Insurance Insider!

IT Business Owners, Heads Up!

2010-06-18T12:07:00.004-04:00

Well I'm going to change directions just a bit in this month's post. I'm going to venture into the sometimes enigmatic world of Commercial Insurance - specifically, Commercial Insurance for technology companies (e.g. information technology, software development, electronics manufacturing, etc.). I happen to have a particular interest in this category of business insurance because I worked in telecom (Cincinnati Bell Telephone) for several years and majored in engineering @ the University of Dayton (props to my alma mater).

I found out this morning that insurance companies now scrutinize IT business' web sites to confirm product & service offerings. If said products & services don't confirm to the submitted technology insurance application, the account is flagged by underwriting. Best case scenario, you are audited and the premium is automatically adjusted to reflect the "new" product and service listings. Worst case scenario, the underwriter (or auditor) doesn't particularly care for what he/she sees on a web site - regardless of content accuracy - and fires a cancellation notice off to the insured...immediately! The Agent/Business Owner team must then fight to re-instate the policy with much fan-fare (e.g. proof that the web content was outdated, erroneous, just for "effect," etc.)

Simple word of warning to all technology and IT business owners; if you're looking to fetch a solid, affordable technology insurance package, check out your web site. Is it up to date? Have you left any older, discontinued products or services on the site? Insurance companies can be weary of antiquated technology offerings (in many cases they simply have no way to calculate the risk and therefore reject coverage). Get 'er cleaned up and you avoid the risk of insurance cancellation due to these new audit processes being formulated by your insurance company.

TGIF! - Sean

I Need to Escrow My Home Insurance? What Does That Mean?

2009-09-16T17:51:00.019-04:00

Quick scenario; your closing on your first new home. You've saved for five years to make this dream a reality. Alas, you're thrilled to finally embrace the American dream. Amidst the excitement however, there is an element of anxiety; some nervousness. After all this is a significant amount of money you're about to throw down. After that handsome down-payment, cash is certainly running a bit thin. But you're confident, you've got all your ducks in a row; mortgage broker seems on the ball, real estate agent is prepared, bank has cleared the loan. Then your insurance agent calls and drops the hammer: "[insert name here], I put some numbers together for your home insurance - looks like it's going to run just north of $900 annually. Oh and buy the way, bank tells me you'll be escrowing the home premium so that needs to be paid in full before the end of the week. Just pop that check in the mail um-kay. Bye bye now, have a splendid day!"

Believe it or not, the escrow account - and dreaded pay in full requirement - surprises far more first time home-buyers than not. However, one can certainly understand the necessity for an escrow when dealing with home insurance. From the lender's perspective, they want to make sure the home has proper coverage. Without it, they risk losing the security (real-estate) on their loan to the borrower. Worst case scenario:

House burns to the ground, total loss
Borrower (homeowner) wasn't carrying proper insurance
The borrower "skips town" because he/she can't afford to rebuild
The bank is out any remaining amount owed on the mortgage (could be significant dollars)
Now imagine multiplying this scenario by 100's or 1000's of mortgages held by banks

To guarantee coverage (and continue sleeping well at night) lenders require that the home insurance premium is paid annually, at the beginning of the policy term. That's why the borrower must pay the full annual home insurance premium at closing. The escrow account comes into play when you begin making your mortgage payments. Each month, the bank includes 1/12th of next year's insurance premium in your mortgage payment. This amount goes into an escrow account (just a money repository) that builds throughout the year. When your next insurance bill comes due (typically one year after your closing), the bank will use the collected monies in the escrow account to make the payment. Insurance is then secured for another full year and the cycle continues. Furthermore, the lender has confirmed coverage because they paid the bill. With proper coverage, the insurance company is the one on the hook if the home burns; not the bank.

So please, when your friendly insurance agent comes to you with the unsettling news, ready to issue your new home policy, take it easy on him or her. He or she would gladly have you pay month to month, on your credit card if that's more convenient. Unfortunately, in many cases this scenario is impossible - lest we turn all of our friendly bankers into walking zombies from lack of shut-eye.

Best regards and happy borrowing! - Sean

Why must I insure a $175K home for $300K?!

2009-06-29T09:56:00.009-04:00

With the recent slump in the housing market and subsequent drop in home prices, I find myself addressing this question (title) more and more often. When we consider how the insurance amount is calculated, we realize why there may be a discrepancy between a home’s “market value” (what we paid) and a home’s “replacement cost” (what the insurance company uses).

Market value is quite simply the amount of money a buyer is willing to pay for a home. In the above example, the market value is $175,000. Replacement cost is the amount of money it will take to completely rebuild a home in the same spot, same size and quality of construction, at today's costs (i.e. cost of lumber, brick, concrete, dry-wall, labor, etc.). Insurance agents and companies conduct a replacement cost valuation analysis to calculate the amount of insurance required on your home.

You might ask, “How can replacement cost and market price be so different?” Let’s consider a simple example. A home purchased in a depressed neighborhood may have a market price of $140,000. The exact house, located in a nice suburb, may have a market price of $300,000; however, the cost to rebuild the house after a loss would be the same in either location. Insurance companies want homes insured for full replacement cost, not the current market price. Remember, they are going to pay to build you a new home, not buy one for you down the street.

Per the illustration above, while replacement cost is typically slightly higher than market value, it can sometimes be lower. Land value is not factored into the replacement cost calculation. So a home built in say, the Hamptons, may have a lower replacement cost than market price. (According to Long Island Business News, two acres of land in the Hamptons will run you upwards of $750K!).

When purchasing home insurance, consider how the insurance agent or company is assessing your home’s value. Also, when talking with your agent, be as specific as possible regarding: square footage, number of bedrooms, bathrooms, kitchen quality, basement furnishings, fireplace, etc. If they’re doing their job correctly, agents will use a valuation tool to generate the correct replacement cost for your home. The coverage amount and premium might seem high, but you’ll be properly insured. You don’t want to find out after a claim that your home coverage was inadequate!

Best! - Sean

How Do I Choose Auto Insurance Limits?!

2009-05-21T23:19:00.025-04:00

I recently introduced a comparative rater (quote your own insurance) on our web site. Since the launch we have had prospective customers use the site to get auto and home rate quotes from many of our affiliate companies. On the auto quotes, I have been relatively surprised at the range and variety of limits requested. Unfortunately I have discovered that most guests have a rather vague understanding of which limits are most appropriate for their life, or more specifically, financial circumstances.

I can certainly understand why folks are confused; what with the never ending myriad of ads on TV, the radio, in the mail - I saw an auto insurance ad in the john the other night! How can one make sense of all the noise? “Do I choose state minimum limits & save on premium?” “Is it worth buying some extra liability coverage or is that just throwing money in the – john?”

To begin, let’s start with the basics. Car Insurance liability limits are expressed as follows: ##/##/## or "Bodily Injury per Person "/" Bodily Injury per Accident" / "Property Damage (i.e. the other driver's car)". You’ll typically see companies or agents offering policies with limits “$25/50/25”, “$100/300/100”, etc. For readability purposes, the limits are represented in thousands. Therefore, in the latter of these examples, each individual you injure is owed up to $100,000 for medical expenses and the like; up to $300,000 per accident. Any property damaged is repairable up to $100,000.

Now to the important question; how much insurance is appropriate for me? Well let’s consider Ohio’s state minimum auto limits: $12,500/$25,000/$7,500. Are you comfortable with $12,500 per injured person? The following tidbit might help clarify the situation. According to the Agency for Healthcare Research and Quality (AHRQ), “the average price for an uninsured hospital stay in 2006 was $19,400.” As such, $12,500 isn’t exactly a windfall for an auto accident victim.

For a few extra bucks a month, I would posit $100/$300/$100 makes much better financial and moral sense. Also important to note, if someone is injured and the driver carries inadequate or no liability insurance, the injured party has every right to sue for recompense. If this were to occur, a judge would dictate adequate conciliatory arrangements which could include the withholding of future earnings or the seizure of assets. So, are minimum limits really worth it? If funds are super tight, maybe one or two fewer lattes a months would be a wiser sacrifice.

As an agent, I strongly encourage my insureds to secure, at a minimum, limits of $100/300/100. Again, for a few extra bucks a month, it's certainly worth it. In fact - and here's a kicker - some of our companies occasionally offer higher limits for less premium (depending on demographics and driving history). Yes, you could pay less for a $250/500/250 policy than you will for a $100/300/100 policy!

Well I hope I have clarified some of the confusion surrounding auto insurance & auto insurance limits. Also, getting a quote online or "kickin' the tires" is certainly an understandable exercise! I would give it a shot myself. But I would certainly recommend talking with a licensed agent before pulling the trigger on a policy. Better safe than sorry!

Happy Driving! - Sean