss, less depreciation for use
and wear. Replacement cost can be provided by the Personal Property Replacement Cost endorsement.
The following have limits for ALL causes of loss, not just theft:
- $200 on money, bank notes, bullion, gold other than goldware, silver other than silverware, platinum, coins and medals.
- $1,000 on securities, accounts, deeds, evidences of debt, letters of credit, notes other than bank notes, manuscripts, passports, tickets and stamps.
- $1,000 on watercraft, including their trailers, furnishings, equipment and outboard motors. (Purchase a boat insurance policy to provide the coverage)
- $1,000 on trailers not used with watercraft. (Purchase an auto insurance policy to provide the coverage)
- $2,500 Business Property on the residence premises. (Can be increased by endorsement) (Not covered in Dwelling Fire policy)
- $250 on business property off premises. (Can be increased by endorsement) (Not covered in Dwelling Fire policy)
- $1,000 for loss to electronic apparatus in a car. (This includes cellular phones. Can be increased by endorsement.) (Not covered in Dwelling Fire policy)
- $1,000 for loss to electronic apparatus while away from the residence premises, used solely for business purposes. (Can be increased by endorsement) (Not covered in Dwelling Fire policy)
Coverage can be increased by one of three ways:
- With the Coverage C Increased Limits Endorsement you can increase theft coverage for any or all of the above items. This endorsement increases limits for theft only. It does not improve the
coverage to risks of direct physical loss. With jewelry there is one more limitation - loss of a stone from its setting is not covered.
- With the Scheduled Personal Property Endorsement you remove items from coverage under the basic homeowners policy and place them in a new risks of direct physical loss contract. Each individual
item is scheduled or listed and a value is attached to that item. That value is the most that will be paid in the event of a total loss. In the
case of jewelry, guns and furs, insurance companies have vast buying power and can normally replace the article for far less than the retail value and will probably do so. However, if the limit of insurance is
not enough, you can't go back to the homeowners policy for more coverage. The limit of insurance is usually established by an appraisal. The description of the item in an appraisal is usually
transferred to the policy as a very effective way to help the insurance company find a replacement for you after a loss. Appraising valuables every few years is an excellent idea. Jewelry, furs and guns
are covered world-wide. An additional feature of the Scheduled Personal Property Form is that it gives up to $10,000 coverage for newly acquired property in the same class of property that you have
coverage now. Thus, if you have jewelry scheduled, but not guns, there would be up to $10,000 coverage for newly acquired jewelry, but not guns.
- The third option is to cover the item(s) under a special Inland Marine property floater. This kind of coverage is available from insurance companies who specialize in high valued homes and expensive
collections. Considerations such as residential alarm systems, vault storage and special overseas coverage may be necessary for expensive articles. Your agent will know when to recommend a specialty coverage.
Top of Page What If I Run An In-Home Business? Do You Operate An In-Home Business
If you do, be aware that a typical homeowners policy is NOT designed to
insure many in-home businesses. The premium that is charged for homeowners coverage assumes that the insurance protection is for one- or two-family residences and related buildings and structures which contain
personal property and are used accordingly. Therefore, a homeowners policy won't provide:
- Liability coverage for customer slips and falls.
- Property damage coverage to business property you own or that is in your care or custody.
- Products Liability (for things you make).
- Professional liability (for services you promote or provide).
- Personal injury liability (libel, slander, false arrest, wrongful eviction).
- Defense coverage if you are sued for business activities.
- What About Coverages For My Employees Or "Other Structures"?
Generally, a standard homeowners policy does not provide workers compensation coverage for any employee who is required or has the option to be covered under a workers compensation law.
There is no coverage for detached garages, barn, or similar "other structures" on your residence premises if they are used in whole or part for business.
Example: You store $3,000 worth of equipment and supplies that you use in your job in your garage and the garage burns down. The fire loss to the garage becomes ineligible because of its partial business use.
What IS Covered By A Homeowners Policy?
Generally a homeowners policy does provide limited coverage for business-related exposures. One commonly used policy offers the following:
- $2,500 coverage limit for business personal property kept at the residence premises.
- $250 coverage limit for business personal property kept away from the residence premises.
- $2,500 for landlord's furnishings at the residence premises while in apartments rented to others. (The coverage doesn't include theft and other specified causes of loss.)
One option for improving your coverage for an in-home business is to add endorsements which may do the following:
- Increase the coverage limits for business personal property.
- Cover garages and other buildings that are rented to others.
- Cover electronic business equipment that can be used in a vehicle while this equipment is AWAY from a vehicle.
- Provide limited theft coverage for landlord's property.
- Cover up to $2,500 of personal property for a daycare operated in a home including limited liability coverage.
- Cover condominium unit owners' liability for damage caused by renters.
- Provide premises liability coverage (i.e. slips and falls by customers).
- Provide limited liability coverage for very small farms (hobby farmers).
Top of Page How Can I Preserve My Smaller Business? Where Small Businesses Are Vulnerable
In a small to medium-sized business, the death of a partner or key
officer/shareholder reduces the value of its business assets (as well as
legally terminates a partnership). In order to preserve the partnership assets, the survivors must liquidate the partnership with care. The
partnership's reformation must deal with different needs. Typically, the surviving partners wish to continue the business without the deceased
partner's heirs. The deceased partner's family is most concerned with
income replacement.
The death of a stockholder in a small, closely held corporation also creates a substantial risk of business failure. At best, the corporation may
face a serious loss of business, reduction in asset values and the loss of jobs.
All of the above consequences may be avoided with a carefully planned buy-sell agreement.
Buy-Sell Agreement
A popular method of keeping a business in operation after the death of a partner or a major officer/shareholder is the use of the Buy-Sell
Agreement (also known as a Business Continuation Agreement).
A typical buy-sell agreement between the partners allows the surviving partner to purchase the interest of the deceased in order to keep the
business operating and keep it out of the deceased's estate and probate. A buy-sell agreement stipulates that if one partner dies, the other
partner will have the right to purchase the deceased partner's share of the
business at a predetermined price or according to a specified
formula.
In a small business where money is often tight, finance is the critical piece of
the buy-sell scenario. The purchase of a life insurance policy is an
ideal way to fund the agreement.
For purposes of illustration, let's assume that we have two partners who
formulate a buy-sell agreement. In the formulation of the policy, they
agree that each will take out a $100,000 policy on the other. Their small corporation purchases the life insurance. Upon the death of one, the
other will have the money to pay to buy out half of the business.
Cross-Purchase Plans
If the two partners were to personally purchase the life insurance on the
other, the arrangement would be referred to as a Cross-Purchase Plan.
Let's assume for a minute that we have multiple partners. If we have six partners and try to do a cross-purchase plan, then each partner would
own 5 policies on the other partners for 30 total policies. While this may be a life insurance salesperson's dream, it certainly isn't a practical
arrangement. In this situation, we would be more likely to use the entity agreement. In an entity agreement, the partnership owns life insurance
on each partner, and the partnership agrees to purchase the share of the business that belonged to the now deceased partner. This requires 6
policies rather than 30.
The Advantages
While the life insurance premiums are not tax deductible, the proceeds are not subject to federal income tax. Further, a funded buy-sell agreement offers other advantages, including:
- A fair market value for the business is established
- Funding ensures that the surviving family is financially compensated
- The agreement legally binds the partners
- Each partner's interest in the business is determined
- The partnership gains greater security
- The employees' jobs at the business become more secure
- The money is available to implement the agreement
It's extremely important to involve both an attorney and an accountant when arranging a buy-sell agreement since the written terms vary with the
structure of the business. Term Life Insurance...The Basics Term life insurance provides a death benefit only. It does not build cash value.
Three Types of Term Insurance
Annual Renewable Term
Death benefit remains level. Premium increases annually since there is an increased likelihood of death.
Level Term
Both the death benefit and the premiums remain level for a predefined period of time; usually, five, ten fifteen, or twenty years.
Decreasing Term
The death benefit decreases each year even though the premiums remain level. This type of term is often used to cover a mortgage or other
loan with a decreasing balance.
Characteristics of term insurance
- Low cost in the beginning
- Premiums increase over time
- Can help to meet specific short-term needs.
- Has no cash value
- Lasts a specific period of time…no more; no less.
Top of Page Cash Value Life Insurance - The Basics There are several different types of cash value life insurance policies from
which to choose. They are all designed to provide living benefits as well as the death benefit.
The principal objective of cash value life insurance is the same as with term
insurance: to create an immediate estate should the insured die. The cash value in the policy can also be accessed through loans or withdrawals for emergencies or other needs. It is important to remember that loans or
withdrawals of a policy's cash value will reduce the policy's death benefit.
- Whole Life Insurance
- Universal Life Insurance
- Variable Life Insurance
Whole Life Insurance
Whole life insurance offers a number of guarantees made by the issuing insurance company. The following are typically guaranteed with whole
life insurance:
- death benefits
- cash values
- level premiums
Sometimes dividends are also guaranteed.
Whole life insurance can be a good tool for long term life insurance needs.
Characteristics of Whole Life Insurance
- Tax-deferred growth of cash value
- Cash values are guaranteed
- Premiums are guaranteed
- Can withdraw or borrow cash value
- Dividends are tax free
Universal Life Insurance
With a Universal Life policy, both premium payments and death benefits can be flexible, within limits.
When premiums are paid, part of the premium goes to pay for the term insurance and part of the premium is put into a side fund upon which
interest is paid.
If the premium paid is not enough to cover the cost of the insurance, the additional amount needed is taken from the side fund.
The policyowner has a number of options with regard to premium
payments. Within limits, premiums can be adjusted up or down. Premium
payments can also be skipped entirely if there is enough cash value in the policy to make the payments. Also, the death benefit of the policy
may be adjusted up or down. However, a request to increase the death benefit may require proof of insurability (such as updating some health
questions or even submitting to a physical examination)
Characteristics of Universal Life
- Tax-deferred growth of cash value
- Interest rates are competitive
- Access to cash value through loan or withdrawal
- Premiums are flexible
- The policy's death benefit may be adjusted (higher or lower)
Variable Life Insurance
Variable life insurance is a flexible life insurance product that is offered by a prospectus.
Variable life insurance has a term insurance foundation and an investment fund. The policyowner gets to choose which type of investment
vehicle in which the cash value will be placed. The following are types of
investment vehicles from which the policyowner can choose:
- Money Market Account
- Corporate Bond Portfolio
- Common Stock Portfolio
- Government Securities
- Fixed Account
Insurance agents must be properly licensed to sell securities in order to sell variable products which are sold by prospectus. Be certain that you
CAREFULLY read the prospectus before purchasing any variable product. |
