FREQUENTLY ASKED QUESTIONS How can I determine the financial stability of an insurance company? What is the difference between "actual cash value" and "replacement cost?" What is the minimum amount of auto insurance that I am required to carry? Do I have to insure the full value of my home? Should I purchase a personal umbrella liability policy? In property insurance, what does Coinsurance mean? What is Building Ordinance Coverage? Why do I need Workers Compensation? What is COBRA? Does a beneficiary on a life insurance policy have to pay income taxes on the death benefit proceeds? What factors affect my Auto Insurance rates? What factors affect my Homeowners Insurance costs? What factors affect my Workers Compensation rates? How can I determine the financial stability of an insurance company? There are many independent organizations that rate the financial strength and claims paying ability of insurance carriers. These agencies include A.M. Best Company, Standard & Poor's, Moody's, Weiss Research, and Duff and Phelps. These agencies conduct financial analysis based upon information supplied to them by those insurance companies who subscribe to their services or consists of information readily available to them by publicly held companies. What is the difference between "actual cash value" and "replacement cost?" The two major types of insurance property valuation upon which policies are issued, are defined as either actual cash value which at a time of loss considers the age, wear, tear, and depreciation in assessing valuation or replacement cost which considers the cost of replacing or repairing property for the same kind and quality without regard to depreciation. What is the minimum amount of auto insurance that I am required to carry? The State of California mandates that all registered owners of vehicles who are licensed to drive must carry liability insurance for the following minimum limits: Bodily Injury: $15,000 per person and $30,000 per accident. Property Damage: $5,000 per accident. Do I have to insure the full value of my home? Yes. Insurance carriers require policyholders to insure their homes to correspond with what it would reasonably cost to replace it in the event of a total loss based upon the construction type and square footage of the dwelling. Should I purchase a personal umbrella liability policy? With the litigious society that we live in today, you should seriously consider purchasing a personal umbrella. This policy provides you with an extra layer of liability protection above and beyond what your auto, home/renters/condo, or boat policies provide. Today, jury awards can exceed $1,000,000 and the typical homeowner's policy provides only $300,000 in liability protection. Moreover, umbrella liability coverage is fairly inexpensive, considering the amount of protection it provides. In property insurance, what does Coinsurance mean? Coinsurance is an agreement by which the insured, in consideration of a reduced rate, agrees to carry an amount of insurance equal to a percentage of the total insurable value of the property at risk. If at the time of loss, the insurance carrier determines you were not in compliance with the coinsurance clause, the company will pay your claim only in proportion to the amount of coverage you carry. The following equation is used to determine the amount paid for a covered loss: Amount of Insurance Carried      x  Loss = Amount of Recovery Amount of Insurance Required For example, assume that a commercial building has a replacement cost value of $1,000,000 but its owner has insured it for only $700,000. If a policy is issued with an 80% coinsurance clause, the required amount of insurance based on replacement cost value is $800,000. Therefore if a $50,000 loss occurs, only $43,750 will be paid, based upon the following illustration: $700,000   x $50,000 = $43,750 $800,000 Since the coinsurance requirement is not met, the insured is responsible for the remaining balance of the loss. What is Building Ordinance Coverage? Building Ordinance Coverage refers to certain construction upgrades or compliance of zoning laws that might affect the increased cost of construction and/or demolition following a loss. This coverage is not always a standard feature of a property coverage form and may therefore be required to be endorsed to the policy for this enhanced protection. Why do I need Workers Compensation? The State mandates that any employer who hires the services of an employee is required to provide coverage for any work-related injury and sickness. What is COBRA? COBRA stands for the Consolidated Omnibus Budget Reconciliation Act of 1985. Under this federal act, employees who resign or are terminated from their employment other than for gross misconduct, can continue to be covered under their former employer's healthcare coverage for up to 18 months or 36 months, depending on the qualified event. If a past employee elects COBRA, he or she must do so within 60 days of being notified of their COBRA rights, following their last day of employment, and are then required to pay for their cost of insurance, either directly to the employer or to the carrier providing insurance for the prior employer. Does a beneficiary on a life insurance policy have to pay income taxes on the death benefit proceeds? Death benefits from life insurance policies are income tax free, however, may be subject to estate and/or inheritance tax. If the gross value of the insured's adjusted estate is greater than $675,000, then an estate tax is assessed assuming that the death benefit were to be included in the insured's estate if he or she had retained ownership. What factors affect my Auto Insurance rates? Driving Record (i.e. number of tickets and chargeable accidents within the past three years) Age of Driver and Years of Driving Experience Year, Make & Model of Auto Annual Mileage Vehicle Use (pleasure, work, or business use) Territory (where the car is primarily garaged) Marital Status Other Household Licensed Drivers Coverage Amounts & Deductible What factors affect my Homeowners Insurance costs? Year Built Territory Construction Type Security and Loss Prevention Features (i.e. fire and/or burglar alarm, sprinklers) Proximity to Brush Area (homes within designated brush area are rated higher) Loss History Coverage Amounts & Deductible What factors affect my Workers Compensation rates? Size of Payroll - The premium for Workers Compensation is directly related to your payroll amount. Job Classification - The rate is dependent upon the nature of work being performed based upon degrees of hazard. For example, the rate applied to a Carpenter exceeds that of a Salesperson owing to the higher level of risk associated with carpentry work. Claims Experience - Premium volume as opposed to Claims paid for preceding years
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