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Frequently Asked Questions

Here are the answers to some Frequently Asked Questions, provided by the IIAT

When Your Teenager Starts to Drive

My teenager just received a license to drive. Do I need to add him/her to my policy now? Will it increase my premium?

These are great questions that our customers ask frequently.

The short answers are "yes" and "yes."

Most personal auto policies written in Texas extend liability coverage to anyone using a covered auto with your permission, including children when they begin to drive. However, some policies exclude family members who have not been reported to the insurance company and are not listed as drivers on the policy.

Failing to report your newly-licensed teenager is a dangerous game to play with your family assets. In fact, some companies may consider this to be "insurance fraud" and refuse to pay a claim involving a young driver who has not been reported - especially if the youngster had a license when the policy was first purchased.

Insurance companies expect you to report all drivers in the household and will charge a premium based on the appropriate driver classification. In the case of a youthful operator, that premium will depend on whether the driver is the principal operator of a family vehicle or just a part-time operator.

Be sure to discuss your family's insurance needs with your insurance agent. After considering your specific circumstances, you and your agent can make a decision regarding auto insurance that is appropriate for your family and your insurance budget.

Replacement Cost - Homeowners and Dwelling Policies

Why do I have to carry so much insurance on my home?

This is a great question, and one that our customers ask frequently.

For one thing, we believe you should have an amount of insurance that is sufficient to rebuild your home - probably your largest investment - in the event it is totally destroyed by a fire or tornado.

In addition, your policy contains what is called an insurance-to-value provision. This is essentially an agreement between you and the insurance company. In exchange for your agreement to insure your home for at least a specified percentage of its replacement value, the company agrees to issue the policy for a lower premium than it would charge for a policy without this provision. After a loss - even a small loss - if the amount of insurance on your home isn't sufficient to satisfy your part of the agreement, then the insurance company can reduce the amount it would normally pay.

While it is your responsibility to establish the value of your property and select the amount of insurance for your policy, we can help with that decision and explain what you can do to avoid a loss penalty.

Rental Car Coverage - Texas Personal Auto Policy

Should I purchase the Loss Damage Waiver offered by the rental agent when I rent a vehicle?

This is a great question, and one that our customers ask frequently. Whether you rent a vehicle for personal use while on vacation, or as a substitute while your vehicle is out of commission for repair or service, or for business use while out of town, there comes that time when you're standing at the rental car counter and the agent asks the inevitable question: "Do you want to buy our loss damage waiver (or our insurance coverage)?"

Most loss damage waiver (LDW) fees are outrageous. Sometimes they cost more than the daily rental fee itself. But are they worth the additional cost? The answer may depend on your tolerance for risk and inconvenience. You must decide if the extra cost is reasonable, considering the potential for an uninsured loss should something happen to the vehicle during the term of the rental contract, and the resulting inconvenience of dealing with the rental company and your insurance company to satisfy the rental company's demands.

First, you should know that the LDW is not actually an insurance policy. It is a waiver of the rental company's requirement in the rental contract that you bring the vehicle back in the same condition as when it left their lot. Most rental contracts make you responsible for any damage to the vehicle, including theft and weather-related damage. When you purchase the LDW, the rental company is removing that provision from the contract on a conditional basis.

If you don't purchase the LDW and the vehicle is damaged, here are some of the costs for which you could be held responsible under the rental contract:

  1. Cost to repair damage to the vehicle, or the full value of the vehicle if it is a total loss
  2. "Diminished value" of the vehicle - the difference between what the vehicle was worth before the accident and what it is worth after repairs have been made
  3. "Loss of use" - the amount of money the rental company loses on rental fees while the vehicle is out of service for repair or replacement
  4. Administrative or loss-related expenses incurred by the rental company, such as fees for towing, appraisal, and claims adjustment, plus general office expenses for handling the paperwork

Whether all or any of these costs are covered by your personal auto policy depends on several factors.

Reasons to purchase the Loss Damage Waiver:

  • Your limit of liability may not be sufficient to satisfy the rental company's demands. Coverage for damage to the rental car and related costs are provided by the property damage liability section of your personal auto policy. If the property damage limit of liability is not sufficient to cover the value of the vehicle you rent, plus pay for any other costs the rental company demands, you will be personally responsible for the costs that exceed what your insurance company has to pay.
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  • Your policy may exclude rented pickups and vans used for business purposes. If you rent a pickup or van for business purposes, your personal auto policy may not provide coverage at all. Some insurance companies consider an SUV to be a pickup or van, and may therefore not cover any damages arising out of the use of an SUV rented for business purposes.
  • Your premium may go up or your policy may not be renewed if you have an at-fault accident. You are driving an unfamiliar vehicle in unfamiliar territory. If you have an at-fault accident while driving the rented vehicle, your insurance company may hold it against you - with a premium surcharge or perhaps even non-renewal.
  • Your line of credit may be adversely affected. If you don't buy the LDW, the rental company will probably ring up an estimated damage amount on your credit card, pending notification to and settlement by your insurance company.
  • You may suffer a huge inconvenience. When you have purchased the LDW, you can bring a damaged vehicle back to the rental company, throw the keys on the counter, and walk away. When you haven't purchased the LDW, you may have to spend a significant amount of time dealing with the rental company and your insurance company.

Bottom Line: We recommend that you buy the Loss Damage Waiver from the rental company.

Taking Insurance on Vacation - Homeowners and Personal Auto Policies

I am taking my family on vacation this summer.  We may travel to a foreign country. Will I need any special insurance to cover my personal property and liability?

This is a great question, and one that our customers ask frequently. 

Vacations -whether taken in the summer or the winter -can pose unusual risks you don’t encounter every day, especially when you travel out of the country.

If your fishing skills are a little rusty and you injure a fellow fisherman, or if one of the kids starts a fire in a hotel room, will your homeowners insurance respond and pay the claim or defend a lawsuit?  What if you participate in different recreational activities while on vacation, like golfing, boating, jet skiing, biking, snowmobiling, or hang-gliding?  Will you be renting a golf cart or snowmobile, or maybe a moped, 3-wheeler, and 4-wheeler?  All of these activities can be fun, but they can also be dangerous.  Will one of your policies respond if you hurt someone or damage property belonging to others while participating in these activities?

One of your current policies may provide coverage for some of these activities, but unfortunately, there is no policy that will provide coverage for all of these activities.  

Automobile Risks.  The typical auto policy covers auto accidents and losses in any U.S. state, territory or possession, and Puerto Rico and Canada. In fact, the liability limits under your auto policy may actually change as you cross state lines or enter Canada, in order to meet financial responsibility or compulsory insurance laws requiring certain minimum limits and coverages for automobiles operated in that jurisdiction.

It’s a different story, however, if you travel to Mexico or a foreign country other than Canada or Puerto Rico. Your policy does not provide adequate coverage for accidents in those countries.  (Your policy may extend some coverage to accidents in Mexico, but the coverage is very limited and you shouldn’t count on it providing adequate protection for your family.)  If you don’t plan to rent a car while vacationing in a foreign country, but may be using some form of public transportation such as buses and taxis, consider buying special trip insurance to cover medical and other expenses that may result from an accident -see Trip Insurance below. 

If you rent a car while vacationing in the U.S., your auto policy provides limited coverage for damage to the rent car and other claims arising out of the operation of the rent car.  However, we recommend you purchase the damage waiver offered by the rental company for complete protection.  (We have a separate report available on rental car exposures.  Please ask and we’ll send it to you.) 

If you rent a car in a foreign country, you will definitely need special coverage.  Ask the rental company what they offer, and see Trip Insurance below.

Recreational Vehicle and Watercraft Risks.  If you rent any kind of recreational vehicle or watercraft on your vacation, your auto or homeowners policy may not cover damage to the rented vehicle or watercraft, or injury to others or damage to property owned by others.  To be safe, we recommend you ask the rental company if a damage waiver and liability insurance is available for an additional charge. 

Personal Property.  Your homeowners policy covers property you take on vacation anywhere in the world, but the amount of coverage on property away from home may be lower than the limit shown on your policy. In addition, most policies won’t cover unusual types of losses you might encounter on vacation. For example, there may be no coverage if a monkey at the wild animal park or a bear at the campground shreds luggage or other personal belongings. Also keep in mind the policy may contain very small limits of coverage for money and jewelry, so take special precautions if you carry more cash and jewelry on vacation than you would usually carry at home.

Your policy covers theft, but you must report the theft to local authorities.  Obtain a copy of the police report before leaving the area, especially if the loss occurs in a foreign country.

Liability Risks.  The liability section of your homeowners policy applies to accidents anywhere in the world, but all policies contain exclusions related to certain activities like the recreational vehicle and watercraft activities mentioned above.  For the typical liability risks, however, like injuring someone while fishing, or setting the hotel room on fire, your homeowners policy will pay claims or defend lawsuits in the U.S. or any foreign country.  If you don’t already have a personal umbrella policy, ask us about this.  These policies provide high limits of liability over and above your auto and homeowners policies, and may also cover unusual exposures not covered by those policies.

Trip Insurance.  Trip Insurance covers canceled or interrupted trips, as well as emergency medical coverage and rental car coverage for U.S. citizens traveling abroad. It typically comes in a package that covers these and other exposures, although it can be purchased to cover a single exposure. Package policies are the most common and once were sold primarily by travel agents. However, with growing numbers of travelers making travel plans themselves on the Internet, web sites offering Trip Insurance are flourishing. For an example of one of these sites, take at look at insuremytrip.com

Vacation Time is Insurance Check-Up Time
Contact our agency for a review of your policies before you go on vacation. This is an excellent time to consider purchasing those higher limits and broader coverages we’ve been telling you about.

Premium – Homeowners Policy

Why is my neighbor’s homeowners insurance premium less than mine?

Homeowners policies are like cars. There are different types with different options. And all of those options affect the premium. Your neighbor may have chosen a higher deductible, or chosen to buy a policy that does not provide as much coverage, or chosen to buy a lower amount of insurance.

There are other factors that affect the premium as well. Without reviewing your neighbor's policy it is hard to tell whether they purchased a “Chevrolet” or a “Cadillac”.

Insurance to Value – Homeowners and Dwelling Policies

How much insurance do I need on my home?

This is a great question, and one that our customers ask frequently.

You should have an amount of insurance that is sufficient to rebuild your home in the event it is totally destroyed by a fire, tornado, hurricane or other insured catastrophe. 

It’s estimated that about 60 percent of American homes are underinsured by an average of 22 percent, according to a company that provides building-cost data to the insurance industry. 

Your home is probably your largest single investment, so insuring it adequately is an important part of maintaining your financial independence. 

The amount of insurance should cover the cost of rebuilding your home at current construction costs, not including the value of the land.  Don’t think about the price you paid for your home or the appraised value.  The cost of rebuilding could be more or less than the price you paid or could sell it for today.

Besides the cost of materials and labor you normally consider when thinking about building a home, there are other considerations such as

  1. The expense of clearing debris from the lot before rebuilding can begin
  2. Fees for an architect or other design professional to estimate costs and produce plans to be followed by the contractor
  3. Rapid inflation in the cost of building materials and labor following a major catastrophe that affects a number of homes in the same area
  4. Local building codes that require replacement  with additional features or more expensive materials

Debris Removal
When rebuilding a home after a loss, you can’t start the process until the lot has been cleared of the debris.  This is an additional expense you wouldn’t incur if you were building a home from scratch.  All insurance policies pay for this expense, but some pay more than others. 

Some policies pay debris removal expenses in full, but the payments reduce the amount of insurance available to replace the home.  Other policies provide an additional limit for debris removal expenses on top of the amount available to replace the home, usually 5 percent or more of the limit of insurance shown on the policy for your home.

Extended Replacement Cost Coverage
After a major hurricane or a tornado, building materials and construction workers are often in great demand. This can push rebuilding costs above homeowners policy limits, leaving you without enough money to cover the bill. To protect against such a situation, you can buy a policy that pays more than the policy limits.

An extended replacement cost policy will pay an additional amount – up to 20 percent or more – above the limits, depending on the insurance company. A guaranteed replacement cost policy will pay whatever it costs to rebuild your home as it was before the fire or other disaster. 

Not all insurers offer these features, so be sure to ask us to find an insurance company that does offer them if this exposure is important to you.

Building codes
Local building codes are updated periodically and may have changed significantly since your home was built. If your home is badly damaged, the building officials in your community may require you to rebuild it  to meet new building codes.   Some communities require you to demolish undamaged parts of the home if they determine the damage exceeds a certain percentage of its value.

Most insurance policies include the extra expense of rebuilding to code, up to a certain dollar amount like $5,000 or a certain percentage of the limit like 10 percent.  But the amount provided generally does not increase the limit of insurance.  Most insurance companies offer an additional limit for building code coverage for an additional premium. 

To fully cover the additional costs related to required building code enforcement, you must add the necessary amount to the limit of insurance or purchase additional coverage if offered by the insurance company.

Whose Job Is It to Determine the Proper Amount of Insurance?
Ultimately it is your responsibility to establish the value of your property and select the amount of insurance for your policy.  We can help with that decision and explain what you can do to avoid an unpleasant surprise after a loss.

Help Is Available
There are several resources available to help you determine an appropriate amount of insurance on your home.  Remember:  Home values and rebuilding costs change all the time, so it’s a good idea to do this annually when your policy renews.

  1. Obtain a real estate appraisal from a qualified professional.  Unfortunately, the cost of such an appraisal may be prohibitive, but some insurance companies who specialize in writing higher-valued homes pay for such appraisals as a service to their policyholders.
  2. Use the insurance company’s replacement cost estimator.  Almost all major insurers offer this service.  It is an automated program provided by a leading aggregator of building cost data (such as Marshall & Swift (www.marshallswift.com).  You provide information on your home – such as square footage, type of construction and special features – to input into the computer program.  Some insurance companies will provide “guaranteed replacement cost” coverage if you agree to purchase the limit of insurance recommended by the replacement cost estimator.
  3. Use your own replacement cost estimator.  For example, AccuCoverage by Marshall & Swift (www.accucoverage.com) will provide a real-time estimate based on the information you submit on their website for a fee of $7.95 charged to your credit card.
  4. Talk to a local home builder.  But keep in mind that they are usually building new homes from “scratch.”  The cost per square foot for new construction is generally less the cost to rebuild.  Ask the builder what a typical cost per square foot is for remodeling or adding a room to home – that’s generally closer to the actual cost of rebuilding a damaged home.

 

Electronic Equipment - Texas Personal Auto Policy

Do I need special coverage for my GPS, DVD player and other electronic equipment in my vehicle?

This is a great question, and one that our customers ask frequently. 

Americans have developed a love affair with their electronic toys.  TVs, DVD players, GPS devices, satellite radio receivers, VCRs, CD players, computers, tape decks, and stereos (and more) have all multiplied and spread from the home to the automobile, where there is a much greater chance for these items to be stolen or damaged in an accident.  For that reason, some insurance companies have developed special ways to either cover or not cover electronic devices on the standard auto insurance policy, or charge an extra premium for covering them.

Your personal auto policy covers equipment designed for use with an automobile and attached to it or normally carried in it, but some exclusions and limitations apply, including:

  • No coverage for stereos, radios or other sound reproducing equipment (such as tape decks, CD players, DVD players, video cassette recorders and players, and audio cassette recorders and players), unless these items are permanently installed in your vehicle.  An item is permanently installed when it is at least bolted or attached to the vehicle in some way to prevent easy removal. When these items are covered because they are permanently installed, the most the insurance company will pay for loss of or damage to the items is $1,500 less your deductible.  A higher amount of coverage may be available for an additional premium.
  • No coverage for CB radios, 2-way radios, telephones, or scanning monitor receivers, or any accessories related to these devices (such as antennas), unless these items are permanently installed in the opening of the dash or console normally used by the auto manufacturer for the installation of a radio.  Coverage on these items may be available for an additional premium.
  • No coverage for radar detectors or other speed measuring equipment.
  • No coverage for televisions in a pickup or van.  Coverage is available for an additional premium.
  • No coverage for tapes, CDs, DVDs or other devices used with equipment designed for the reproduction of sound.  Coverage may be available for an additional premium. 

If you use or carry electronic equipment in your vehicle, call your agent and ask him or her to help you complete an Electronic Equipment Checklist.  The checklist will help your agent determine if additional coverage is needed and available.

Credit Rating – Homeowners and Personal Auto Policies

Why does my credit rating affect how much my insurance costs?

This is a great question, and one that our customers ask frequently.

There have been a number of studies in Texas and other states that have shown a direct relationship between credit and claims. The state of Texas allows credit as a rating factor because the impact of credit can be proven like other factors including prior claims, driving experience or the age of a home.

For example, we know that more young drivers will have accidents than experienced drivers. Even though not every young driver will have an accident, they all pay more for insurance. And everyone else pays less.  The same is true when credit ratings are used to develop premium for auto and homeowners policies.  Those with good credit ratings typically pay less for their policies.

Taking Insurance to College

My son (daughter) is leaving home to attend college this fall.  Will my auto and homeowners insurance policies cover him (her) while at college?

This is a great question, and one that our customers ask frequently.

When college students move from home to their home-away-from-home - a rented dorm or apartment – insurance issues can arise and should be addressed before they leave home.

One key question that arises in discussing these issues is whether the student is still considered a resident of your household.  This is a legal question, but your homeowners and auto policies both contain provisions that apply the broadest coverage available in those policies to persons who are legally considered residents of your household.

It is generally accepted that students living away from home while attending college are residents of their parents' household. Based on previous Texas court decisions, the real test is whether the absence of a person from the household is intended to be permanent or only temporary - whether there is physical absence coupled with intent not to return. This leaves a great deal of room for interpretation. There may be borderline cases that require you to think about alternatives. For example, it may be difficult to consider a 23-year-old graduate student living in an apartment year-round to be a resident of your household.

Homeowners Policy

Your homeowners policy covers personal property owned or used by a resident of your household while the property is located anywhere in the world.

However, most policies limit the amount of coverage on personal property to 10 percent of the amount shown on the policy for personal property, when the property is located at another residence away from the home address. 

Look at your policy and find the limit provided for personal property.  Take 10 percent of that amount, and then think about the items your student has taken to college:  clothes, TV, computer, other electronics, furniture, and household items.  How much would it cost to replace all those items if they were all lost at the same time in a fire or other catastrophe?

In addition to the dollar limitation, some policies don’t cover theft of personal property from the student's residence, except while the student is temporarily living there. This is a definite problem, especially when the apartment is owned, or rented for a 12-month term, and the student comes home for the summer.

Your homeowners policy also provides liability coverage in case a family member is legally liable for another person’s injury or damage to another person’s property.  This coverage clearly applies to accidents at home or away from home, but some policies limit the coverage when an accident occurs at an owned or rented residence other than the family home.  Some insurance companies offer liability coverage at separate residences for an additional cost.

After all of the above information is considered, it's easy to see there are potential coverage gaps in your homeowners policy when a student leaves home for college. That’s why we recommend that you purchase a separate tenant or renter’s homeowners policy for the student's residence, whether it is an apartment or a dorm room.  The cost of such a policy is small compared to the benefits it provides. 

Automobile Policy

If your student takes one of your family vehicles to college, the coverage provided by your family automobile policy follows the vehicle anywhere in the United States and Canada.  This includes coverage for damage to the vehicle itself (if you have purchased such coverage on that vehicle) as well as liability coverage for injury or damage to other persons or property.

If your student doesn’t take a vehicle to college, some coverage under your policy may still apply if they are riding in or even driving a vehicle belonging to someone else.

Students Who Are Not Legal Residents of Your Household

Coverage complications can arise on your homeowners or auto policy if your student for whatever reason is not considered a legal resident of your household, as was mentioned in the first part of this article.  We encourage you to discuss your personal situation with us and your attorney.  To be safe, we will likely recommend separate homeowners and auto policies for the student. 


These answers were prepared and made available to your agent by the Independent Insurance Agents of Texas, which is solely responsible for its content. Please read your insurance policy. If there is any conflict between the information in this article and the actual terms and conditions of your policy, the terms and conditions of your policy will apply. The Independent Insurance Agents of Texas is a non-profit association of more than 1,800 insurance agencies in Texas, dedicated to helping its members succeed, in part by providing technical resources that explain insurance policies sold to their customers.


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