When should I shop my auto insurance? Have you ever asked yourself that question? The rate, or premium, you pay for your auto insurance should be based on what kind of driver you are, right? If only it were that simple. Understanding how your auto insurance premium is calculated can be a complicated subject and our agents make it easy to understand.
You’ve heard about Replacement Cost Home Insurance before but what is it?
Replacement Cost is something that you need to pay very close attention to. It will literally make the difference of thousands or tens of thousands of dollars with your claim payout.
Replacement Cost is not Market Value. People like to think “my home is worth $xxx,xxx so that’s what I should insure it for”. Well, you aren’t insuring your home against not being able to sell it. You’re insuring it in case you have to replace or rebuild your property. Replacement Cost values follow the current costs of labor & materials while Market Values are based on the supply & demand economics of your local real estate market.
Let’s talk first about how property insurance works.
Property Insurance Basics and Perils
When we talk about property insurance we are talking about protecting your tangible property. This means your home, other structures on your property, and all of your personal property that you have inside your home. Now, think about what kinds of things could damage or destroy your property? You’re probably thinking about things like fire, water, wind, theft, etc. Those are what insurance policies call perils and your policy will explain exactly which perils you have protection against. If you aren’t sure, give us a call and we’ll help you make sense of your policy, whether you’re our client or not.
You’ve had a loss, now what?
So, if one of these perils pays you a visit, and it’s not excluded by your policy (flood & earthquake are common exclusions, for example), you may consider making a claim against your home insurance policy. Our clients ask us all the time whether or not they should file a claim and whether or not the policy is going to cover the claim.
First of all we explain to them that, as their agent, we are not the one that has been trained to settle (adjust) claims. The claims adjuster from the insurance company is the only one that can determine whether or not your loss will be covered by the policy and authorize payment. The other thing to consider is the deductible. Personally, I probably wouldn’t file a claim if I expected the loss to be less than 2x my deductible, but that’s a personal preference and every household is unique.
What will my policy pay me for my loss – Replacement Cost vs Actual Cash Value
Your Home Insurance policy hopefully has Replacement Cost coverage. Again, if you aren’t sure, check with us and we’ll let you know. To understand how Replacement Cost Home Insurance works let’s first talk about Actual Cash Value.
A standard home insurance policy likely covers your losses on an Actual Cash Value basis. This is a simple equation:
ACTUAL CASH VALUE = COST NEW – DEPRECIATION
So, the claims adjuster is going to apply a depreciation factor to your damaged or lost property. This is going to be based on the age of the property and the condition and will be determined at the time of your loss.
Actual Cash Value example
If your home was built in 2007 (10 years ago at the time of this blog post) and your washing machine upstairs has a fixture that breaks while you’re away on vacation. You come home to water everywhere.
Now, look at the picture and think of what kinds of repairs you’re going to have to start making. Your walls, paint, baseboards, flooring, and electrical outlets will all need to be repaired or replaced. For these repairs your contractor is going to use new building materials, but your damaged property was 10 years old. Actual Cash Value is only going to pay the value of your 10 year old property, not the cost of new materials. Trust me, this is not how you want your claim to be settled.
Replacement Cost Home Insurance – the winner
In our water damage example, if you have Replacement Cost Home Insurance, your policy will pay the cost of the new materials that will be used to replace or repair your damage. You are replacing the old with new.
Replacement Cost examples are easy when you think about things like TVs, furniture or clothing. If you have a renters insurance policy and someone breaks into your home and steals your 5 year old 50″ TV you will want to go replace it with another 50″ TV. The question is do you want to go on to Craigslist and find a used, 5 yeard old 50″ TV like the one that was stolen, or would you rather go to a store and buy a new TV? I know what I would rather do.
You may not get all the money up front
Most Replacement Cost Home Insurance policies are not going to just write you a check for the full amount needed to replace your lost or damaged property. The claims adjuster wants to make sure that your claim payment is actually going towards replacing your property and not that Disney Cruise vacation you’ve been planning for years.
So, the claims adjuster will first pay you the Actual Cash Value of your property. Then, when you can show proof that you have replaced the property, they will pay you the difference. What this usually means is using your savings or a credit card to replace your property and then replenishing your savings or paying off your credit card with the Replacement Cost payment that will come after you have replaced your property. You see, if you aren’t planning to replace the property then why should your insurance policy pay you to replace it.
What is the Best Contractor Insurance in Las Vegas, Nevada?
If you’re a contractor in Nevada, you’re going to have to carry at least 2 types of insurance. We make sure you have the right coverage in place with the best insurance company for your contracting company. [Read more…]
Nevada DMV fines drivers with no insurance
This isn’t new but it’s worth discussing to remind drivers how our DMV verifies auto insurance and what the consequences are if you have no insurance for any period of time while your car is registered. Fines range from $250 – $1,751
If you’ve ever driven around Las Vegas, or any other growing city, you may have noticed that sometimes you’ll be driving down a road with 2-3 finished lanes in each direction when all of a sudden the traffic merges down to a single lane. Then you notice that you’re passing another vacant desert lot that has yet to be developed by its owner. This has to do with the off-site development of that vacant lot. Off-Site Improvement Performance Bonds help this kind of construction actually get off the ground.
I’m pretty confident that if you asked anyone who has ever owned a rental property you would get an overwhelming response that it’s not as lucrative or easy as they thought it would be. In fact, owning a rental property can be a major pain, and end up costing you a ton of money!
I certainly don’t mean to be a “Debbie Downer”, and I know that if it’s done right it can be lucrative, but from an insurance agent’s perspective, I don’t see a lot of people doing it right.
So you’re probably thinking, “Well Chris, you are an insurance agent. What do you know about real estate or rental properties? Why should I take advice from you?”
I’m not a real estate agent, and I don’t own a rental property. However, several of my friends/family/clients/co-workers own rentals, and because I insure a bunch of their properties, I’ve had a first hand account of the process, and I’ve learned what to do, and what not to do.
I was recently asked this question by one of our clients, and thought I would share the answer here for our readers.
There are a lot of things that go into homeowners and auto insurance rates, one of them being credit. I’ve heard a lot of complaints from people who don’t like the fact that insurance companies use credit in their underwriting.
Some people have absolutely no idea that it’s used in the rate at all.
At the end of the day, there’s not much we can do about it though. Insurance companies have been using credit in their rates for decades, and that’s not likely to change.
By the way, insurance companies don’t pull your credit like a mortgage company or credit card company does. There is no negative impact on your credit as a result of an insurance company looking at it.
When I say “pull” what I mean is that the insurance company is doing what’s called a soft inquiry, which is not the same thing as having your credit pulled (hard inquiry).
When does credit play a role in insurance rates?
It’s important to understand that insurance companies don’t continuously check or monitor your credit. Usually, they only check it when you first get a quote and/or sign up with them in the very beginning.
This means that if your credit score increases (or decreases) your insurance company does not automatically know about it.
So, to my customers question of whether or not his increased credit score will lower his rates, the answer is not automatically.
What has to be done on our side as the agent is contact the carrier the insurance and ask them to do what’s commonly referred to as a “re-score”. This is when the insurance company can re-run the person’s credit (soft inquiry) to see if there is any positive bearing on the rate.
This isn’t something that the insurance company is going to let the agency do every single year, so it’s not worth even asking unless there has been a significant change in your credit score, and only you as the customer would know if that was the case.
If you’d like to get a better handle on your credit rating, it could be helpful to setup credit monitoring. We hope this was helpful! As always, leave us comment below if you have any questions.
Why do my auto insurance rates keep going up even though my car is getting older? At Advance Insurance, many of our clients ask this question so I would like to address it from a couple of angles.
First things first, even though it’s called car/auto insurance, it covers more than just your car. It should technically be called “auto-owners” insurance, similarly to how home insurance is actually called “home owners insurance”.
It’s important to understand that there are a lot of variables that go into insurance premiums, and with auto insurance, it’s no different.
The insurance company is much more concerned with you crashing into someone and causing them (or yourself) bodily harm, or death, than they are about your car. A car is a material possession which can be replaced.
A human life is not.
When is the last time you looked at your auto insurance policy?
If you look at it you’ll notice there are a lot of different coverages on your auto policy.
Bodily injury liability
Property damage liability
Loss of use
These are all things that you are covered for on your auto policy. How many of them have to do with your car?
How many of them have a price next to them on your policy?
All of them.
Your car isn’t the only thing you’re being charged for on your policy
That’s because auto insurance covers far more important things than your car as mentioned above.
Let me re-phrase that: your car insurance rate isn’t just based on your car.
You’re not the only one…
It’s also important to understand that you are not the only person your insurance company insures. You are one fish in an ocean of other fish, sharks, and sea creatures, all who have different characteristics and risk profiles.
Insurance is all about spreading costs over a large number (risk pool) of people, which each person paying their fare share. That risk pool is constantly changing, and is impacted by a ton of different things, including the overall economic climate.
This means that you are sharing in the cost of millions of other people, many of whom may have poor loss history and/or credit.
That’s what insurance is though — sharing in the cost.
The next time your auto insurance rates go up, take a look at the big picture. Make sure you’re looking at ALL of the coverages, and corresponding rates.
Hope this helps! If you would like to know more about Car Insurance be sure to visit our page dedicated to it.