Consumer Guide to Automobile Insurance
FIVE TIPS TO HELP YOU BUY AUTO INSURANCE
Tip 1: Obtain the broker’s business card.
If you are reading this pamphlet, it was probably given to you by an insurance broker or solicitor. (A solicitor is a person who works for a broker. In the rest of this pamphlet we will use the term “broker” to include both solicitors and brokers.) All brokers must be licensed by the State of California Department of Insurance. To obtain a license, a broker must take a class on insurance, pass an exam, and meet other requirements. However, a few people try to sell insurance without a license. Make sure your broker is currently licensed in California. By law, a broker must include his or her license number on his or her business card, and on any written price quote given to you. Obtain the business card of each broker who talks to you about insurance! If the broker says he or she does not have a business card, ask him or her to write down his or her first, middle and last name, along with his or her license number. Keep the business card or piece of paper along with your other insurance papers. The California Department of Insurance website (www.insurance.ca.gov) lists all licensed brokers. You can find out whether the person who helped you buy insurance is licensed by checking this website, or by calling the Department of Insurance at (800) 927-HELP or (213) 897-8921. If you buy insurance from a person who does not have a license, you are legally entitled to have any broker fee you paid refunded.
Tip 2: Understand the difference between an insurance company and an insurance broker.
Brokers are not insurance companies; they are independent insurance salespersons. The broker represents you, the client. In order to find insurance for you, a broker will usually review the premium rates and coverages of several insurance companies. A broker will usually have the words “insurance agency,” “insurance brokers,” “insurance brokerage,” or “insurance services” in its business name. An insurance company is responsible for paying any claims you have; a broker is not. An insurance company will usually have the word “insurance company,” “casualty company,” “indemnity company,” “insurance underwriters” or “assurance company” in its name. Some insurance companies will use the services of another business, called a “managing general agent” or “general agent.” These businesses may perform underwriting, claims handling and billing on behalf of the insurance company issuing the policy. Remember, when purchasing insurance through a broker you could be dealing with several different companies: 1) the insurance broker; 2) a managing general agent; 3) the insurance company. In addition, if you need to borrow money to help pay your premium, another type of company, a “premium finance company,” may be involved.
Tip 3: Obtain and keep important insurance papers.
Application - When you apply for insurance, the broker will probably help you complete an insurance application form. This form will be sent to the insurance company. Read the application carefully before you sign it. Do not sign the application if any information on it is missing or incorrect, even if the broker says it is ok to do so, or that the wrong information will save you money. An insurance company can sometimes deny your claim if you signed an application with incorrect information. Obtain and keep a copy of the application.
Binder - When an insurance company accepts an application, it typically mails the actual insurance policy several weeks later. If you need insurance right away or within a few weeks, the broker should provide you with an insurance form called a“binder” or “certificate of insurance.” These forms provide you with proof that you have insurance coverage until the insurance company actually sends you the policy. A binder or certificate should show the name of the insurance company, the date your insurance takes effect, your name, a description of your vehicle, the types of coverage you bought, the liability coverage limit if you bought liability insurance, and deductibles if you bought comprehensive or collision coverage. Obtain and keep the binder. Don’t accept a broker’s word that you are covered or will be covered as of a certain, future date; get it in writing. Every broker should be able to give you a binder if you need coverage quickly.
Receipt - You will usually have to pay some or all of the premium to the broker when you apply for insurance. Obtain a signed receipt for your premium payment.
Insurance company payment plans - Many people choose to pay their insurance premium in installments. For these people, the insurance company may offer an installment payment plan for a small, extra charge. However, not all companies offer such plans.
Premium finance companies - Another option for people who can not, or prefer not to, pay their insurance premium all at once, is to obtain a loan from a “premium finance company.” With premium financing, you will pay a down payment to the broker when you apply for the insurance. The finance company will pay the full premium to the insurance company. After that, you will reimburse the finance company over several months. Be aware that premium financing typically includes a non-refundable fee and an interest rate that is usually much higher than banks impose on credit cards. In order to obtain premium financing, a premium finance application form must be completed. Do not let a broker sign this form for you – obtain it, take your time to read it carefully, ask the broker to explain anything you don’t understand, then sign it if you still want to have premium financing. The form will contain very important information – how much you will have to pay, how often, how much the fees are, what the interest rate is, and what the total principal and interest will be. Once you sign-up for premium financing, it may be expensive to cancel it. If a broker suggests using a premium finance company, be sure to ask the broker about insurance companies that offer installment payment plans. Even if an insurance company with an installment plan charges more premium than an insurance company that does not have an installment plan, your total cost of insurance may be less if you don’t have to pay loan fees and interest to a premium finance company.
Broker fee disclosure and agreement - To charge a broker fee, a broker must have you sign a broker fee agreement, and must give you a special broker fee disclosure. Obtain copies of both of these documents.
Tip 4: Take your time and ask questions.
Read all forms carefully, and take your time. Don’t let anyone try to rush you. Ask questions – a broker should take the time to explain everything slowly and with words you understand. If a broker makes any promise to you, get it in writing. Never sign any form that has empty spaces – have the broker draw a line through those spaces before you sign the form.
Tip 5: Find out more about insurance.
Insurance is expensive. You can save a lot of money, possibly hundreds of dollars each year, year after year, by learning more about insurance. A good place to start is at the Department of Insurance website at www.insurance.ca.gov, or by getting brochures from the Department of Insurance help line, 1-(800) 927-HELP (4357) or (213) 897-8921. You can obtain pamphlets about many insurance topics, such as different types of insurance, how to file claims, and how to buy insurance.
Consumer Guide to Residential Insurance
INTRODUCTION
Homeowners need to consider four major factors when shopping for insurance for their property:
(1) The types of policies needed (e.g... homeowners, renters, condo, fire and extended coverage? Flood? Earthquake? Floaters?);
(2) What policy limits, deductibles, and coverage to select;
(3) The premium;
(4) Whether or not the agent or broker and insurer are properly licensed.
TYPES OF POLICIES AND COVERAGES
A “Homeowners insurance” policy consists of several different coverages combined into a single package. These include:
* Damage to the house (dwelling) and other structures (detached garage, fences) on the property from various perils, such as fire, glass breakage, and many others.
* Damage to personal property (furniture, appliances, fixtures, clothing, etc.) from the covered perils.
* Reimbursement for loss of use of the house (e.g... reimbursement if you have to vacate the house and live in a hotel or apartment; loss of rental income if you were renting a room in the house).
* Liability coverage protects you if you are legally liable for negligent acts (e.g. a visitor slips and falls on your driveway, your tree falls on your neighbor’s house, your dog bites someone). Liability coverage will also pay for defense against lawsuits filed against you and pay a judgment against you if the defense is unsuccessful, up to the policy limit. There are several types of policies for homeowners. Most are designated with the letters “HO.” The HO-3 is the typical policy for an owner-occupied, single family dwelling.
There are also policies with limited coverage available for purchase generally referred to as fire and extended coverage policies. These policies do not include the same coverage that is available under a HO policy. For instance, coverage for personal property, jewelry, liability or additional living expense, etc. is usually not covered. All insurance policies have sections that contain definitions, conditions and exclusions. To understand fully what your policy covers, you must read the entire policy. Any questions you have should be answered to your satisfaction by your agent/broker or insurance company before a loss occurs. Flood and earthquake policies are sold separately from homeowners policies, and are discussed later in this pamphlet.
Renters and condo insurance
The HO-4 policy is designed for renters. It covers your personal property if it is stolen or damaged from a covered peril, and pays the expenses of finding a new place to live while your rental unit is being restored due to damage from a covered peril. It also provides liability coverage. The condo policy, HO-6, provides similar coverage for condo or co-op owners.
Flood insurance:
Flood insurance is provided almost exclusively by the National Flood Insurance Program (NFIP), operated by the Federal Emergency Management Agency (FEMA). Federal law requires mortgage lenders to assure that all properties within designated flood prone areas have flood insurance before the lenders provide a mortgage on such properties. Real estate agents will almost always know, or can find out, if a property requires flood insurance. More information on flood insurance can be found at http://www.fema.gov/nfip/.
Earthquake insurance:
Homeowners can obtain earthquake insurance from two sources: The California Earthquake Authority (CEA), and private insurance companies. The CEA is a publicly administered, privately financed agency that offers basic earthquake insurance for homeonwer, renters, condominium owners and mobile home owners. The CEA was created after the 1994 Northridge earthquake. It currently provides most of the earthquake insurance sold in the state. Insurance from a private insurance company may be more or less expensive than insurance from the CEA for a similar type of policy, depending on where you live. Earthquake policies can vary greatly in terms of exclusions and deductibles. Deductibles are much higher than with an HO policy; fifteen percent (15%) of the amount of coverage being a typical deductible. On a building with a replacement cost of $200,000, this would mean you would have to incur at least $30,000 in damage before the earthquake policy would provide any payment to rebuild your house. And, even if your damage exceeded the deductible, you would still need $30,000 of your own savings to restore your house to its pre earthquake condition. The good news is that lower deductibles may be available, if you are willing to pay a higher premium. Some earthquake insurance policies have extensive exclusions – patios, decks, detached garages, fences, swimming pools, satellite dishes, and sprinkler systems, to name a few. Be sure you read through the list of exclusions when comparing policies. In sum, be extra careful when buying an earthquake policy. Be sure to compare premium, coverage, and deductibles before you make a final decision.
Floaters:
HO policies usually include special limits on items like cash, gold, silverware, jewelry, watches, furs, gems, and computers. A floater is a type of policy, or endorsement to a HO policy, that may increase the limit, or provide specific coverage for these items.
LIMITS
In general, a “limit” is the maximum amount that an insurance company will pay under a policy. When you buy homeowners insurance you will need to decide what limits to select for the dwelling coverage portion of the policy, for the personal property portion, and for the liability coverage portion. The correct limit on the dwelling part of the policy usually will be the estimated amount, based on current building costs, to rebuild your house if it is totally destroyed. This is called the “replacement cost.” The insurance company or agent can help to determine the replacement cost of your house. If you obtain a limit that equals the replacement cost, the insurer will pay that amount to replace your house if it is totally destroyed. You should also consider obtaining a policy that automatically adjusts your replacement cost coverage for inflation. Additionally, you may be able to purchase coverage for building code upgrades which covers the extra cost to rebuild the house to meet current building codes.
TIPS ON BUYING INSURANCE ON YOUR HOME
1. Before buying a home consider the cost of insurance. Factors such as location in or near a flood or earthquake zone, brush area, or steep hillside will have an impact on the cost and availability of affordable insurance.
2. Insure only your house, not the land. Your land won’t burn in a fire or perish in any of the other covered perils, so you should base your limits on the cost to rebuild the house, not the cost of the land and the house together.
3. Ask about discounts that may be available, such as:
* Having your homeowners and automobile insurance with the same insurance company.
* Being a senior citizen.
* Being insured with the same insurance company for many years.
* Being a member of a group or association.
* Being a non-smoker.
* Having a smoke detector or burglar alarm.
4. Obtain quotes from several insurers, either directly or through agents or brokers.
5. If you purchase a fire and extended coverage policy instead of a homeowner’s policy, be sure to consider whether or not you will need to purchase additional policies to cover liability, personal property, jewelry, cash, etc.
6. Consider higher deductibles to save on premium (but only if you can afford to absorb a loss below the deductible amount).
7. Consider the insurance company’s reputation for service, as well as price. The California Department of Insurance annually evaluates homeowner’s insurance companies for price and for the ratio of complaints to the number of policies. A high complaint ratio may mean that you will have more problems with accurate or timely premium billing, policy service, or claims.
8. Before you purchase insurance, make sure the agent/broker and insurer you select are licensed by the California Department of Insurance. Call 1-800-927-HELP (or 213-897-8921 from the Los Angeles area) to determine the license status and obtain additional information. You may also wish to visit our website for additional information: www.insurance.ca.gov.