General Insurance FAQ

General Insurance FAQ

Insurance varies by situational events, companies, states, and countries. Please keep in mind the answers that follow are as general as possible to address the most common questions we receive.


General Information

The comments and answers herein are opinion only and should be taken as generic advice. For legal advice, speak with a lawyer or your insurance agent, or carrier representative.

This information is for illustrative purposes only and is not a contract. It is intended to provide a general overview of the programs described. Please remember only the insurance policy can give actual terms, coverage, amounts, conditions, and exclusions. Program availability and coverages are subject to individual underwriting criteria.

Common Insurance Questions

The deductible is the portion of the claim you chose to pay before insurance kicks in. Higher deductibles typically provide lower insurance premiums and vice versa. The deductible is either paid to the insurance company or just removed from the payout sent to you or the repair facility; it varies by carrier.

Using a local independent agent allows you to provide information to one agent and have them shop with multiple carriers on your behalf. Be cautious if shopping for yourself online through direct channels because you are now your own insurance agent and you are purchasing without any professional guidance on correct limits and coverage for your specific situation which provides limited recourse if you find your coverage inadequate after a loss. 

A hard market is characterized by higher prices for insurance driven by decreased access to capital for insurance companies and stricter guidelines for insurance policies. Due to lower investment returns, frequent or more severe losses, and other economic influences, investors may see insurance as a less desirable investment, making less capital available in the insurance market. This makes pricing increase as the cost of capital rises. In hard market conditions, insurance companies often adhere to stricter standards. As a result: • insurance rates and premium often rise • the amount of capital investors are willing to provide decreases • the number of insurance providers in the market decreases (less supply) • coverage restrictions or exclusions are more likely • insurance companies may non-renew policies that are less favorable • the insurer may require more information for your policy. 

A string of natural disasters and the residual effects of the economic downturn have been the main causes for changes in the insurance cycle from soft to hard market conditions. Commons causes include: Catastrophic losses: Floods, hurricanes, wildfires and similar disasters are increasingly common and devastating. Years of costly disasters like these have compounded losses for insurers, driving up the cost of insurance. Claims costs: Claims are increasing in both frequency and severity year over year. The increase in payouts, including adjustment expenses, significantly raises the cost of a claim, and drives up the cost of insurance premiums. Underwriting standards: Insurers are struggling to overcome underwriting losses, which has made insurance companies and investors more cautious, and many are becoming more conservative in the risks they will insure. Investment returns: Nearly every insurance provider uses the funds it receives from premiums to invest in other markets. However, reduced interest rates can negatively impact profitability, which pushes insurance companies to reduce their appetite for risk. Reinsurance: Reinsurance is insurance coverage for insurance companies. Insurance providers often buy reinsurance for risks they can’t or don’t wish to retain fully. However, reinsurance is becoming more expensive to obtain, which is causing insurance providers to increase their rates. 

There is no magic calendar, however once insurance companies begin to see improved margins (due to higher premiums and/or lower losses), investment income improves and investors start seeing similar positive results; therefore, insurance once again starts looking like a stronger investment, which attracts more capital. As the capital supply starts to catch up with the demand, pricing and restrictions loosen. 

The primary reason is that insurance carriers are incurring more claims and expenses on an overall basis, and perhaps more than they are earning from premiums. An increase in losses and claims drive the need for increased pricing across the board for insurance providers. 

Some clients have taken that option, but you may need to check on other requirements, such as bank financing covenants, contractual requirements with clients and suppliers, and local regulations on what insurance protection is required for you and your business. While reducing insurance coverage may be an alternative, you should evaluate that against what losses you can absorb without creating financial hardship for yourself/your business.  

Although budgets may well be challenged by increasing premiums, it is important not to lose sight of the big picture: saving a relatively modest amount now by reducing coverage may negatively affect your property or business far more should a loss occur. Continue assessing your risk profile and link the purchase of insurance to it. Also, review your policies for the sums insured, and for coverage limits, to ensure your business or property is appropriately protected should a claim event occur. 

An insurance carrier is also known as an insurance company. They are the insurer and they create the product (the insurance policy). An insurance agency sells it. But there are more differences as well. The carrier creates the policy, decides what the policy will cover and what it won’t cover. They determine the limit of how much will be paid out if there is a claim. They take on the responsibility of the policyholder’s risk, and they pay out the claims. Insurance carriers are strictly regulated by the government to make sure they have the funds to cover the risks they take on.   

An insurance agency sells the policies created by the insurance carriers.  There are two kinds of insurance agencies. 

  • Captive/exclusive agencies — sell policies only for one insurance carrier. 
  • Independent agencies – sell policies for multiple insurance carriers. 

Captive/exclusive insurance agents: 

  • Represent one carrier only. 
  • Can only offer customers policies provided by that carrier. 

Independent insurance agents: 

  • Represent multiple carriers. 
  • Can offer customers a choice of insurance products from different carriers 

There is no one carrier that is right for everybody. Each company has their own ‘appetite’ and preferred demographic, territory, and other rating factors (such as multi-policy, multi-car, etc). In addition to this, insurance carriers are constantly tweaking their formulas based on the latest statistical data. Typically, if you shopped around and got the best rate from Company A – they will probably remain the best rate for you the following year barring some major changes. However, over time it may be worth to ask your agent to check some other options for you to make sure you are still getting the best coverage at the best rate. 

This depends on your loss ratio, recent claims, and all claims you have had in the past, as well as the state of the current insurance market. Consult your agent.  

Automobile Insurance

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Automobile Insurance

Liability limits needed vary by consumer as you are attempting to protect any assets you have in the event you cause damages to another person. Typically, the response is a minimum of $100,000 for each person for Bodily Injury and $300,000 aggregate with an additional $100,000 in property damage. However, it boils down to you and what you can afford. If you are unsure of what you need, we recommend speaking with a Wells Insurance Client Advisor who can review your situation and make adequate proposals.  

Full coverage is a layman’s term that has no true meaning to describing coverage in the industry. It misleads the average person by giving them the impression that everything and anything that happens will be taken care of by the insurance company. What most people mean when they say “full coverage” is that they have Comprehensive and Collision coverage. 

Comprehensive Coverage – Coverage that protects you against damages that are not related to a collision. (i.e. theft, vandalism, fire, falling objects, flooding, hitting an animal, etc.) 

Collision Coverage – Coverage that typically pays to fix or replace your vehicle hits another car or a stationary object like a bridge or tree.   

$30,000 per person for bodily injury liability, $60,000 per accident for bodily injury liability, $25,000 for property damage per accident.  

Anyone who operates your automobile is covered under your insurance, as long as they have a valid drivers’ license. Any at-fault accidents they cause will affect your premium. 

Tickets, accidents, and claims will generally cause your rates to increase at renewal. Also, due to inflation prices tend to rise over the long term and insurance companies are continually tweaking their prices to provide fairer and more competitive rates. If a certain class of customers is causing more losses than they are paying in premium than they will likely see a rate increase, while a class which is causing less losses will likely see a rate decrease or a flat renewal. Remember, you can always shop around to compare rates with other companies. 

It is important to note that insurance companies make almost no profit from premium, but from long-term safe investments of their premium take. This means they must carefully guard risks they take on as they measure their current pool of clients (risks). 

Uninsured motorist coverage covers damages in the event that someone without insurance runs into you. Underinsured motorist coverage covers damages over the limit of the individuals insurance that runs into you.

Bodily injury liability covers injuries to you and other drivers covered under your policy cause to others. Medical payments covers medical expenses you and your passengers may incur, regardless of fault. 

Most states have a mandatory waiting period that adjuster must follow before processing a claim without their customer’s recorded statement.  This is probably the most frustrating scenario when dealing with an insurance claim and each insurance company handles this situation differently.  If you have comprehensive/collision coverage on your vehicle at the time of the loss, you can use your own policy to start the repair process, but the cost will be subject to your deductible.  If your insurance company is successful in subrogating your claim (getting reimbursed by the at fault party’s insurance carrier) your deductible and any rental car costs will be reimbursed to you.  

If you did not leave enough room to safely stop, then the accident would be your fault. In rare cases involving merges or lane changes, you may not be at-fault, but this is very difficult to prove. If you carry collision coverage your insurer will fix your car, however you will be responsible for your collision deductible. 

No-fault refers to a system wherein your insurance company will cover your accident related injuries regardless of your degree of fault, not a system in which fault has no place.  Most territories using such a system place limitations on your ability to sue for accident related damages, however these usually don’t apply to property damage or more serious injuries, so you still need adequate liability coverage to protect your assets. 

You are entitled to the real market value of your vehicle. If you aren’t sure you can check NADA online and enter your vehicle’s information to get an estimate. 

Your vehicle did not have brand new parts on it at the time of loss, the insurance company is required to put you whole, not benefit you in excess to your prior status. You can opt for OEM parts and pay the difference out of pocket with most repair shops. 

Upkeep and general maintenance do not typically increase the value of your vehicle. 

You can’t. However, many insurance companies (and loan/lease companies) offer what is called GAP coverage for an additional premium. This will cover the different between your loan amount and your insurance payout. 

Make sure your claims adjuster has the proper trim level of your vehicle (eg Honda Accord EX/DX/LX) as well as the mileage and any other features or options that may be on your specific vehicle. If you feel that your offer isn’t accurate, provide your adjustor with comparable offers on vehicles in your area of the same year/make/model with similar mileage and overall condition and features.  

Homeowners, Tenant (Renters), and Fire Dwelling (Landlord) Insurance

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Homeowners, Tenant (Renters), and Fire Dwelling (Landlord) Insurance

Homeowner: You need homeowners insurance (sometimes called HO-3 or HO-5, HO-6 if you have a condo). This protects you when your home is damaged by helping pay for repair costs and reimbursing you for place to stay if it is uninhabitable. It will also provide protection if you (or your children/dog) injure other persons or their property by paying to settle lawsuits (or potential lawsuits) and providing a lawyer to defend you. 

Landlord: You need a landlord insurance policy (sometimes called a dwelling fire policy for reasons that are lost to history or a DP-3 or DP-6). This protects you when your home is damaged by helping pay for repair costs and reimbursing you for rent you lose while the property is uninhabitable. It will also provide protection if there is any sort of accident on your property by paying to settle lawsuits (or potential lawsuits) and providing a lawyer to defend you. 

Tenant / Renter: You need renters insurance (sometimes called HO-4). This protects you when your apartment burns down, floods, or gets blown away by helping replace your personal items (both on or away from your home) and reimbursing you for place to stay until you can find a new apartment). It will also provide protection if you (or your children/dog) injure other persons or their property by paying to settle lawsuits (or potential lawsuits) and providing a lawyer to defend you. 

ACV : The items lost in a covered peril (fire, theft, etc) are devalued based on age or depreciation, essentially the “actual cash value” of the item at the time of the loss.  For damaged structures repair or replacement cost is deprecated based on the age of the structure (or component thereof) versus its original useful life span, with adjustments based on current condition.  

RCV: The items lost in a covered peril (fire, theft, etc) are replaced with similar like and kind without devaluation applied.  Repair or replacement of damaged structures with like kind and quality of materials and workmanship is fully reimbursed. 

Your home insurance is used to rebuild your home in the event of a covered loss, eg; fire, it is not used to pay off the loan on the home. If you were to suffer a loss you would continue to pay on your mortgage / loan while the insurance carrier repaired/rebuilt your house. 

Homeowners insurance does not cover damages due to flood (rising water), but does cover some particular water damage. If the damage was due to a covered peril, for instance if a pipe burst and flooded the house, the water damage would generally be covered. Covered perils are stated in the policy. The owner is required to take steps to prevent further damage to the structure. Water damage due to neglect, or wind-driven rain may not be covered in this type of policy.   

Some carriers offer wind coverage with your homeowner’s coverage, but others do not. Some carriers offer standalone wind coverage that you can layer on to your current homeowners policy. The state also offers coverage through the North Carolina Insurance Underwriting Association (NCIUA), also known as the coastal property insurance pool. If you have a mortgage on your property, it is likely that you are required to have a wind policy by your lender. It is strongly recommended that in coastal areas like ours, that you obtain wind coverage, due to our hurricane history.  

Co-insurance may well be one of the most confusing and misunderstood terms in insurance. Co-insurance is the percentage of value that the policyholder is required to insure If you insure your property for less than that amount your insurance company imposes a “coinsurance penalty” once a claim is filed. The value is determined at the time of the loss and if the amount of insurance is found to under the stated coinsurance percentage then a penalty is applied reducing the claim payment. 

Here’s how it works: 

Let’s say you have a building that you believe would cost $100,000 to replace and a coinsurance penalty in your policy of 80 percent. You insure the building for $80,000 thinking you have fulfilled the coinsurance clause. A fire loss causes $60,000 worth of damage so you submit a claim. Your insurance company subsequently determines that the replacement cost of the building is actually $150,000. To determine how much to pay on the claim, the insurer divides the amount of insurance you purchased ($80,000) by the amount you should have purchased (80% of $150,000 or $120,000). The result (two-thirds, or $40,000) is the amount of your claim the insurer will pay. 

If the building had been insured for at least $120,000, the insurer would have reimbursed you for the full amount of the loss. Coinsurance can be tricky and potentially cost you a ton of money if you under insure your property. 

Many insurance contracts will limit coverage for items not directly damaged by a loss (ie. matching undamaged cabinets after a loss).  This is done in order to keep premiums affordable and if you are concerned about this happening to you, you should seek out a carrier which agrees to cover this type of repair. 

Life & Health Insurance

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Life & Health Insurance

Life Insurance

Term life insurance is great for covering set risks, 30 year mortgage can be covered by a 30 year term policy. You can then supplement this by adding a much smaller whole life policy because your end of life expenses should be lower once retired and debts like home, auto, etc have been paid off.

Enough to make sure your dependents live a similar lifestyle to what they do now. Prioritize children first, unborn (planned) kids second, mortgage, spouse and even parents. You don’t want your family to work through mourning your loss while still making sure to make ends meet. 

Is the life insurance provided from your employer portable (if you stop working there does it follow you)? If it is, then refer to previous, if not then you need to find a private insurance plan that meets the previous points. 

Health Insurance

Under the ACA, benefit sets have become much more standardized. If there’s been a qualifying life event or if it’s open enrollmentstart your search on the Exchanges. If you are employed, you may be better off enrolling in your employer’s group insurance plan, if they offer one. In general, if you are healthy you might want to look for higher deductibles with cheaper premiums. 

Generally, no, unless services you need aren’t covered by one, say by an HMO with no available in-network providers, (or one policy is free or very cheap). If you do have two policies, tell both companies so they don’t find out eventually and retroactively deny claims and make a mess for all involved. You get no say in who pays first. 

Health insurance is similar to auto insurance in that you are transferring risk from yourself to the insurance company. In this case, you are volunteering to pay nominal amount of insurance while passing on the risk of large claims (heart surgery, brain surgery, life threatening illness, life threatening injury) to the insurance carrier.  

Deductible: dollar amount you must meet before the insurance pays anything 

Copay and coinsurance: cost sharing, where coinsurance is a percentage of a charge and copay is a flat rate.  

OOP max is a combination of all the deductibles + coinsurance + copay for the year, limited by the ACA to $6850 per year for an individual. How the OOP max is met varies wildly. You could have a $6850 deductible and no coinsuarance or copay, or no deductible and 20% coinsurance up to the max. 

Commercial Insurance

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General Liability insurance has two policy triggers, Bodily Injury or Property Damage to a 3rd party. It is common for policyholders analyzing a General Liability form to only consider the limits. (i.e. $1 million per occurrence/$2 million aggregate). But to truly understand how your General Liability insurance should be structured, a thorough understanding of your business should be acquired by your agent, and that understanding should be applied to the underlying forms schedule. That will ultimately determine how the limits are accessed. Additionally, General Liability includes defense costs for any actual or alleged claim that triggers a covered cause of loss, with defense typically being outside of the limits (Thus in theory, defense costs are unlimited subject to the duty to defend clause). 

Workers Compensation premium on the face is derived quite simply. A four digit class code is assigned via the company operations first, then it may be further drilled down to the employee job duty level if there truly is a separation of duties (Example, a clerical employee working for a manufacturer would be classed in the manufacturing code if at any time they step into the manufacturing facility/area. Only if confined to an office with a separate exit would they be appropriately rated as a clerical employee). The four digit class code comes with a manual rate as determined by NCCI, a rate setting bureau for Arizona and 38 other states in the U.S. Payroll reported for each class code is divided by 100 and then multiplied by that rate, resulting in a manual premium. Manual premium is then subject to a few state associated fees and potentially an Experience Modification Score. An E-Mod (also known as Ex-Mod or X-Mod) starts at a 1.0, anything in excess of that 1.0 is a debit multiplier while anything lower than a 1.0 is a credit multiplier. 

An experience modification is a term referring to workers compensation. The experience modification number is regulated by the National Council of Compensation Insurers (NCCI), and has the ability to adjust annual premium dollars, based on previous losses. The experience modification industry average rating is 1.0. Any number below 1 indicates a company’s losses are below industry average, and may qualify for a lower premium. Any number above 1 indicates above average losses, and the company may have a slightly higher premium.   

Errors & Omissions adds Financial Loss to a 3rd party as a covered cause of loss. Any time a company gives a deliverable or widget that if erroneous in product or consultation (actual or alleged) can potentially cause financial loss to a 3rd party, Errors & Omissions should be considered. Boilerplate limits for E&O are 1 million in the occurrence and the aggregate. As with General Liability, how limits are accessed are ultimately determined by the forms schedule so again a thorough understanding of the business operations is necessary. Unlike General Liability, defense costs on the E&O side are typically inside the limits, thus they erode the potential for settlement. Errors and Omissions is also known as Professional Liability. 

There can be under a Cyber Liability Policy, which can include limits for Data Breach, Privacy Expense and even Voluntary Acts (This most often applies to phishing, where an employee will voluntarily hand over information to a malicious third party after being mislead). If your company holds any amount of data or has any data pass through their server, this type of policy should be considered. Data Breach and Privacy Expense can provide coverage for the Federal Statutory minimum of 3rd party credit monitoring for those whose records have been breached along with costs for public relations to restore brand image. Again, forms will speak how the limits are accessed. 

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