Insurance Q&A: “What is a time deductible?”

Most of us are familiar with the concept of an insurance deductible.

Whether it’s the co-pay on a health insurance policy, the wind and hail deductible on a homeowner’s insurance policy, or the comprehensive and collision deductible on an auto policy, we are expected to share in the cost of our insured “losses.”

A deductible on an insurance policy has a few basic purposes. One is to keep us from filing “ticky-tack” insurance claims. If there was no deductible on our auto insurance policies, you might have individuals filing claims to fix rock chips in the paint on their cars.

Who cares? Anyone who pays an insurance premium. The costs to process the paperwork and pay an insurance adjuster would skyrocket if these types of claims were common…which would raise EVERYONE’S premiums.

Additionally, a deductible “forces” us to take more care of our property and ourselves. Without being forced to share in the costs of our “losses,” we might not maintain our property with such resolve.

For example, some people might not be in too big of a hurry to move their car into a garage during a hailstorm if they thought their insurance company would simply come out and fix the car for if it were damaged.

What Does Time Have to do With It?

A “time deductible” is a different animal. This type of deductible is not related to the sharing in the cost of physical property or our medical expenses (for tests and medication).

Rather, a time deductible typically comes into play when you are insuring the loss of income, which is not tangible property.

Specifically, your insurance policy may dictate that you wait a certain period of time, perhaps 72 hours, before they will begin to compensate you for your lost income.

So instead of reducing your claim payment by $1,000 (a typical auto deductible), you simply wait a few days before your payments kick in.

Time Deductible Examples

A few examples will be the best way to demonstrate the concept of a time deductible on an insurance policy.

1. Commercial General Liability Insurance – part of the CGL policy may be Business Income coverage. Imagine your company suffered a major fire. It may take you weeks or months to get back on track to earning revenue. Would your company survive three months without a single dollar of income?

Business Income coverage on a CGL policy would indemnify you for your lost income in the event you couldn’t continue your normal business operations due to a covered claim.

Your policy may have a time deductible that states you will not receive the “lost” income payments until after at least 72 of being out of business.

2. Landlord’s Insurance – perhaps you have a rental income property that cannot be occupied due to a covered loss…let’s say a fire. You certainly can’t expect your tenants to continue to pay rent while they’re not living in your dwelling.

Your insurance policy may cover “loss or rents,” also referred to as “fair rental value,” but you might have to wait out the time deductible prior to receiving claim payments for your financial loss.

Can I Avoid a Time Deductible?

Depending on the type of policy you have and what coverage you opt to add to your policy via endorsement, you may be able to choose no time deductible.

This means you may be reimbursed for loss of income immediately following your “loss.”

Similar to a “dollar amount” deductible, you can expect to see an increased premium for choosing a shorter time deductible or no deductible at all.

So be sure to weigh your options before making a decision.

Insurance Q&A: “How much do insurance agents make?”

Just like any other commission based sales job in the world, the sky is the limit as far as income goes for an insurance agent. However, it’s not that cut-and-dry.

There are a number of ways to get into the industry as a sales agent and a lot of products to potentially master and sell. How much you get paid depends on where you start.

It’s also worth noting that, just like any other sales job, you should not expect to earn very much money until you have built a solid client base. This can take anywhere from 2-5 years depending on how hard you beat the pavement.

Expect 10 “No’s” for every single “Yes.” This means you will likely “pitch” to 100 people to sell 10 insurance policies, which should be at least half of the sales you’ll need to make to earn some decent money every single month. If you’re not already scared, keep reading.

How Property and Casualty Insurance Agents Are Paid

Typically, an insurance agent is paid a commission, or percentage, of the total insurance premium the insurer charges for a given policy. Property and Casualty (auto, home and business) insurance agents typically earn anywhere between 7% and 20% commission on each policy sold. If you forced us to come up with a solid number, we’d say 12% is what you can expect on average.

Example: $1,000 auto insurance policy at 12% commission would net you $120.00

Each year, assuming your client is still happy and continues to insure with you, you will earn a “renewal” commission. Renewals are where the money’s at, as you do not have to advertise or spend time quoting the policy for it to renew.

If the client makes the renewal payment, you get paid again…it may even happen when you’re sleeping. Renewal policy commissions are often slightly less than the initial commission you get paid for the “new business.” New business may be 15% and renewals only 10%.

As you can see, a few years into the process of building your “book” of business, the renewals from previous years virtually make your income exponential. There are few products you can sell where you get paid each year, whether you worked with the customer or not.

Example: Last year’s auto policy from the example above renews ($120.00) and you sell a new auto policy on the same day the following year, earning another $120.00 – your income for that day is now $240.00. Not a bad day’s work.

The average insurance agency, if run well, should have a target of retaining 90% of the previous year’s business.

You might lose 10% of the previous year’s business from unhappy clients who didn’t feel their insurance claim was handled well, so they shopped around and found cheaper insurance…or maybe their third cousin became an agent and they simply switched their insurance policy to him or her.

How Life & Health Insurance Agents Are Paid

Life and Health insurance agents get paid a little differently. There is still a commission, but quite a bit more is paid upfront compared to property and casualty insurance. There are also renewal commissions, but these are paid at a much lower percentage (although maybe not less overall money than a property and casualty policy, as the premium is often substantially higher).

Example: You sell a $10,000 whole life insurance policy and receive 55% commission for the first year, which is $5,500. The renewal commission may be as low as 3%, which still nets you $300 per year.

Some life insurance companies may pay as much as the entire first year’s premium as a commission, and then not offer renewal money. The combinations of new and renewal commission for life and health insurance can vary greatly depending on the company.

Do You Want to Own an Insurance Agency or Work for One?

How much money you earn as an insurance sales agent can also vary greatly based on whether you start your own agency or work your way up at an existing agency. Of course, there are pros and cons to both options.

In the long run, if you’re getting into insurance sales so you can afford a yacht, being the agency owner is your goal.

It’s the same as any other industry. You make more money as an employer (if you’re good enough) than as an employee, but it requires more work.

Insurance Agency Owner

Expect to make much less in the short run if you open your own insurance agency, as every dime of your income from sales will be put back into keeping the bills paid and the doors open for the first couple of years. BUT, and this is a huge “but,” you’ll make significantly more money in the long run as an agency owner…if you can manage to stay in business.

Many insurance agencies are handed down to family members or simply purchased by someone who has enough money to buy one and doesn’t want to take the time to build the business from scratch.

Agent in Someone Else’s Insurance Agency

If you are new to the industry, you will likely start as a Customer Service Representative (CSR). If you are good enough at the job, and decide you like insurance enough, you may be able to “move up” to an agent, working on behalf of your employer.

The upside to this method is that you earn money immediately upon selling an insurance policy. You do not have to pay the phone bill, rent, utilities, insurance (yes, insurance agents need insurance), etc. That’s the owner’s problem.

You might expect to have your expenses paid, and in a large enough insurance agency, a processor to do your paperwork…which is a good portion of the job.

The downside is that you will be splitting your commission earnings with the owner of the agency you work for. After all, the insurance companies who offer these products will not let “anyone off the street” represent them and sell their insurance. If you’re new to the industry, you will have to ride someone else’s coat tails until you get your footing.

Captive or Independent?

You will also have the option of being a captive agent or trying to become an independent insurance agent. Captive agents typically sell insurance for only one company, whereas an independent agent sells insurance for multiple different companies.

Captive Agents

For captive agents, think Farmers and State Farm. This option is great for people who don’t know the first thing about insurance. Pass a “sales aptitude” test and you’re off to the races with these types of insurers.

Many captive agents switch over to becoming independent agents after enough time in the industry, as captive insurers typically have a limited “appetite” from an underwriting standpoint. You will turn many clients away if State Farm does not want to insure the individual because they are “too risky.”

After becoming a successful captive agent and building your confidence, you may decide that you want the ability to insure anyone who walks through the door. This means you want to be an independent agent.

Independent Agents

It’s much harder to become an independent agent, as you actually have to prove you know what you’re talking about to represent the various insurance companies.

You’ll very likely need to demonstrate that you have previously sold a lot of insurance to qualify for a contract to sell insurance products independently. The commissions are higher here, but you need to satisfy multiple insurer’s requirements from a policy standpoint.

You may represent 10 companies, and each of them could expect you to sell a minimum of five policies per month, or they will terminate your contract and not allow you to sell their product anymore.

So going independent will likely require a few years of experience in the industry, starting by working with an existing independent agency or buying one.

To sum it up, there are a number of different ways you can make money as an insurance agent, and what you put in is what you’ll get out, much like any other sales job. Don’t expect it to be easy.

Insurance Q&A: “What is a named insured?”

You may come across this term when you are shopping for insurance coverage.

While there shouldn’t be any trouble figuring out who a particular named insured will be for an insurance policy, it’s important to understand why an individual (or entity) is a named insured and what rights/obligations come with being designated as such.

So, Who is the Named Insured?

The “named insured” on any insurance policy is the individual(s) or entity that is listed by name on the declarations page.

It is important to note that on a personal lines insurance policy, homeowner’s insurance for example, a spouse is automatically considered a named insured even if he or she is not listed, as long as they live together.

There are a few rights and obligations of being a named insured on a particular policy:

1. A named insured is required by policy conditions to immediately report any losses to the insurance company. Ultimately, if you are not listed by name on a particular insurance policy (or the spouse of someone who is), you will not be filing insurance claims for financial compensation in the event of a loss.

2. A named insured may assign a policy to another party (subject to the insurer’s approval). An example may be when a particular property is sold; the named insured can request the policy be transferred to the new owner. This is a LONG SHOT, as the new party would be subject to the insurer’s underwriting guidelines. This was more common many years ago when insurance policies were much less complex from a pricing standpoint.

3. Only a named insured can request a mortgagee clause be added to a property policy. For the record, the individual or entity referenced in the mortgagee clause would be notified if the property policy cancelled. This is when lender forced property coverage would come into play.

What About the First Named Insured?

This one’s easy. The first named insured on any policy is the person whose name is listed first on the declarations page. There may be more than one “named insured” on a policy, but someone has to be the first! Why does this matter?

There are a few situations in which being the first named insured will come into play during a particular policy term:

1. An insurance company is only obligated to send a policy cancellation notice to the first named insured. The only exception to this rule, discussed above, is when a mortgagee is added to a policy.

2. Loss reimbursement checks (claim payments) are made out to the first named insured. Note: Larger property claim payments, in which there is a mortgagee, above $10,000 for example, must also be signed by a representative from the lender or lien holder. Why? The lending institution, which technically owns your home, is certainly going to want to be involved in the claim payment process. They don’t want you cashing a $15,000 check for a roof damage claim and not actually making the repairs to the property!

3. The first named insured must be the one to formally request a policy be cancelled.

Who Else is Automatically “Insured?”

You do not necessarily have to be “named” by name on a policy in order to be covered as an insured.

You would have to read your policy “Definitions” to determine who will technically be “insured.”

The best example of an insured (by definition and not “name”) would be relatives or children who reside in your household on a homeowners or renters insurance policy.

Their individual names will not be listed anywhere in the policy, but they are certainly covered from a liability standpoint.

What About Additional Insured?

Most of the examples above deal with personal lines insurance policies such as homeowners, auto and renters policies. Things get pretty complicated in a hurry when we’re talking commercial insurance.

An additional insured is an individual or entity other than the named insured that benefits from the coverage offered by the policy.

For the record, adding additional insured is usually FREE depending on what type of business you operate.

(photo: quinn.anya)

Insurance Q&A: “What is actual cash value homeowners insurance?”

Actual cash value (ACV) is a loss settlement method designed to pay no more than the depreciated value of your home (and likely your personal belongings) in the event of a loss/claim.

Ultimately, if you suffer a property loss, the insurer will pay the cost to repair or replace your damaged property, or its depreciated value…whichever is less.

Your home’s ACV is its depreciated value at the time of a loss, so obviously it can change over time.

You may opt to purchase this type of home insurance policy if you are not “in for the long haul” with regard to your current residence.

Since you will receive the depreciated value of your home if there’s a total loss, you would not likely have enough money to rebuild the structure the way it was…you’ll get a check from the bank, but not for an amount large enough to rebuild.

There are many things to consider when entertaining an ACV home insurance policy. First, you will need to verify if such a policy is acceptable with your lender.

Secondly, be sure you understand how you’ll get paid in the event of an insurance claim, and make certain to insure your home for the correct value (if the insurer doesn’t choose the value for you).

Overall, if you love your home and want to live in it (or one just like it) for a long time, you’ll opt for a replacement cost home insurance policy, as an ACV policy would likely leave you short of a rebuild.

How to Calculate Your Home’s Actual Cash Value

Every insurer may use a different technique, but you might find the following method useful. Here are the steps:

Step 1. Calculate your home’s replacement cost (RC). This number can vary depending on where you live in the United States (there are online calculators available for this exercise). You might try multiplying your home’s square footage by $100 for an estimate.

This means you expect your home would cost $100 per square foot to rebuild. This number may be $300 per sq. ft. if you live in a mansion.

Tip: Your home’s replacement cost and its actual cash value will be the same number if it’s a brand new build.

Step 2. Determine your home’s depreciation. There is often a limit for depreciation allowance. Perhaps 1% for up to 30 years of age (30% total) is the maximum allowable depreciation.

Step 3. Subtract the depreciation allowance from the replacement cost estimate and voila, you have the minimum ACV for your home.

Here’s an example:

Year of Construction: 1985
Square Footage: 1,000
Your home’s replacement cost: $100,000 (1,000 sq. ft. x $100)
Your home’s maximum allowable depreciation: $27,000 ($100,000 RC x .27 – 27 years of age)
Your home’s ACV: $73,000 ($100,000 RC – $27,000 depreciation)

Again, each insurer’s calculation can be different. Your home’s ACV may be much lower if your insurer allows for $75 per sq. ft. replacement cost instead of $100 per sq. ft. ($54,750 using the calculation method above).

You will certainly want to work with an independent insurance agent (who represents several insurers) to find the insurer who “does it” the way you need it done!

Why You Need to Get It Right

Simply put, you don’t want to over insure or underinsure your home. Remember, the amount of money you receive will be the ACV as determined by the insurance company, which may not exactly match what you thought it was when you purchased your policy.

Guess too high and you’ll be overpaying for coverage you won’t ever see if you file an insurance claim. Guess too low and you could be leaving money on the table in the event of a total loss.

Your insurer will NEVER pay more than the coverage limit on your declarations page. You might like the idea of saving a few insurance premium dollars by guessing low, but will be pretty sad if you suffer a total loss and find you could have received an additional $20,000 after your home burned down.

The coinsurance provision in your policy contract may also come into play here. Your policy may actually have a penalty for not insuring your home within a certain percentage of its true ACV.

This penalty basically reduces the amount of ANY property claim payment by a percentage based on how “far off” you were on your calculation.

Of course, there is no penalty for over insuring your home – other than the fact that you will be paying for coverage you won’t receive in the event of a claim.

Tip: Some insurers will perform an inspection of your property after your policy is issued and give you the opportunity to insure your home to the value they believe is accurate. Fail to do so and the coinsurance clause can bite you at claim time.

Can I Insure My Home for Actual Cash Value?

This will depend on whether or not you have a mortgage. Remember, if you have a mortgage, you don’t really own your home. The bank does. Therefore, you have to insure it according to their rules.

Their rules usually dictate that you have a replacement cost loss settlement homeowners insurance policy. Why? They want to ensure their “asset” is replaced in the event of a large loss. Your home’s ACV may be less than what you owe on your mortgage. This would leave your lender “upside down” if the house was destroyed…and they won’t go for that.

(Replacement cost vs. actual cash value)

You may also be subject to lender forced insurance coverage if you have a mortgage loan and fail to maintain coverage on “their” home. You want to avoid this at all costs.

We just couldn’t help ourselves. TTAI doesn’t take its eye off the ball even over the Holidays. Each year many of us make a list of resolutions that likely won’t last through January…the author of this article included. Mostly, our resolutions are about lifestyle changes. Lose weight, eat better, and spend more time with loved ones.

But what about some resolutions that may save hundreds of dollars in insurance premium or thousands of dollars when it comes to insurance claims?

The insurance resolutions below may only take a few minutes to complete, but the benefits may last a lifetime!

Without further ado, here are the top 10 insurance resolutions for 2012 (and every year after).

1. Get Online Quotes – It takes all of five minutes and may save you hundreds of dollars in premiums. You’re already online. Get some insurance quotes and stop wondering if you are overpaying for coverage.

Tip: How to get the best online insurance quote.

2. Ask for Discounts – If you own a television set, you know discounts are all-the-rage, as insurers fight to retain your business.

Tip: You need a new agent if your current agent recommends increasing deductibles or lowering coverage to save money when you inquire about discounts.

3. Bundle Home and Auto – You may earn discounts if you get both your home and auto insurance with the same insurer.

Tip: Don’t settle for just the discount. Shop online and see if you are still paying too much. Every insurer has different rates. Bundling with your current insurer may still be more expensive than switching to another insurer altogether.

4. Consult an Independent Agent – The days of driving to the closest State Farm, Farmers or Allstate agency and paying whatever they ask are over. Independent insurance agents can often get you better coverage at a lower premium.

Tip: The companies independent agents represent don’t spend $500,000,000 of your premium dollars on advertising each year. Chain insurers are the “insurance equivalent” of Bank of America.

5. Get Renters Insurance – Renters insurance is one of the cheapest insurance policies out there…think $200-$400 per year. Just because you rent doesn’t mean you cannot suffer a huge property or liability loss. Can you afford to re-purchase everything in your apartment if it burns down this year?

Tip: Your landlord’s insurance policy does not cover your “stuff.”

6. Review Your Current Coverage – Do you still pay for comprehensive and collision insurance (full coverage) on your 15-year-old car? Do yourself a favor and drop that coverage if your car isn’t worth that much anymore.

Tip: Your auto insurance company will pay you the LESSER of the cost to repair or replace your damaged vehicle or it’s actual cash value at the time of the loss…regardless of how much it means to you personally or how much you pay to insure it.

(Why do insurance companies total cars?)

7. Inventory Your Personal Property – Do you have a list of everything you own? We didn’t think so. You will be required to provide an inventory of your contents in the event your personal property is lost, stolen or damaged and provide it to you insurer. Take video, pictures or write a list and keep it in a safe place. We recommend uploading this list to your email account, where you can access it from any computer on planet Earth that has an Internet connection.

Tip: Do you want to make that list now while you still have your “stuff”…or from a hotel room after your home or apartment has burned down. We’ll bet you a shiny nickel you’ll miss a few things if your home burnt down. Also, you insurer doesn’t just write you a check for your “Contents” limit; you must provide a list to them in the event of a loss.

8. Research Your Current Insurer – We’re not talking reading angry posts on the Internet from individuals who didn’t follow steps 1-7 above. We’re talking court cases here. Many large chain insurers are currently being sued by the states in which they conduct business. The lawsuits range from overcharging for coverage to underestimating your home’s replacement cost (to keep their premiums lower). You have the Internet…use it.

Tip: Google the phrase “lawsuit” and any company who advertises on television every 30 seconds and you’ll see the light.

9. Read Your Policy – Even TTAI knows this isn’t fun. But would you rather find out you didn’t have coverage for a particular loss after it happens or before? While the policy language is mind numbing, you’ll find that asking your agent of insurer for a laymen’s terms explanation of a particular coverage is pretty easy.

Tip: Your agent will not be attentive after a claim if she/he isn’t attentive to your coverage questions prior to a claim. Again, do you want to know what kind of agent you have before or after you file a claim?

10. Stick to Your Resolution – Just like laying off the chocolate or soda, real results come from continued discipline and effort. “Set it and forget it” works for cooking a turkey…not for your insurance. This is one of your top expenses in the budget. Treat it as such.

(photo: John Brennan)

Insurance Q&A: “Is homeowner’s insurance tax deductible?”

The true cost of owning a piece of property is often substantially higher than just your monthly mortgage payment. The two biggest additional costs come in the form of property taxes and insurance.

And while the continuation of the mortgage interest tax deduction is currently up in the air, for the time being it can still be deducted from your taxable income. Keep your fingers crossed on that one if you’re a homeowner. Even if it’s kept intact, it may be reduced.

But what about a deduction for those costly homeowners insurance premiums? Not so fast. There is currently no tax deduction available for this common expense. You are simply “out” the money for personal homeowner’s insurance costs as far as good old Uncle Sam is concerned.

What Property Insurance Is Tax Deductible?

However, property and homeowners insurance may be tax deductible in certain instances. Namely, when the insurance premiums are being incurred as part of a business venture. The two most common examples of when home and property insurance are tax deductible are landlord policies and home businesses.

Landlord/Rental Properties – Being a landlord is a business venture. As a result, almost all of the expenses associated with operating your “business” qualify as tax deductions…landlord’s insurance policy premiums included.

Home Businesses – There are some instances in which you can deduct part of your personal homeowner’s insurance premiums for a home-based business. We’re not talking your “computer room” here. You must have a legitimate home office and be self-employed.

You may lease a certain portion of your personal home to your business to help qualify for this deduction. Ultimately, your business may write a monthly check to you in order to occupy the space in your home. But be careful with this one. Consult a tax advisor before you file to ensure you are not red-flagging yourself for an audit by trying to cheat the IRS!

Private Mortgage Insurance (PMI) – You may also qualify for a tax deduction on PMI, which is necessary if your mortgage loan was more than 80% of the value of your home when it was purchased. Again, consult your tax advisor before attempting any such deduction.

The Good News?

Okay, so we know you’re probably bummed that homeowners insurance premiums generally can’t be deducted on your income taxes.

But it’s not all bad news. If you happen to file an insurance claim, which likely isn’t good news, for what it’s worth, claim payments you receive from your insurer are generally not taxable.

And hey, it probably wouldn’t be worth getting the small tax deduction on your homeowner’s insurance premium if you had to trade that for a tax on a property claim settlement, which could end up costing you thousands of dollars on a large enough claim!

Read more: Is car insurance tax deductible?

Unlike a homeowner’s insurance policy, condominium (and renters) insurance policies are designed to cover your personal property and liability, not the physical structure you live in.

The coverage difference is due to a key aspect of insurance, which says you must have a financial interest in something in order to benefit financially from a loss.

Simply put, as a condo owner, you do not own the building you live in. Therefore an insurance company would not pay you in the event the building was damaged. It would be like buying a car insurance policy for your neighbor’s car.

You can’t be sure you are purchasing the correct type of condo unit owners insurance policy until you know what type of policy the condo association has in place to insure the building you reside in. The condo association will already have a Master Policy in place, and it will dictate what property you are responsible for insuring.

What is a Master Policy?

The Master Policy is the condo association’s policy. It will detail exactly where the condo association’s coverage ends and where yours should begin. It is absolutely necessary for you to understand this before you purchase coverage.

You will see one of the following policy types:

1. “Bare Walls” – This type of master policy DOES NOT include coverage for anything inside of, or attached to, the physical walls of the condo. With a bare wall Master Policy, you are responsible for everything other than the walls and the building. This means you would need coverage for damage to any appliances, carpet, plumbing, wiring, interior (and possible exterior) fixtures and cabinets.

2. “Single Entity” – This type of Master Policy is more comprehensive than the bare wall option. The condo association’s policy will not only cover the building and walls, but also the carpet, appliances and cabinets. Of course, you’re still responsible for your personal property.

Tip: There are some insurers whose condo policy will automatically “adjust” to whatever the Master Policy requires. However, you would still need to know which you have, as this will help you purchase the right amount of coverage.

Again, it is important you know exactly what type of Master Policy is in place prior to choosing which type of condo insurance policy you need to purchase. Failing to do your research and “taking a guess” could cost you a lot of money in the event of a property damage claim.

What Does the Condo Unit Owners Policy Cover?

There are a couple of major coverage types available for the condo unit owner’s policy. They mostly mimic the homeowner’s insurance policy, again, with the exception of coverage for the actual building itself.

Personal Property – This is your “stuff.” You need to carefully evaluate the replacement cost of everything you own in order to choose the correct coverage limit for this section of the policy. This is also where you would need to consider if you are responsible for appliances, cabinets, carpet and fixtures. You will certainly want to have limits high enough to replace or repair your personal property as well as any additional items not covered by your association’s Master Policy.

Personal Liability – Liability coverage would be triggered in the event you are sued for negligence that results in bodily injury or property damage to others. A Master Policy will not contain coverage for your negligent acts. For example, if someone slipped-and-fell in your unit, you could be sued in order for that individual to collect damages. Experts recommend you purchase at least $300,000 in personal liability coverage.

Medical Payments – This is a no-fault type of medical coverage that would pay a small benefit to an individual who was injured on your property. There are no lawsuits involved here and the policy limits for this type of incident rarely exceed $10,000.

Loss Of Use – This coverage is designed to pay for your additional expenses in the event you are not able to occupy your unit due to a covered loss. For example, you might have to stay in a hotel for an extended period of time if your unit was destroyed by a fire. The limits for this coverage may be expressed as a dollar or time limit. You might have a policy that offers up to $20,000 in coverage or one that may provide 12 months worth of expenses.

There can be a number of additional coverage possibilities available beyond the basics listed above, so speak to your insurance agent or insurer to determine what your options are.

Tip: You should always obtain coverage for water back-up. It is not necessarily included on these types of policies. If your property is damaged by water from a backed up sewer or drain, you would have no coverage without this endorsement.

Something to Consider

Not all policies are created equal. Simply reviewing the coverage limits and overall cost of a policy may not be enough to ensure your policy is adequate to properly insure you.

You must also seriously consider the types of perils you’re property is insured against. After all, having the highest coverage limits at the cheapest price doesn’t mean squat if your claim is denied because you weren’t insured against a certain event that damaged your property.

The difference lies in whether or not you have a “named perils” or “all perils” coverage form.

Put simply, you want the all perils policy. This type of policy will cover damage to your property that results from “any direct physical damage that is not specifically excluded.” Basically, you are insured against any possible reason for damage, rather than just a few perils the insurer will cover.

The named perils option doesn’t have any exclusions because it doesn’t need them. If the damage to your property is not caused by an insured peril, it’s simply not covered.

Finally! A television ad campaign from State Farm that actually talks about one of their insurance products, as opposed to simply showing Lebron James dancing in a parking structure.

But wait, it gets better. The new insurance-centric ad focuses on one specific product, State Farm’s renters insurance program.

In fact, they specifically tout the ability to get you a policy for as little as $4 per month if you bundle auto insurance with them as well.

Insurance for only $4 per month!? While it may sound too good to be true, it is very possible because renters insurance doesn’t tend to cost all that much regardless of where you purchase it.

So, is this a good deal or not?

Depends on the Coverage…

Let’s face it. We’re all out for the best deal we can get when it comes to our insurance expenses. And best typically means cheapest.

However, it’s more important to ensure the coverage is adequate. Not only do you need enough coverage to replace or repair your personal property, you also need to be covered against the right perils (this is equally important).

What do we mean? Well, you could have $50,000 worth of coverage for your personal property, but if your “stuff” is damaged by a sewer or drain back-up and you don’t specifically have coverage against that type of loss, you’re simply out of luck. Claim denied!

So be sure to verify with your State Farm insurance agent exactly what is, and more importantly, isn’t covered by their renter’s insurance policy. After all, $4 per month is pretty darn cheap!

If it’s a named perils policy rather than an all perils policy, you should probably move on. Again, if things like water back-up aren’t covered, you may want to opt for a different insurer who offers more comprehensive coverage.

Should I Bundle Auto and Renters Insurance with State Farm?

Good question. Only if it makes sense financially. A $4 monthly renter’s insurance policy may not be worth your time if you have to purchase a more expensive auto insurance policy in order to qualify for it.

In other words, if you’re overpaying $100 a month for their auto insurance coverage simply to get a cheap renters insurance policy, you may want to go back to the drawing board.

Do the math and shop around to find the best of both worlds. You may have to pay $10 or $20 a month for a quality renters insurance policy, but if your car insurance is $50 or $100 less a month, you win.

Just be sure to do your homework! And consider using an independent insurance agent, one who can shop all lines of insurance, including auto, home, renters, and so forth with multiple carriers all at once.

Tip: Depending on who you rent from, renters insurance may be required as part of your lease agreement (Is renters insurance required?).

Spoiler alert! Yes, it is generally bad news to allow your insurance to lapse, no matter what type of insurance you’re talking about.

Insurers don’t like it for a few different reasons, and in most cases, you can expect to shell out more of your hard-earned dollars if you let your coverage expire.

Why Do Insurers Hate Lapsed Coverage?

Insurance is a business of promises…and paperwork…lots of paperwork. Any time a policy lapses, i.e. your coverage stops because you stop making payments on time or let a policy expire without another policy lined up, the insurance company has more work to do.

It begins with the agent or customer service representative who has to take you phone call in order to set up a new policy or reinstate the policy that lapsed.

Once the phone call is handled, the paperwork begins. You may have to sign a “statement of no loss” if you are reinstating an existing policy (which proves you didn’t have a claim while the coverage lapsed) or completely re-write your insurance policy, which means starting at the beginning again.

Big deal, right? Some paperwork. Why are insurance companies complaining about paperwork? Well, there are also financial costs involved with getting you back on track.

Not to mention the profit the insurer expects to make is calculated assuming your policy only has to be “touched” once per term, assuming there is no insurance claim activity.

(How do insurance companies make money?)

Additionally, the insurer may have to re-run your insurance score, MVR and C.L.U.E reports, which all cost money.

Each time the policy is “touched,” the overall profit margin shrinks. Again, who cares, right? Insurers make a lot of money and this is the nature of the business. Think again.

Your Cost For a Lapse In Coverage

There are a number of ways you can be “dinged” for allowing your coverage to lapse. First, the obvious “reinstatement” fee. Remember the reports and paperwork from earlier. Well, don’t think the insurers are just going to eat that cost.

You may be able to get away with one short-term lapse on a policy by getting the fee waived, but let it happen twice or more and you can expect to start paying the fee regularly. If you are having trouble making the payment as is, you’ll certainly struggle if your insurer tacks on a $25 fee each time you’re late.

This fee can be the least of your problems if you are a habitual offender. Lapse too many times or for too long of a period, and the insurer may choose not to reinstate your current policy. Now you are in the re-write stage, where you can expect to re-pay the non-refundable policy fee…on top of making the last payment you missed to “catch up.”

What If My Insurer Won’t Reinstate My Current Policy?

So you’ve lapsed one too many times or for an extended period of time…this may result in your insurer refusing to re-issue a new policy for you because your policy was inactive for too long a period of time.

Now you may have to obtain coverage from a different type of insurer, one who will certainly charge you more for you overall policy.

Why? Because the new insurer doesn’t use fees to get you in line…they simply make you pay more from the beginning, as the cost of doing business with people who allow their policy to lapse is “built in” to their pricing structure.

But wait…there’s more! You may lose out on discounts for previous, non-lapsed, coverage. The same policy may cost much more with a previous lapse in coverage than it would for someone with continuous coverage for a certain period of time.

Special Tip for Home Insurance

Make it a habit to keep your home insurance paid up to date, especially if you have a mortgage. Your lender will be notified if your home coverage lapses.

If this occurs, you will enter the world of lender forced property coverage.

Not only does this coverage not protect your home’s contents or your liability (neither are of the slightest concern to your lender), but it can cost as much as three times what coverage would cost from an actual insurer.

Worst Case Scenario?

This depends on the type of policy we’re discussing. None are good, but let’s take a look at some possible outcomes of a lapse in coverage with different policies:

Car Insurance: You cause an accident that “totals you car” and someone else’s. The other driver is taken to the hospital with a severe neck injury – Result? Pull out your check book and get a second and third job to pay for all of the damages out of your own pocket…as well as your bankruptcy lawyer’s fees.

Life Insurance: You miss a payment and the coverage lapses. You die and your family is left with a mountain of bills and none of your much needed income. “Thanks Dad!”

Home Insurance: You were dropped by one insurer and didn’t bother to pick up a new policy…during tornado season.

You see where we are going with this. Have fun repaying the mortgage for the next 30 years, while living in your parents’ basement.

In summary, make it a habit to ensure your insurance payments are up-to-date and never lapse.

No matter what’s standing in the way of making the payment on time, try to imagine how “busy” or difficult your life would be if any of the above examples happened to you.

Read more: Is insurance paid monthly or yearly?

The relationship between an insurance agent and an insured should be a close one, built on mutual respect and most of all, trust.

Of course, there may be complaints on both sides. You may feel like your agent only calls you when he or she needs money, and your agent may feel like you only talk to him or her when you get into an accident or have a problem.

But like any other relationship between two human beings, there are likely going to be some white lies committed by both sides.

This article examines the top 10 most frequently told lies between insurance agents and their insured.

Of course, it’s important to note that these lies are the exception and not the norm. Most agents are hard working, helpful and honest business people.

First we’ll look at the top five white lies agents tell their customers.

Insurance Agent Lies

1. The lie: “This is the lowest insurance premium I can get for you.”

The truth: A captive insurance agent can never guarantee you the lowest available rate, as they only represent one insurance company. As far as independent agents go, some agents are partial to a specific carrier for ease of use or maybe they receive a higher commission from a particular insurer that doesn’t offer the lowest rate.

2. The lie: “You need to call the insurance company for help with that.”

The truth: Some agents, in an effort to minimize their workload, may instruct an insured to call their insurance company to make a payment or ask a billing question. In reality, most insurers are set up to allow agents to process payments out of their offices.

3. The lie: “You need this coverage to be safe.”

The truth: There are some unscrupulous agents out there that oversell coverage or policy add-ons. While it is recommended you always purchase as much coverage as you can afford, there are some basic guidelines you can follow regarding how much auto or homeowners insurance you might need (10 insurance policies you may not need).

4. The lie: “You don’t need all that extra coverage.”

The truth: Conversely, there is the agent who tries to get the lowest premium in town by skimping on coverage for their insured. Let’s face it, we’re all looking for a good deal, but when it comes to insurance, it’s better to have the coverage you need than a rock-bottom premium. When working with an agent, be sure to ask why they made the recommendations they made. If they can’t give you a straight answer, shop around.

5. The lie: “I will call you right back with that answer.”

The truth: Many insurance agents are small business owners. As such, they have limited time and a limited expense budget (when it comes to adding staff). Their goal is to have as many policies in force as possible. This often times leads to the, “I’ll call you right back” line, which may be said with the best intentions and not followed through on. You may need a new agent if yours makes it a habit of not returning your calls promptly.

Insurance Customer Lies

1. The lie: “Yes, I am the only licensed driver in the household.”

The truth: Agents know that insured often tell this white lie to avoid paying a higher premium for that family member who has MVR and C.L.U.E. report activity. Some insurers are capable of looking up relatives and others who have lived in your home or simply have the same name and force you to list or exclude them in order to issue a policy.

2. The lie: “I don’t have any tickets, accidents or insurance claims (that I can remember).

The truth: Almost every insurance company in America runs and MVR and C.L.U.E. Again, similar to #1, you probably won’t get away with playing the “foggy memory” card. The agent may be fooled, but the insurance company will find those speeding tickets.

3. The lie: “I don’t use my truck for business purposes.”

The truth: The ladder rack and the magnet on the side of your truck in conjunction with your paint stained clothing gives you away every time. For the record, it can be less expensive for a commercial auto policy than a regular personal auto policy in some cases, so there is no reason to tell a fib or worry about the cost.

4. The lie: “I do not run a business out of my home.”

The truth: Homeowner’s insurance policies typically offer “incidental business occupancies” or some other form of business coverage as an endorsement option to expand coverage for your small home-based business. If your business doesn’t fit that model, it is recommended you find an independent agent who can find you a policy that will allow your exact home business. At the end of the day, if you get caught in this white lie, you may have a claim denied.

5. The lie: “Yes, I want that policy and I will call you back with my payment information.”

The truth: This one hurts the most. If you are not interested, please say you aren’t interested. Agents should be hardened sales people, so they can take the fast “no” a lot better than a drawn out maybe. In fact, you’ll be saving them time and money, as they can move on to something else rather than spending time working a dead lead.

As you can see, most of the white lies going in this direction are told in order to save money, whereas on the insurance agent side, most are told to make money or avoid doing work.

Whether you believe a lie is harmless or not, when it comes to insurance, a lie can leave both the agent and the insured in a tough spot.

So whichever side you happen to be on, try to be as accurate as possible when selling/shopping for insurance. After all, it’s certainly better to be safe than sorry.

Tip: 10 ways to lower your car insurance premium.