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How To Navigate The Home Insurance Claims Process

Nobody wants to think about it, but damages to your home can happen. In fact, the average homeowner files a claim approximately every nine years. When you’re in the midst of a crisis, it can be difficult to think clearly. You’re worried about the future and how you’re going to get back on your feet. Luckily, having home insurance can help make the process a little less stressful.

Knowing the claims process, and steps to take after an accident or disaster can be incredibly beneficial. Knowledge is power in these situations; and the more you know, the better chance you have to get what you deserve from your claim, and do so within a timely manner.

Who is the Claims Adjuster?

The claims adjuster is the person working for the insurance company. They are the person who will evaluate your claim, looking at the damage incurred and what your policy covers. They will also decide how much your insurance provider will compensate you.

The adjuster plays such an integral role within your claim and it is important to work with them. You will be asked questions about the damage and the condition that your home was in before it occurred. The adjuster will basically serve as the intermediary between you and the insurance company. You will be giving them all of your documents and evidence that the insurance company requires for the claim.

The First Step

First, you should document your claim through pictures or videos as soon as you are able to in order to paint the most accurate picture of the damage incurred. When filing the claim, take all of the costs into account, including money that you might have to spend on a hotel, missing days of work, labor and materials for repairing the property, as well as the value of the items that were lost or damaged.

Having a third party assessment done is a great way to get another set of eyes on the damage and to come with even more ammunition when the claims adjuster comes to assess the damage and offer a settlement.

Evaluate the cost of all the damage and compare it to your deductible. You don’t want to fall victim to the $0-Pay. Discuss with your insurance agent to see if it’s worth filing the claim. If the cost of the damage is right around the cost of your deductible, you might want to hold off to avoid filing an unnecessary claim that will go against your record and affect future insurability.

How Payment Works

When getting a payout for your claim, you most likely won’t get the entire settlement amount at once. Instead, the initial check will probably be an advance of the total amount. However, there is always a chance for an “on-the-spot settlement” in which case you will get the total check right away. This settlement can be reopened if you find more damage down the line, typically within the year of the damage.

Additionally checks for property damage, damage to personal possessions and additional living expenses incurred as a result of uninhabitable property, should come in separately, not in one lump sum. This can help make sure that the money is going toward the right funds.

Personal Possessions

In the event that personal belongings are damaged, one of the first steps you should take is to try and find out the cost of everything inside your home. If you have an inventory of your possessions, that will be incredibly useful in the process. If you don’t have one, look back at old photos and videos to recollect the things that might have been damaged.

Next, depending on whether you have an actual cash value or replacement cost policy, you will either get reimbursed for the items (factoring in depreciation) or for the cost of buying new items, respectively. In many cases, your replacement cost policy will require you to buy the replacement items prior to compensation and then they will reimburse you, so keep those receipts.

Additionally, talk to your insurance company about how much time you have to replace your items. Oftentimes, you don’t have to make an immediate decision.

Property Damage

If there is property damage to your home and you have a mortgage, the check will most likely be made out to your lender. This is typically laid out as a condition of granting your mortgage. By receiving the insurance check, the mortgage lender can help ensure that appropriate repairs are made to the property, as this is also in their best interest to secure both of your investments in the property. Therefore, in most cases, the mortgage company will have to endorse the check, with the money typically being put in an escrow account, paying for the repair work as it is completed.

If you are in a situation in which you need to rebuild your home you can decide if you want to rebuild on the same site, a different location, or not at all. The money you are given to do this will depend on the policy you purchased. Typically, you’re entitled to the replacement cost of your home, keeping in mind that your insurance company will pay to have your home returned to the state it was in prior to the damage, not for a bigger or more expensive place.

Additional Living Expenses

In contrast to the payout for property damage, the check for any additional living expenses should be made out to you. Though you may still have to get the check endorsed by the mortgage lender, these expenses don’t have to do with repairs to your home. This can help cover the additional costs of living in a hotel or getting a rental car.

Tips

  1. Be thorough and document everything. This includes the inventory of your possessions, documents and conversations with the insurance company, and being on top of deadlines and appropriate forms.
  2. If you are able to, be present for inspections by the insurance adjuster or independent inspector.   
  3. Make sure that you understand your insurance policy and everything that you are covered for. Know your rights.
  4. Stand firm to your claim. The process may take a little longer than anticipated and you may not get the compensation you expected. You are able to dispute it if you believe you’re entitled to more. Don’t be forced into settling by the duration of the process either, be patient.
  5. Be honest with your claim. Lying won’t get you any farther in the process and is illegal.
  6. Cross your ‘t’s and dot your ‘i’s. Make sure you get all the appropriate information from your claims adjuster including your claim number, and the name and phone number they can be reached at. This can help ensure that your claim is properly filed and your forms are accurate.

When push comes to shove, home insurance has your back. The reason you purchased it was to protect your investment, so if you need to repair damaged property or possessions, make sure you stay calm and understand the process so that you are able to restore this investment.

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The Importance of Renters Insurance

One of the first steps you take when buying a home is purchasing homeowners insurance. Similarly, one of the first steps you take when renting a home is getting renters insurance. Just because you don’t own the property itself doesn’t mean that damages are any less likely.

However, many people don’t get renters insurance because they feel they don’t need it. One of the main reasons being, that they think their landlord’s insurance will cover them, when in fact, a landlord’s policy typically only covers them and their property.

To protect your possessions, renters insurance is one of the most essential tools you can purchase to reinforce your financial stability. It can be fairly inexpensive as well, costing less than a dollar a day (averaging 15 to 30 dollars per month) depending on your provider, geographic location, and additional insurance policies you carry.

What’s covered?

Renters insurance covers personal property and personal liability. So things like furniture, electronics and clothes, as well as medical expenses if a guest gets hurt while at your place, can be covered. Additionally, some policies will cover temporary living expenses if your rental property becomes uninhabitable.

Just like with H03 and HO5 homeowners insurance, not all situations are covered with renters insurance. If you’re looking for protection for natural disasters such as earthquakes or hurricanes, you will need to buy riders for additional coverage. If a natural disaster such as a wildfire, tornado, or hailstorm cause damage to the building, the landlord’s insurance will most likely cover the damage to the building, however, your personal property will probably not be covered, which is where your personal policy can come in handy.

Other riders can include sewer drainage damage (drain gets backed up and floods, ruining your possessions), extended theft coverage (items stolen outside of your home, such as a laptop from your car), and loss of use (living expenses if your property becomes uninhabitable).

Additionally, if you’re in a building with multiple units and you are responsible for an unnatural fire (i.e. you leave the stove on and a fire starts), you can also be responsible for the damage to the other tenants apartments including any of their property damage.

What types of coverage are there?

There are two types of coverage that renters insurance provides: personal property and liability. Personal property coverage covers repairing or replacing personal belongings in the case of theft or damage. Liability coverage covers you in the case of a claim or lawsuit if someone is injured or their property is damaged by an accident on your property.

Additionally, you can opt to get a broad form of coverage or a comprehensive form. The broad form is the typically the most common form purchased and is similar to HO3 coverage as it extends to specific events like fire or theft. Comprehensive coverage is more similar to HO5 in that it covers a more general range of events, with only specific exclusions.

Next, you get to decide if you would like actual cash-value coverage or replacement cost coverage. For actual cash value, your insurance provider will factor in depreciation before offering your claim amount. So if you bought a couch for 500 dollars five years ago, and now it is worth 300 dollars, your insurance company will compensate you 300 dollars.

For replacement cost coverage, your insurance provider will compensate you for the actual cost to replace the couch. So you would get 500 dollars for the couch, or however much it costs to get a comparable one. Replacement cost coverage typically has higher premiums than actual cash-value, but could save you some serious out of pocket costs down the line.

How much coverage should you get?

When deciding how much coverage you need you should evaluate a few things. First, take a look at your landlord’s insurance to see what they are actually liable for and what they will cover in the event of damage to the property. Additionally, take inventory of all of your possessions (beyond just those ‘big ticket’ items). It’s estimated that an average two-bedroom apartment contains about 30,000 dollars worth of stuff, which will be difficult to replace if something unexpected were to happen.

To save some money on your policy, look into installing a smoke detector, burglar alarm, and fire extinguisher to help reduce your risk of needing to file a claim. If you have roommates, check with them to see what their policies are and if you have the ability to purchase one together.

Why is it important?

Renters insurance is important because it can help protect you and your belongings from unexpected events. It also helps fill the gaps that other policies may lack. For example, if your car is broken into and your laptop is stolen, the window will most likely be covered under you auto policy, but the laptop probably won’t be. Your renters policy can help extend this coverage of your property.

Just because you don’t own the building you’re living in, doesn’t mean your other possessions are any less valuable, or your guests are any less accident-prone. Through purchasing renters insurance, you will be covered for personal property and liability claims throughout the duration of your rental experience, and you can do so without breaking the bank.

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Busted – Common Myths and Misconceptions Surrounding Life Insurance

There are plenty of things in life that should be debated: HBO or Netflix, is NASCAR a sport, cheese or pepperoni, and the quality of the How I Met Your Mother finale; the importance of life insurance shouldn’t be one of them. However, it’s estimated that there are approximately 15.3 trillion dollars worth of unmet life insurance needs in the United States, meaning many people are debating it, and life insurance is losing.

There are many myths and misconceptions surrounding life insurance. Whether it’s regarding the difficulty to obtain it, the perception that you won’t qualify, or that you just don’t need it, people are being deterred from purchasing a life insurance policy that could protect them and their family’s future well being.

So, without further adieu, let’s take a look at some of these common misconceptions about life insurance.

Myth #1: Senior citizens can’t get life insurance.

Busted: It’s true that life insurance costs increase as you get older. It’s not true that you can’t get insured once you become a senior. The perception that you are uninsurable as you enter your senior years is far from the truth. There are still many affordable rates that seniors can obtain. When insurance companies evaluate you for a policy, they determine the likelihood that you’ll cash in on your policy during its term. If you are healthy senior, your age won’t be as heavy of a factor as you’d be led to believe.

Myth #2: Life insurance is too expensive.

Busted: Approximately 80 percent of people over estimate the cost of life insurance. Millennials have been shown to over estimate life insurance expenses by 213 percent and Gen-Xers by 119 percent. Many people think that it will cost them around 1,000 dollars/year, when in reality it can cost as little as 150 dollars/year.

Myth #3: You’re better off saving or investing your money.

Busted: Life insurance is an investment. Though it might not present itself in the form of luxurious vacations or stock portfolios, it’s an investment in your future and your family’s future. Even if the benefits aren’t immediate, the money you’re putting in each month isn’t just getting thrown away; it’s helping you be more prepared for life’s curveballs.

Myth #4: Only the breadwinner needs life insurance.

Busted: Just because someone doesn’t bring home the largest check in the house, doesn’t mean his or her contributions aren’t valuable. A stay-at-home parent has a lot of responsibilities that keep the day-to-day activities on track that aren’t necessarily quantifiable in the form of a single check. If something were to happen to the “non-employed” or lower salaried parent, life insurance can help cover the costs of the jobs that they contributed to the household, including childcare and home maintenance.

Myth #5: You’re too young to be buying life insurance.

Busted: Being young is one of the best ways to save money on life insurance. Buying a plan as a healthy person at the age of 30 can cost you around 12 dollars per month, whereas that same policy can cost you 32 dollars per month if purchased at the age of 50. Additionally, more than just the worry of increased costs, there’s always a chance you won’t even be able to qualify for a policy after certain things happen later in life. Your insurability can change in the blink of an eye and is never higher than when you’re young and healthy. In three, five, or even10 years, there are plenty of things that can happen that could make getting life insurance less of a reality, which is when you will probably need it most. When you’re young and in good health, premiums will most likely be lower and insurability higher, saving you money in the long run.

Myth #6: You’re single and don’t have dependents, so you don’t need it.

Busted: Just because you don’t have anyone who directly depends on your income now, doesn’t mean you can’t plan for it now. Getting life insurance before these major life events can help lock in a lower rate. Additionally, funeral costs will be made the responsibility of your family (the average funeral costing thousands of dollars) and co-signed loans aren’t going away as they would become the responsibility of the co-signer.

Myth #7: The plan you have through your employer is sufficient.

Busted: Many times employer life insurance benefits provide a payout that is closer to one or two times your base salary. That base salary will typically not include commissions or bonuses either, which could impact the amount greatly. Generally, it is recommended for your life insurance policy payout to be somewhere between five and eight times (some experts even recommending 10-12 times) your annual salary. Additionally, if you leave your job, that employer benefit probably won’t be coming with you, leaving you vulnerable. Getting your own personal policy can help ensure you are protected and your family will be secure.

Life insurance is something you buy before you need it. Don’t let common misconceptions keep you from insuring yourself properly. By learning the facts and what fits best with your lifestyle, you can make an informed decision about your life insurance policy, and help prepare you and your loved ones for the future.

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Regain Control – Uninsured/Underinsured Motorist Coverage

The Insurance Research Council estimates that approximately one out of every eight drivers  in the United States is uninsured. The odds aren’t in your favor when you think about how many people you pass on the highway during your morning commute. However, with the appropriate coverage, there are ways to prevent your run in with an uninsured/underinsured driver from being a costly experience.

How does it work?

Uninsured/underinsured motorist coverage will help protect you if you are in an accident in which the other driver is at fault. If they are uninsured or don’t have enough auto insurance, this coverage will help you pay the bills for the damage they’ve caused.

If the person at fault in underinsured, their insurance company will usually pay for the damages they’ve caused up to the person’s liability limits, and then your provider will cover you for the remaining expenses up to the liability limits of your policy.

If you do file an uninsured/underinsured motorist claim, your insurance company will pursue the third party that caused the insurance loss to the person that is insured. Ideally, this would be the end of it; but recovering may not be possible, as many people who don’t have the proper insurance coverage also don’t have collectible assets. This is why it’s important to have uninsured/underinsured motorist coverage.

Additionally, when you file an uninsured/underinsured motorist claim, you become a third party to your insurance company. This means that you will get be reimbursed as if you were filing in opposition to your provider.

What’s covered?

Uninsured motorist coverage will most likely cover you and your passengers for medical expenses, pain and suffering and lost wages that occur as the result of the auto accident. This coverage also extends to victims of hit-and-runs and can also help cover personal property that was damaged in the accident (such as your vehicle, house or fence).

What are my options?

Much like your personal auto coverage, there are usually two types of uninsured/underinsured motorist coverage that are offered: underinsured motorist bodily injury coverage and underinsured motorist property damage coverage. Bodily injury coverage tends to be more common and some states, including Minnesota, require it as part of the overall auto policy. Property damage coverage is not offered everywhere, but when it is, it’s a good idea to get.

When deciding on your bodily injury coverage, you will need to pick what limits you would like: split limits or combined single limits. For split limits, your coverage will differ based on how many people are injured. A combined single limit is a single amount that your insurance company will pay for all bodily injury as a result of the accident.

It’s wise to have uninsured/underinsured motorist coverage limits that are higher than your at-fault driver’s bodily injury liability coverage limits. Otherwise, you many not receive the benefits you’re seeking. When deciding on the limit that is best for you, look at how much your car is worth, what kind of medical insurance you have, and if you have access to short and long term disability at work.

In Minnesota, the minimum limits are 25,000 dollars per person and 50,000 dollars per accident. Just like with your own liability limits, increasing your uninsured/underinsured motorist limits beyond the minimums is a good way to make sure that you are protected.

Regain control.

You never know when you could be involved with an uninsured/underinsured driver. It’s unfortunate, but many people aren’t adequately insured and this can create circumstances that are out of your control. Uninsured/underinsured motorist coverage can help you regain some of that control.

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Home Insurance Shopping 101 – The First Time Home Buyer’s Guide

A house is more than just a roof over your head; it’s an investment. For many people, it’s also one of the most expensive purchases they’ll make in their lifetime, which means this coincides with one of the biggest loans of their lifetime in the form of a giant mortgage. Right after that offer is approved on your new home, protecting it should be a number one priority. Home insurance quickly becomes one of the best ways to protect this investment. In fact, many insurance companies won’t even approve you for a mortgage to purchase your home without insurance.

When choosing your policy, you want to make sure you pick the one that’s right for you. Not all insurance is created equal and basic plans won’t meet your unique needs. Therefore, don’t procrastinate, do your research and prepare.

So, where do you start?

Figure out how much insurance you need at the very minimum.

It’s better to prepare for the worst to happen. Having deep coverage that can cover 100 percent of your home’s replacement cost is seen as a good place to start. Therefore, you help ensure that if something were to happen to your home, you wouldn’t lose out on the entire investment. Get an official assessment of the home and your belongings to value how much coverage you should purchase.

Know what’s covered and what’s not. The devil is in the details.

In most homeowners insurance policies you can expect damage to the interior or exterior of the house, damage to your personal belongings and liability protection to be included. However, you can also expect for flood, earthquake or poor home maintenance damage to not be covered. Homeowners policies may exclude certain circumstances, whether they’re not a named peril or they are explicitly excluded from a more encompassing plan. If this is the case, consider buying specific add-ons to tack on to your policy. If you’re in an area that is prone to earthquakes, getting separate earthquake coverage will help make sure there aren’t any surprises if you need to file a claim.

This is when riders and floaters come in. These provide additional coverage that basic home insurance policies do not. Floaters are good to purchase to insure your valuables as these assure that the full value of the item will be replaced if there is theft, loss or damage. A rider covers items that are either not cover or that have value that exceeds the per-item limit of your policy (i.e. jewelry, fine art, musical instruments). If your policy only covers 1,500 dollars in jewelry, but your wedding ring costs 10,000 dollars, taking out a rider to protect the value of that possession might be a good idea to consider. Make sure that there aren’t any fine print details in your policy that prohibit certain items from being covered or don’t cover the full value of the item.

The value of high deductibles.

A deductible is the amount of money you will pay out of the pocket in the chance you file a claim. For example, if you file a claim of 10,000 dollars and your deductible is for 500 dollars, your insurance company will pay 9,500 dollars, while you pay the 500. The higher your deductible, the lower your premium. By assuming more of your own risk, you are taking some of the burden off of insurance companies. Therefore, your deductible should be as high as you can reasonably afford in the event of a claim. By raising your deductible, you can cut the cost of your premiums up to 20 percent.

If raising your deductible even $1000 saves you $200/year on your annual premium, you only need to go 5 years to start ‘making money’ on your investment choice, if you will.  Couple this with the fact that the average homeowner makes a claim every 9 years and it becomes a wise decision for the long game of home insurance.  Dash suggests putting this deductible savings into a sort of “home maintenance slush fund” in case a small incident does happen so that you still have the money on hand.  Worst-case, that home maintenance fund becomes a vacation fund if you go multiple years without tapping into it!

Pick your battles.

The moment you file a claim, your rates are almost guaranteed to go up. In the eyes of many insurers, you become uninsurable after you file as few as two claims in three years. To insurance companies this looks like you have become a bigger risk of filing future claims, and to compensate for this risk, they will most likely raise your rates.

In Minnesota, the average premium increase after one claim is one of the highest in the nation. After filing just one claim, your annual premium cost increases at an average of 21.2 percent, far surpassing the 9 percent national average. On top of that, as a Minnesota resident, you’re already paying higher premiums to begin with due to the often times extreme winters, spring hail, tornado seasons and subsequent risk of damage to your home. In 2010, the average annual cost of homeowners insurance in Minnesota was 981 dollars, whereas the national average was 909 dollars.

Therefore, as Minnesotans we have to pick our battles wisely, understanding the implications of the small claims, or the $0-pay.

Let’s say there is a hailstorm one evening. You check the next day to assess the damage and realize that some shingles are missing or loose, costing about 700 dollars in damage. Now, let’s say your deductible is 700. If you file a claim, you’ll become a victim of the $0-pay. Minnesota law actually prohibits insurers from raising your premium based on an “act of God” type claim like wind or hail. However, this $0-pay still counts as a claim against you and can therefore make you ineligible to switch carriers because of the “two claims in three years” standard, meaning you’re essentially stuck with the insurer whether you like them or not for a certain period of time because you can’t go elsewhere.

If you raise your deductible, you can help avoid these small claims and save money every year through lower premiums.

Prepare.

One of the best things you can do to secure your investment is get the right type of homeowners insurance and be prepared. Take an inventory of what you own and continually update it. Other things to consider that might affect your insurance policy coverage are the breed of dog you have, if you have a wood furnace or stove, or if you have a swimming pool or trampoline. These can increase your liability, resulting in higher monthly premiums.

Additionally, look for discounts. Many newer homes qualify for discounts because the new materials can be more durable. If you have a smoke detector, alarm system, fire-sprinkler system, deadbolt locks or window security devices, this can help provide more security to your plan and lower your monthly premiums. If you bundle your homeowners insurance with your auto insurance, you can also save some money.

Don’t assume that the insurance you buy when your first purchase your home will be the same coverage you’ll need in a few years. As your possessions and value of your home change, your coverage should adapt along with them. Remember that you get what you pay for and if you choose a basic/low cost policy, your coverage will follow suit, and your investment will be less secure.

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Better than Basic – The Difference Between HO3 and HO5 Homeowners Insurance

Imagine this. You go away for the weekend on a nice relaxing trip with the family. You make sure to schedule a massage, some time on the beach, a dinner at a nice restaurant, the works. Finally, after a well-deserved weekend off, you come home and all you want to do is sleep in your own bed. But you can’t.

You open the door to find a raccoon has weaseled its way through your doggy door and has subsequently torn up your living room and kitchen. Now your furniture has been mutilated, your flat screen TV has been knocked over and the screen cracked, the hard wood floors are all scratched up, the glass table has been shattered and you find holes in the walls where the animal panicked and tried to escape. Who would’ve thought so much damage could be caused by such a tiny animal? Not an HO3 policy, that’s for sure.

You may be thinking how unlikely it is for a scenario this extreme to occur, which is why a HO3 policy may seem like reasonable coverage. However, the future is an unpredictable place. These things do happen and they will end up costing you many future vacations in out of pocket costs. However, a HO5 policy can help you save those future getaways.

What’s the difference?

The main difference between the HO3 and HO5 policies is the perils they cover: named perils vs. open perils. Named perils are specific causes of damage and loss. Open perils include all causes of loss, unless they are specifically excluded.

A HO3 policy is seen as the most basic coverage and the contents of your home are only covered for 16 named perils.

  1. Theft
  2. Fire or Lightning
  3. Explosion
  4. Smoke
  5. Freezing
  6. Vehicles
  7. Falling Objects
  8. Volcanic Eruption
  9. Windstorm or Hail
  10. Riot or Civil Commotion
  11. Damage Caused by Aircraft
  12. Vandalism or Malicious Mischief
  13. Damage due to Weight of Ice, Snow, or Sleet
  14. Sudden and Accidental Tearing Apart, Cracking, Burning, or Bulging
  15. Sudden and Accidental Damage from Artificially Generated Electric Current
  16. Accidental Discharge or Overflow of Water from Plumbing, Air Conditioning, etc.

Though these policies cover very basic circumstances, there are more than 16 things that can happen to your home. And they’re sure to cost you a pretty penny. Now, enter, the HO5 policy.

Center Stage

A HO5 homeowners policy covers open perils, so they don’t have to be specifically outlined in the coverage plan, baring a few specific instances that are excluded. It’s a lot less limiting and can expand on existing coverage. Additionally, you won’t have to worry about proving that the damage was caused by one of the named perils on the HO3 list, which can take away some of stress from an already tumultuous situation.

One thing to note about HO5 insurance is that, due to its more broad nature, your home has to qualify to receive this form of homeowners insurance. Generally, homes that are newer, well maintained, have a higher value, and/or are protected by a fire/police station are the homes that are more likely to qualify.

The HO5 policy provides more protection and therefore will cost a bit more than the HO3 policy. However, the additional monthly cost is nowhere near what you could be paying out of pocket if something outside the named perils occurs to your home. Additionally, depending on the town you live in, your credit score and claims history, you may be able to qualify for close to the same price as a HO3 policy.

Be Prepared

If you qualify, it is recommended to take the HO5 policy. It provides better coverage, protects the contents of your home, prepares you for the unpredictable, and helps ensure that one specific instance doesn’t dictate your future or limit your financial security.

 

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Coming of Age – Transitioning Off of Your Parents’ Insurance

There are many reasons why kids want to stay on their parents’ insurance plan for as long as possible: Parents tend to have better credit, live in a more favorable zip code and have a better insurance score; and all of these factors contribute to lower rates. However, the good times don’t always last.

Once you’ve reached a certain age, you can no longer receive the benefit of your parents’ coverage. This is most notable with health insurance under the Affordable Care Act where children can stay on a parent’s health insurance plan up until the age of 26. With other insurances, such as auto insurance where the length of coverage under a parent account is more vague, companies have a way of getting you off your parents’ plan eventually. For example, in the event that a claim is filed on account of the child or if there is a loss, the insurance company will make an underwriting request to properly represent the policy/household. This will often come down to writing the child out of the policy and on to their own.

Alas, the time will come where you can no longer be covered under your parents’ insurance plan and you’ll have to buy your own. *Dramatic Sigh* Now, how do you prepare for this feat of adulthood?

Things to Consider…

Let’s say you’re going out to buy a TV for the first time. You’ve worked, you’ve saved, and you’re ready to start watching Netflix on a screen that isn’t your laptop. Are you going to just buy the first TV you see at the lowest price, or are you going to do some research to make sure you’re getting the most bang for your buck? Unless you want to go back to the store in six months to replace your TV, you’re probably going to want to do some research and make sure that you’re getting the best deal and quality that you can.

The same should go for your insurance. You don’t want to grab the lowest price policy and get out of there; you should shop around and make sure that you are getting the right amount of coverage. If you just jump to the lowest price, you’re poorly representing yourself to insurance companies. This will keep you paying more for insurance for the rest of your life and will put you at a greater financial risk if you have to file a claim.

Sure, stepping out on your own will be a bit of shock. Being cushioned by your parents’ good credit score and insurance history kept your prices low. But, let’s face it, a young, single adult driver will inevitably look like more of a risk than a 50 year old, financially stable, suburban dwelling parent, leading to higher premiums.

Just because you don’t want to pay more, doesn’t mean you should settle for less coverage though. It is recommended to at least match the coverage your parents’ policy provided, assuming that they were at an adequate liability limit of at least 100/300. Don’t risk the financial independence that you’ve worked so hard to achieve by having insufficient insurance. Upping your coverage from a minimum limit to a more sufficient one will only cost you a few extra dollars per month. A small price to pay for greater protection.

Remember…

When transitioning off of your parents’ insurance plan, remember to do your research and not settle for low limits because they look cheap and you don’t plan on filing a claim any time soon. What looks cheap now, can be incredibly expensive down the line when you unexpectedly have to file a claim and your parents aren’t there to bail you out. By getting an adequate policy now, you will help protect yourself and your family’s future.

Getting new coverage is one thing, understanding what you’re getting and why you’re getting it is another. Take the time to learn about different plans and contact an insurance professional to make sure your transition toward insurance independence is a smooth one.

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A Life Guard For the Risk Pool – Why did my rates increase even though I didn’t file a claim?

Ancient Romans gave us more than just the plot for Gladiator; they also provided us with an early understanding of insurance. In Roman culture, receiving a proper burial was incredibly important, but also expensive. An individual soldier would not be able to afford the cost of the burial in the event of his death. Therefore, each soldier would regularly chip in a small amount of money to a community soldier fund. The money would then be put towards the burial ceremony after a soldier’s death. This is known as a risk pool. Millions of people pay a small amount into a risk pool so that the same risk pool can pay out millions of dollars to one person if needed.

This leads us to our next point, why did your rates increase even though you didn’t make any claims?

Inflation Happens

An insurance company is, above all, a business. It’s not a bottomless pit of money and needs to generate revenue so that it can accommodate claims and continue to insure you. If 500 million dollars worth of claims were filed one year, the company better hope that, at the very least, 500 million dollars are coming in to offset this, despite the fact that expenses don’t just stop short of claims filed.

Insurance covers many things: medical costs, property damages, lawsuits, etc. However, due to inflation, those expenses don’t stay constant from year to year. An item purchased for 2,000 dollars in 2006 will cost you close to 2,352 dollars in 2016, about a 17.6 percent rise over 10 years. In order to account for these increased prices, your money that goes into the risk pool will also need to increase so that the insurance company has enough money to cover all aspects of a claim that most likely have increased in price since your initial quote.

Risky Business

Insurance companies evaluate the risk that they will have to pay off a claim and take steps to manage that risk. Your credit score can be indicative of how prone to risk you are and predictive of your financial responsibility. If your score has taken a turn for the worse, your insurance company will factor this into your rate because they see it as something that can increase the likelihood of you filing a claim with them.

Additionally, insurance companies use statistical measurements to analyze external factors such as the frequency of collision claims in your neighborhood, probability of insurance fraud or if your car type is more likely to be stolen. These numbers can cause an increase in premiums even though the circumstances are completely out of your control. To be equipped for this increased risk, the insurance company may increase your rates to prepare for them to have to pay off a potential claim.

It’s Only Natural

It’s only natural that your insurance rates increase. Your insurance company needs to take into account ways to keep up with demand, rising prices and increased risk. And raising premiums are usually the answer, even if you didn’t file a claim specifically. Contributing more money to the risk pool helps make sure that you’re covered when you need it most.

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The Limit Does Exist – The Importance and Minimal Cost of High Liability Limits

Nobody expects to be an at-fault driver, but with over 4 million licensed drivers in Minnesota, and the average driver getting into an accident every 17.9 years, having to pay off a liability claim has a realistic probability.

Let’s start with liability insurance. What is it? In the chance that you’re at fault in an auto accident, liability insurance helps cover you for the bodily injuries and property damage that the other person sustained. The liability limit is the maximum amount of money that the insurance company will pay to cover these expenses. The higher the limit, the more coverage you receive in a claim, lowering the risk of your personal assets being seized.

Why go for a higher limit?

Along with the auto insurance policy you choose, Minnesota law requires a minimum amount of liability coverage for all licensed vehicles.  These minimums cover 30,000 dollars per injured person with up to 60,000 dollars per accident, along with 10,000 dollars for property damage (30/60/10). This may seem like a lot of money, but many times this only covers a small fraction of the total cost. According to data gathered by Thomson Reuters, in 2012, the average vehicle liability award was 298,731 dollars.

By purchasing a higher limit, you protect your assets from potentially being seized if the claim exceeds your limit. It is recommended to get a liability insurance policy that covers at the very least 100,000 dollars per person and 300,000 dollars per accident, along with 35,000 dollars to cover property damage (100/300/35). These are more valuable as your minimum limits and should only go up from there.

This property damage number has been established to cover the average price of a car (around 35,000 dollars); and therefore, the property damage limit will cover the average car on the road. Makes sense. However, not every car on the road is the “average car.” There are Mercedes and Bentleys roaming around too, valuing over 100,000 dollars. Not only that, but there is the possibility of a multi-car crash, which could add up to the price of these luxury cars, if not surpass it very quickly. That 35,000 dollars in property damage isn’t going to cut it.

To account for these realistic and expensive scenarios, a more adequate liability limit would be 250,000 dollars per person and 500,000 dollars per accident, along with 250,000 dollars in property damage (250/500/250). Often times a car accident isn’t as simple as hitting one low-value car. In 2014, there were 78,396 reported traffic accidents in Minnesota, involving around 190,700 people. Crashes can easily become multi-vehicle and multi-person.

By paying just an extra three to five dollars per month to get from a 100/300 plan to a 250/500 plan, you could be saving yourself hundreds of thousands of dollars in liability claims. The five dollar latte that you buy every morning isn’t worth 500,000 dollars of out of pocket cost. By putting those five dollars towards your auto insurance policy, you can help kick that caffeine addiction and contribute to your financial stability.

What is at risk?

When considering the limit you want as part of your auto insurance policy, think about how much your assets are worth. In the instance that you cause an accident, the insurance company will only pay up to your limit in a claim; the rest is your responsibility. Even if you feel as though you have nothing to lose, liability claims can take more than just your current assets. You could be affected in your future income as well.

Future Wages: Your ability to work is one of your strongest assets. A court can take 25 percent of your future earnings for as long as it takes to pay off a judgment. Saving up for a vacation? Trying to pay off your student loans? Well, those plans could be put on hold if your limit isn’t high enough.

Liquid Assets: Cash, checking account, savings account, stocks, certificates of deposit. These are all vulnerable in a liability case. Luckily, your 401(k) and Roth IRA are usually exempt. Nonetheless, your life savings could be gone in the blink of an eye.

Personal Property: Anything that belongs to the at-fault driver, from furniture to appliances, that have a cumulative value that exceeds 10,350 dollars are at risk. Additionally, wedding rings and any other symbols of marriage in your possession that value around 2,817 dollars can be taken. Not only will you probably be sleeping on the couch, but you may not even have a couch to sleep on afterward.

Real Estate Property: Your home has value. If it is worth more than 390,000 dollars and is less than 160 acres of land, your property is at risk of being seized to pay off the claim. Real estate is a good investment and by getting a higher liability limit, you help secure that investment.

Auto: If you’re trying to get from point A to point B, an auto accident can make sure you’re taking public transportation to get to point B in the future. If your car is worth over 4,600 dollars, it can be taken to contribute to the claim.

By increasing your liability limits, you are also adding to the protection you have over your current and future assets. Increasing the liability limit in your policy from state mandated minimums to a comprehensive high limit liability of 250/500 can be between 10 and 20 extra dollars per month. This small adjustment can help save you thousands of dollars down the line and maintain your financial future.