FAQs

The insurance industry is typified by insurers with a number of different organizational forms. Stock insurers are corporations owned by the shareholders of the firm. The shareholders hire managers to run the company, and the insurance product is sold to customers who may or may not be shareholders in the firm.

Mutual insurers are companies that are owned by their customers. Any policy owner of the company also owns a portion of the company. Reciprocal insurers, or reciprocal exchanges, are insurance companies where the policy owners of the exchange agree to insure one another. They are very similar to mutual companies.

Lloyd’s associations are insurance companies where the manager who makes the decisions for the firm also has his or her own personal wealth at stake in the firm.

Blue Cross/Blue Shield insurers are typically nonprofit, although some may now be for-profit, community-oriented health insurance providers. Blue Cross/Blue Shield companies typically offer traditional indemnity health insurance.

HMOs, or Health Maintenance Organizations, are companies that provide comprehensive health care coverage to their customers. HMOs, in their simplest form, provide prepaid health care coverage. Once you pay your premium, you can use the services of the HMO at little or no further cost to you.

From the customer’s point of view, the company that offers you the product and service you want, at the quality you desire, for the lowest cost should be the company you purchase insurance from, regardless of its organizational form.

Economists have tried in numerous studies to identify which organizational form can provide the insurance product at the lowest cost, and the answers are mixed. Therefore, potential customers should probably base their purchasing decisions on other factors, such as the financial quality of the firm.

Insurers deliver their insurance products to policy owners primarily through independent agents or exclusive agents. Historically, almost all insurance agents were independent business people paid on commission. More recently, many insurance companies have adopted a system where the agent is a paid employee of the firm rather than an independent business person. These agents are referred to as exclusive agents.

Independent agents have the freedom to shop your insurance with multiple insurance companies. Exclusive agents generally represent one insurance company and offer that company’s products.

Since independent agents are not employees of a single insurance company, they may also be able to offer more objective claims guidance and more personalized claims service. Some exclusive-agent companies require policyholders to call a centralized customer-service number rather than contacting their agent directly.

The personal, customized service provided by independent agents has remained an important part of the insurance industry.

Many property-casualty and life insurance products can be purchased without the use of an agent. Potential policyholders may be contacted through mail or internet advertisements, or they may call a toll-free number to apply for an insurance product.

These companies may claim to offer better pricing by cutting out the middleman. However, they also spend significant amounts on television, radio, mail, newspaper and online advertising, as well as employee and distribution expenses.

Without a local agent, a consumer may give up personal, customized service from a trained insurance professional. By purchasing insurance through an independent agent, a consumer can often speak with the same people whenever questions, policy changes or claims arise.

Insurance is a product in which the insurance company promises to make future loss payments in return for a premium you pay today. It is therefore important to understand the financial health of an insurer when deciding whether to purchase its products.

For example, all other things being equal, a person may be willing to pay slightly more for a life insurance policy from an insurance company with a stronger financial rating, or slightly less for the same policy from a company that is not as financially strong.

To help consumers make informed decisions, private organizations known as rating agencies evaluate the financial stability of insurance companies. Major insurance rating agencies include AM Best, Standard & Poor’s, Weiss Ratings and Moody’s.

Each organization uses its own information and rating standards, so the grades assigned by different agencies may vary. Consumers may want to review ratings from multiple agencies to understand the range of opinions regarding an insurer’s financial health.

The publication Best’s Review periodically contains information about the assets, premium income and products sold by many of the largest insurance companies operating in the United States.

The publication is produced by AM Best. Public libraries in medium-sized and large cities may provide access to the publication or its online resources.

When you apply for an insurance policy, you will be asked a number of questions. For example, the agent may ask for demographic information such as your name, age, address and other identifying details.

You will also be asked questions that help the insurer determine the type of risk you represent. When an insurance company is deciding whether to offer auto insurance, for example, it may ask about your driving record, recent accidents or tickets, the type of vehicle being insured and other relevant information.

This information is generally used for two purposes. First, the insurance company determines whether the applicant’s profile is consistent with the types of risks the insurer accepts. Some insurers specialize in offering coverage to drivers with particular risk profiles.

Second, once the insurer determines that it can accept the risk, the answers help determine the appropriate rate. For example, the company may determine whether the applicant qualifies for a lower-risk or higher-risk driver rate.

Collectively, this process is known as underwriting. The underwriting department decides whether to offer insurance to an applicant and, if so, evaluates the risk so that an appropriate premium can be charged. In general, higher-risk applicants pay more than lower-risk applicants.

Talk to your insurance agent about any car insurance discounts that may be available to you. Depending on the insurance company, these may include:

• Multi-car discounts
• Policy renewal discounts
• Claim-free discounts
• Student discounts
• Driver training discounts
• Defensive driving course discounts
• Anti-lock brake discounts
• Airbag discounts
• Anti-theft device discounts
• Auto and home policy discounts

You can also ask your agent how much you may be able to save by increasing your deductibles.

Insurance companies frequently offer lower rates to homeowners who take steps to protect their homes against theft, accidents, fires and other losses. Companies may also offer discounts to customers who purchase multiple policies, such as home and auto insurance.

The following improvements may help you qualify for lower premiums:

• Secure your home with deadbolts and window locks.
• Install a security system with an outside signal and a connection to the local police department.
• Install and regularly maintain smoke detectors.
• Install a residential fire sprinkler system.
• Install a fire alarm that automatically alerts the local fire department.
• Purchase your auto and homeowners insurance from the same company.

Available discounts vary by insurance company, so speak with your agent before making improvements specifically for insurance savings.

Discounts may be available if your boat is equipped with certain safety or navigation equipment. Ask your insurance agent or broker whether you qualify for discounts based on equipment such as:

• GPS equipment
• Ship-to-shore communication equipment
• VHF radio
• Depth sounder
• Fire-suppression system
• Fume detector
• Alarm system
• Navigation equipment

Discounts may also be available for completing an approved boating safety course. If you have completed a U.S. Coast Guard or similar certification course, ask your insurance company whether it qualifies you for a discount.

“Full coverage” is an informal term commonly used to describe a combination of legally required and frequently requested auto insurance coverages. It does not mean that every possible loss will be covered under every circumstance.

A policy described as having full coverage may include:

• Bodily injury liability coverage
• Property damage liability coverage
• Uninsured motorist coverage
• Underinsured motorist coverage
• Comprehensive coverage
• Collision coverage
• Rental car reimbursement
• Towing or roadside assistance
• Additional equipment coverage

The coverages and limits you have selected are listed on your auto insurance policy’s declarations page. Review that page with your insurance agent to understand exactly what your policy covers.

Coverage varies by insurance policy and state, so you should consult your insurance agent before driving another person’s vehicle.

In many cases, an auto policy may provide liability coverage when you occasionally drive someone else’s vehicle with permission. However, coverage may be limited if the vehicle belongs to someone in your household or is furnished for your regular use.

Your policy may not provide physical damage coverage for the borrowed vehicle. In addition, coverage provided by your policy may apply only after the vehicle owner’s insurance coverage has been used.

It is recommended that you maintain a detailed home inventory containing information about your personal property. At the time of a loss, a complete inventory can help you remember what was damaged or destroyed and support your insurance claim.

Your home inventory may include:

• A written list of your belongings
• Photographs or videos of your personal property
• Receipts for major purchases
• Serial numbers for electronics and appliances
• Records of additions, renovations or improvements made to your home

When photographing collections such as china or silverware, arrange the items so the number of pieces, patterns and identifying details are visible.

Store your inventory, photographs and receipts in a secure location away from your home, such as a safe deposit box, secure cloud storage or another protected location.

If you have an auto insurance policy that includes comprehensive and collision coverage, some of your existing protection may extend to a rental vehicle. However, coverage varies by policy, insurance company, rental agreement and location.

Your personal policy may not cover every charge imposed by the rental company, such as loss-of-use fees, administrative fees, diminished value or certain deductibles.

Before declining the rental company’s coverage, contact your insurance agent or company to verify how your policy applies to the specific rental vehicle.

Rental reimbursement coverage generally helps pay for a temporary rental vehicle when your insured vehicle is being repaired because of a covered claim, such as an accident.

It typically does not apply when your vehicle is unavailable because of mechanical failure, routine maintenance or normal wear and tear.

Rental reimbursement limits and covered situations vary, so review your policy or contact your insurance agent for details.

In most cases, licensed drivers living in your household must be disclosed to your auto insurance company and listed on your policy.

An exception may apply if the driver has a separate auto insurance policy or is otherwise excluded in accordance with state law and the insurance company’s rules.

Notify your insurance agent when your child receives a learner’s permit or driver’s license so the company can explain its requirements and any available student or driver-training discounts.

The people covered under an auto liability policy depend on the policy language and applicable state law. Coverage commonly includes:

• Named insured: The person or people specifically named on the policy, subject to the policy’s terms and exclusions.
• Spouse: The named insured’s spouse may be covered, particularly when both spouses live in the same household.
• Resident relatives: Family members who live in the named insured’s household and are related by blood, marriage or adoption. This may also include a legal ward or foster child.
• Permissive drivers: A person who drives the insured vehicle with the owner’s permission may be covered, subject to policy restrictions.

A person who steals or uses the vehicle without permission is generally not covered. Some policies also restrict or exclude coverage for unlisted household drivers, business use or drivers who have been specifically excluded from the policy.

There is no single liability limit that is appropriate for every business. The right amount depends on your industry, operations, contracts, assets, risk exposure and the legal environment in the areas where you do business.

The following considerations may help you determine an appropriate level of liability insurance:

• Review judgments involving similar businesses. Research significant legal judgments against businesses like yours in the areas where you operate or sell products and services. Keep in mind that purchasing limits high enough to cover the largest possible judgment may not always be practical or affordable.
• Evaluate your assets and liabilities. Review your balance sheet to understand what your business has to protect. However, liability judgments are not necessarily limited by the value of your current assets.
• Consider your revenue and income. Your income statement may provide additional perspective on the size and financial capacity of your business, although future liability awards may still exceed your current earnings.
• Determine what coverage you can reasonably afford. Cost is an important consideration, but choosing limits based only on price may leave your business exposed to judgments that exceed your policy limits.
• Review your contracts and leases. Customer agreements, vendor contracts, property leases and equipment leases often require specific minimum liability limits. These requirements may establish the minimum amount of coverage your business must carry.
• Consider industry practices. Review the limits commonly carried by similar businesses and competitors in your area. An insurance agent familiar with your industry can provide general guidance based on comparable business risks.

Selecting liability limits requires a careful review of your business operations, potential loss scenarios, contractual obligations and financial resources. Your insurance agent can help identify your exposures and discuss primary and umbrella liability options that may be appropriate for your business.

Yes. Commercial insurance companies offer package policies that combine several important business coverages into one policy.

One of the most common options is a Business Owners Policy, often referred to as a BOP. A BOP typically combines commercial property and general liability coverage and may include business interruption or other protections, depending on the insurance company and policy.

Other commercial package policies may be designed for larger or more complex businesses. Insurance companies also offer specialized programs for particular industries, such as:

• Auto repair garages
• Auto dealerships
• Jewelers
• Barbershops and beauty salons
• Apartment buildings
• Retail stores
• Professional offices
• Restaurants and other hospitality businesses

The coverages included in a package vary by insurer and industry. Your insurance agent can help determine whether a packaged policy or a customized combination of separate policies is more appropriate for your business.

Workers’ compensation insurance provides benefits to employees who experience a work-related injury or illness. It is part of a system designed to balance the interests of employers and employees.

In general, employees receive benefits established by state law and, in exchange, typically give up the right to sue their employer for covered workplace injuries or illnesses. Benefits may include:

• Medical expenses
• Partial replacement of lost wages
• Rehabilitation expenses
• Disability benefits
• Death benefits for eligible dependents

Requirements vary by state, but many employers are legally required to carry workers’ compensation insurance or otherwise demonstrate that they have the financial ability to pay required benefits.

Workers’ compensation policies may also include employers liability coverage, which can help protect the business against certain lawsuits related to employee injuries that are not handled exclusively through the workers’ compensation system.

Commercial general liability and workers’ compensation policies generally do not cover claims involving employment-related allegations such as discrimination, harassment, wrongful termination, retaliation or certain violations of employment laws.

Businesses can purchase Employment Practices Liability Insurance, commonly known as EPLI, to help protect against these types of claims. Depending on the policy, EPLI may respond to allegations involving:

• Discrimination
• Harassment
• Wrongful termination
• Retaliation
• Failure to promote
• Improper hiring or disciplinary practices
• Certain alleged violations of employment-related laws

One of the most important features of EPLI is coverage for legal defense costs. Even when an allegation is ultimately found to be unfounded, the cost of responding to and defending the claim can be substantial.

Coverage terms, exclusions, reporting requirements and defense provisions vary significantly by policy. Businesses should also maintain clear employment policies, provide supervisor training and document hiring, disciplinary and termination decisions carefully.

Not always. Many life insurance companies offer policies that do not require a medical examination. Instead, applicants complete a health questionnaire as part of the application process.

Depending on your age, health history, the amount of coverage requested and the insurer’s underwriting guidelines, the insurance company may require a medical exam before approving your application.

A medical exam is more likely to be requested if:

• You are applying for a large amount of coverage.
• You have a significant medical history.
• Your application raises questions that require additional review.

If the insurance company requires a medical exam and you choose not to complete it, the insurer may decline your application.

Yes. Unlike many health insurance plans, life insurance companies generally evaluate your medical history as part of the underwriting process and may decline coverage or charge a higher premium based on your health.

A pre-existing condition is a medical condition that existed before you applied for coverage and that may affect the insurer’s assessment of your risk.

Depending on the company and the condition, you may:

• Qualify for coverage at standard rates.
• Be approved with higher premiums.
• Be offered a different policy type.
• Be declined for coverage.

Every insurance company has its own underwriting guidelines, so eligibility and pricing can vary significantly from one insurer to another.

The amount of life insurance you need depends on your financial goals, family situation and long-term obligations. Before purchasing coverage, it’s important to evaluate both your current finances and your family’s future needs.

Factors to consider include:

• Final medical expenses and funeral costs.
• Outstanding debts, including mortgages and personal loans.
• Estate taxes or other financial obligations.
• Income replacement for your family.
• Living expenses during a transition period.
• Child care and education expenses.
• College tuition for your children.
• Retirement needs for a surviving spouse.

A commonly used guideline is to carry life insurance equal to five to seven times your annual gross income. However, this is only a general rule of thumb and may not reflect your individual circumstances.

Your insurance agent or financial professional can help calculate a coverage amount that reflects your family’s specific financial needs and long-term goals.

A long-term disability can have a significant financial impact on a family. In fact, many people are statistically more likely to become disabled during their working years than to die before retirement.

Disability income insurance is designed to replace a portion of your income if you are unable to work because of a covered illness or injury.

Depending on the policy, disability insurance may help provide:

• Monthly income replacement.
• Financial support during a temporary disability.
• Coverage for many illnesses and injuries.
• Flexible policy options based on your occupation and budget.

Coverage options, waiting periods, benefit periods and exclusions vary by policy. Your insurance agent can help you compare available options and determine the level of protection that best fits your needs.

Eligibility requirements for group health insurance vary by state, insurance carrier and the type of business.

In many cases, a small business can qualify for group health insurance with as few as two eligible participants, provided the insurer’s minimum participation requirements are met.

Participation requirements typically specify:

• The minimum number of eligible employees.
• The percentage of eligible employees who must enroll.
• Employer contribution requirements, if applicable.

Your insurance agent can explain the eligibility rules that apply to your business and help you compare available group health plan options.

The steps you should take depend on the type of claim. In all cases, protect people from immediate danger, take reasonable steps to prevent additional damage and contact your insurance agent or company as soon as possible.

Property Loss

• Report the loss promptly to your insurance agent and provide the date, location and a description of what happened.
• Take photographs or videos of the damage before cleanup or repairs begin.
• Take reasonable steps to prevent additional damage, such as covering a broken window or stopping a water leak when it is safe to do so.
• Keep receipts and records for emergency repairs, temporary lodging or other expenses related to the loss.
• Separate damaged property from undamaged property when possible, but do not discard damaged items until the insurance adjuster has inspected them or authorized their disposal.
• Prepare a detailed inventory of damaged, destroyed or missing property. Include purchase dates, purchase locations, estimated values and original receipts when available.
• Obtain estimates for repairs or replacement when requested by your insurance company.
• If the loss involves theft, burglary or vandalism, contact the police promptly and request a copy of the police report.

Auto Loss

• Contact emergency services and report the accident to the appropriate police department when necessary.
• Contact your insurance agent or company and provide the date, location and details of the accident.
• Take photographs of the vehicles, damage, roadway and surrounding area when it is safe to do so.
• Obtain a repair estimate from a qualified body shop if requested by your insurance company.
• Allow the insurance company an opportunity to inspect the vehicle before repairs begin, except when emergency repairs are necessary to protect the vehicle from further damage.

General Liability Claim

• Contact your insurance agent and provide the date, time, location and a description of the incident.
• Provide the names and contact information of injured parties, property owners and witnesses.
• Preserve photographs, surveillance footage, incident reports, correspondence and other documentation related to the event.
• Do not admit fault, promise payment or negotiate directly with the claimant without guidance from your insurance company.
• Forward lawsuits, demand letters, subpoenas and other legal documents to your insurance agent or company immediately.

Workers’ Compensation Claim

• Arrange for immediate medical attention when an employee is injured or becomes ill because of work.
• Contact your insurance agent or workers’ compensation carrier for claim-reporting instructions.
• Be prepared to provide the employee’s identifying and employment information, the date and location of the incident and a description of the injury or illness.
• Complete any required employer incident reports and preserve witness statements, photographs and other relevant records.
• Follow instructions from the insurance company regarding medical treatment, claim documentation and communication with the employee.

Serious workplace incidents may also be subject to federal or state reporting deadlines. Employers should promptly review applicable OSHA and state requirements following a fatality, hospitalization, amputation or loss of an eye.

Your first priority after an accident should be the safety of everyone involved.

• Move to a safe location when possible, but do not leave the scene of the accident.
• Check for injuries, provide reasonable first-aid assistance and call emergency services when needed.
• Contact the police and complete any reports required by state or local law.
• Exchange names, addresses, phone numbers, driver’s license information, vehicle information and insurance details with the other driver.
• Record the date, time and location of the accident, as well as the names and contact information of passengers and witnesses.
• Take photographs or videos of the vehicles, license plates, damage, roadway, traffic signs and surrounding conditions.
• Cooperate with law enforcement, but avoid admitting fault or making assumptions about who caused the accident.
• Do not sign statements or agreements for anyone other than law enforcement or an authorized representative of your insurance company without first seeking appropriate guidance.
• Report the accident promptly to your insurance agent or company and provide all available documentation.

Before driving in another country, including Canada or Mexico, contact your insurance agent to confirm whether your existing coverage applies and whether additional insurance or documentation is required.

If anyone is injured, provide reasonable first-aid assistance and call emergency services immediately.

Once everyone is safe, take reasonable steps to prevent additional property damage. This may include shutting off a water source, covering exposed areas or moving undamaged belongings away from danger, provided it is safe to do so.

• Contact your insurance agent or company promptly.
• Photograph or record the damage before making temporary repairs or beginning cleanup.
• Preserve damaged items for inspection unless they create a health or safety hazard.
• Keep receipts for emergency repairs, temporary accommodations and other claim-related expenses.
• Prepare an inventory of damaged, destroyed or missing belongings.
• File a police report if the claim involves theft, vandalism or another suspected crime.

Avoid permanent repairs until the insurance company has had a reasonable opportunity to inspect the damage or has authorized the work.