Archive for January, 2010
Why do I need auto insurance?
This is a common question often asked by many younger drivers just starting out on their journey down the road. Mostly the question is prompted by the expense of having to have auto insurance without truly understanding the immediate and future protection that it offers. Once a driver understands the reasons it is definitely easier to accept.
Reason number one is because as a member of the driving community you need to be responsible for any injuries or damage that you may cause to another’s property or being. This aspect of insurance is commonly referred to as liability coverage.
Reason number two is that if you’re driving an auto that is financed by a bank or some other financial institution they require that you protect their interest. This is called Comprehensive and Collision coverage. This insurance comes into play when you either have “bad luck” or you were just being a bad driver.
Reason number three is if someone else hits you and your car and they don’t have any insurance or may be under insured then you will probably want someone to pay you for your losses. Since the driver at fault has no insurance to pay you then you will want your insurance to pay. This concept is much more easier to grasp for many. This coverage is called “uninsured motorist” and “under insured motorist”.
These three reasons usually are the core of why people purchase car insurance in addition to the reality that having auto liability insurance is the law. Of course auto insurance laws vary from state to state but nonetheless the reasons set forth above are a good place to start.
What is the “Limit of Insurance”?
Insurance is always a little bit tricky to understand and when it comes to auto insurance it certainly is no different. For example there are typically 13 exclusions in a Business Auto Policy that should always be understood, however, at the end of the day regardless of the number of covered autos, insureds, premiums paid, claims made, or vehicles involved in an accident the most the insurer will pay on any auto policy will be the limit of insurance shown on the declarations page.
One thing to note is to always be sure that you are comfortable with your limit of insurance as this is the bottom line of what your auto insurance will pay when everything is tallied up.
What is Symbol 8 on my auto insurance?
Symbol 8 represents “hired autos” only. These are autos that the named insured either leases, hires, rents, or borrows. Symbol 8 gives the insured coverage for rented or leased autos during the policy period. Although this will save the insured premium dollars, there are other things the risk manager needs to know concerning the use of symbol 8.
For example let’s take a look at the Gartner Company. The company risk manager explains that the company does not own any autos, but does rent autos every once in a while, and even requires employees to use their own cars on company business. Jeff, the risk manager explains that the company’s current auto policy uses symbol 1 to describe covered autos and as a result has a very expensive premium because of the broad coverage. Jeff the risk manager asks how to lower the premium and still have appropriate coverage.
Max which is Jeff’s agent then explains both symbols 8 and 9 and how this can protect the company while reducing the cost of insurance.
It is important to note that under symbol 8 autos leased, hired, rented, or borrowed from any of the named insured’s employees, partners, members of a limited liability company, or members of their households are not covered.
Symbol 8 is only applicable when the named insured rents, leases, or hires an auto whether at an airport or any other car rental business. Remember that if an employee is on company business and rents a car in his or her own name, symbol 8 will not apply.
Lastly, it is very important to understand that a hired auto is one that is not owned by the named insured!
What is Symbol 1 on my auto policy mean?
Symbol 1 on a auto policy signifies “any auto.” The significance of this coverage symbol for example could be the Kennedy Company, which buys insurance coverage for its auto exposures. Bob, the president of the company, favors a comprehensive approach and thinks any auto that the company owns, hires, borrows, or uses in its business should be insured in order to protect his company from financial loss. The company treasurer notes that the company acquires new autos occasionally, but he does not always have the time to report these new cars to the insurer thus creating an exposure.
In order to handle the request of the insured, the insurance agent for the Kennedy Company uses symbol 1, “any auto”. Symbol 1 meets the comprehensive approach that Bob wants. And, it doesn’t need any correspondence to the insurance company every time an auto is acquired. The BAP covers such autos automatically under symbol 1 for the remainder of the policy period.
Auto Insurance Definitions
Business Auto Glossary
Accident:
An unforeseen and unplanned event on the part of the insured.
Appraisal:
The process by which the amount of physical damage loss on a covered auto is decided.
Collision:
The covered auto’s collision with another object or its overturn.
Comprehensive Coverage:
Any cause of loss except collision.
Concealment, Misrepresentation Or Fraud:
Actions on the part of the insured that allow the insurer to void coverage.
Coverage Territory:
The U.S., its territories and possessions, Puerto Rico, and Canada.
Covered Pollution Cost Or Expense:
Any cost or expense arising out of any request, demand or order demanding that the insured cleanup or respond to the effects of pollutants.
Deductible:
The amount that the insured is responsible for in the event of a loss.
Designated Insured:
A certain person or organization scheduled as an insured on an endorsement for liability coverage.
Designation Symbol:
Any of nine numerical symbols used on the BAP to designate a covered auto.
Diminution In Value:
The loss of value for a damaged auto after that vehicle has been repaired.
Direct Loss:
Auto physical damage loss that does not include loss of use of the auto.
Drive Other Car Coverage:
Insurance coverage for the driver of an auto that is not owned by either the driver or the named insured.
Drive-Away Contractors:
An individual or company hired by an auto dealer to drive cars from point A to point B.
Duties Of The Insured:
The list of steps the insured must take after a claim or loss to assist the insurer in settling the claim or loss.
Exclusion:
Sets out certain circumstances under which liability coverage is precluded.
Hired Autos:
Autos that the named insured leases, hires, rents, or borrows.
Insured:
Any person or organization qualifying as an insured in the who is an insured clauses of the BAP.
Leased Worker:
A person leased to the named insured by a labor leasing firm.
Limit Of Insurance:
The most the insurer will pay for the total of all damages and covered pollution cost or expense combined.
Loss:
Direct and accidental loss or damage to a covered auto.
Nonowned Autos:
Autos that the named insured does not own, lease, hire, rent, or borrow that are used in connection with the named insured’s business.
Other Insurance:
Coverage for the covered auto on another insurance policy.
Pollutant:
Any solid, liquid, gaseous, or thermal irritant or contaminant.
Private Passenger Auto:
A four-wheel auto of the private passenger or station wagon type, including a pickup, panel truck, or van not used for business.
Property Damage:
Damage to or loss of use of tangible property, in contrast to the direct loss definition.
Rolling Store:
A vehicle used as a mobile snack bar or lunch van, bringing products to customers.
Snowmobile:
A land motor vehicle that is designed for use on ice and snow and mainly off public roads.
Subrogation:
A right of the insurer to recover damages from another if the insurer has paid those damages for a covered loss.
Supplementary Payments:
Payments made by the insurer in addition to the limit of insurance.
Temporary Substitute Auto:
An auto not owned by the named insured while used as a temporary substitute for a covered auto owned by the named insured that is out of service.
Temporary Transportation Expenses:
Expenses incurred by the insured to rent or borrow a car because the covered auto has been stolen.
Temporary Worker:
A worker furnished to the named insured for a finite time period to supplement the regular workforce under special work situations.
What is RCV?
This is a great question to ask before deciding on the insurance that you are going to purchase. Whether you are needing car insurance, home insurance or commercial insurance, Replacement Cost Value (RCV) is critical in the settlement phase as this plays a very large roll in the amount that will be offered from the insurance companies.
So why is RCV so important? Simply put it’s the difference between replacing your insured items with new versus used. With RCV the insurance carrier will indemnify the policy holder with the amount of money necessary to replace the insured items at the new price. Without RCV or Replacement Cost Value, the items would be paid out at what it would cost if were to be bought on Ebay or at an Estate Sale.
The settlement dollar amount offered in most cases in a loss is significantly greater, as a result the premium for RCV is greater than ACV or Actual Cash Value. However the premium difference isn’t so much more where it is unaffordable in comparison to an ACV policy. Therefore RCV is typically more desirable when insuring anything if it is offered and affordable to the potential policy holder.
Be sure to check out the article on “What is ACV”.
What is Actual Cash Value?
This is a question all too often asked by those following a loss. Quite regularly the amount being offered by the insurance carrier is lower than what the insured expects. The insured’s quandary is that they may have stated a value at the inception of the policy but the amount paid is less, even on a complete loss. This obviously leads to frustration and even anger.
This is usually where Actual Cash Value or ACV comes into play. In essence when a policy or part of a policy is written as an ACV the amount that is being insured is subject to depreciation which then becomes the amount to be paid at the time of a loss. This is most regularly seen on auto policies and inland marine policies.
The ACV value is determined by what the object of insurance would have sold for at the time of loss. This takes into consideration the condition, age and any other relevant factors that would influence the price. This then in short becomes the Actual Cash Value and what is offered to the insured minus any deductibles that may apply.
If ACV was not in place on auto and inland marine policies the door for abuse would be great for those looking to make money. For example a car that is purchased for thirty thousand dollars depreciates the moment it is driven off the dealer’s lot. And, in five years the car’s value is probably half of what it was purchased for. If ACV wasn’t in force the insurance would have to pay the full value of thirty five thousand dollars at the time of a loss. This then would become more of a investment strategy than insurance which the purpose of is to indemnify. In other words the carrier insures “investment” values instead of objects.
Although ACV is used on various types of risk such as in Auto Coverage and Inland Marine or Floater policies it is not limited to such. And in other cases Replacement Cost Value (RCV) can be purchased, however this will be discussed in a later blog. It is important to note that insurance carriers at the time of rating always takes into consideration the actual age and value of any item and rates the item accordingly. So if the original purchase price on two autos costing thirty thousand dollars each, one that is one year old and one that is seven years old, even though the purchase price is the same the rate will be lower on the seven year old vehicle because the current value is obviously lower.
In closing when it comes to ACV it is important to know how your policy is written and if there are parts that are RCV and if there are parts that are ACV and understand how both work in different loss scenarios.
