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Some Things Your Car Insurance Company Won’t Tell You

1. How to determine the value of “total loss.”

Most companies will tell you that they use at least three methods or schemes to determine the actual a totaled vehicle’s value including value books, computer-generated quotes from dealers, and local market research. In this case, you will probably think that local area is your current neighborhood, but it is not specifically defined by the insurer. If, in any case, the company cannot find an auto replacement in your neighborhood, so they have to find it not from your “local area,” your totaled car’s value is certainly affected. For example, if you currently live in New York, replacing your totaled vehicle in suburbs will be cheaper than in the city. Insurance company will, of course, use quotes from suburbs area as the most-reasonably-priced estimates. The main purpose in totaling a vehicle is to allow the consumer (the insured person) to purchase the same car that is totaled in an accident within the local market. Since they use three different schemes to figure out real value of a totaled car, a consumer may end up with a cheaper car than the totaled one. It is impossible to be sure what value you will get when your company does not tell you how they determine it.

Fortunately, you can do some smart methods to help yourself and your company to do the value determination. First, you have to produce valid proof that your car was in good conditions when the accident occurred; car in good condition has better value than a wreck. Bring a copy of maintenance records including oil changes and inspection by an authorized mechanic. The records will tell your company that your auto was regularly maintained, meaning it was actually in great shape (in terms of appearance and performance) when the accident occurred. Moreover, you probably had special features installed such as multimedia system, anti-theft system, anti-lock brakes, rear view camera, or 5-harness seat belt. The car insurance company may charge you more because of some special upgrades, so make sure that your insurer includes that in the evaluation.

Another good thing is to find at least three dealers and get quotes on replacement from them; make sure all dealers in your local area or at least within short driving distance from your home. Present the quotes to your insurer and ask your insurer to provide a list of some car dealers who probably can provide a car for the price listed in the quotes. If you are not satisfied with the company’s value determination or you get less than you expect, you can choose to do mediation. So, meaning you present the case to third party (neutral) to get help to settle the dispute, or arbitration, or you can even request a formal inquiry to the court.2. If you want to cancel your policy, do it officially

Most companies say that consumers can cancel their policies at any date, but you need to notify the insurer concerning the exact date you want to end the coverage. The statement is clear enough; in other words, it says consumers have to notify their companies when they want to cancel their policies. However, consumers often think that when they ignore the last bill before renewal, the company will automatically end the policy. Too bad, this is not how it is done. People can forget and deliberately miss a bill, and the company totally understands that. After this first missed bill, your insurer is going to send you one more bill for premium payment; if you don’t pay the bill, you will be cancelled for non-payment, and the record will hurt your credit score.

What you should do when you want to cancel auto insurance policy is to let the company know that you are canceling. Please make sure that you provide a specific date; it helps you avoid being totally uninsured for a certain period, time, term. The cancellation request will be sent to you, and all you have to do is to put your signature. It is recommended that you carefully check the document before signing it. Some companies may require you to provide valid proof that you indeed have another coverage before they can approve the cancellation. If you’ve financed your car, the dealer needs the updated policy information because valid proof of insurance is required in the purchase contracts.

Credit history still matters

The use of credit information to determine approval and premium rate is still common, despite the fact that some states already started to ban such practice. Some (if not most) companies use the credit history to generate risk score. They believe that it strongly linked or correlated to the likelihood of the consumer reporting a claim. More likelihood of filing a claim is exactly the same with high-risk driver that usually also pays more expensive premium fee compared to “safe-driver” or “the preferred class.” The preferred consumers are those with stable credit card history as it suggests financial stability, meaning they are not likely to miss a payment. People of this category are safer consumers to insure compared to people with shaky credit history. Auto insurance companies do not like consumer who pays sporadically or changes accounts quite frequently.

There are some credit card issuers who offer free credit score checking, but in most cases, you need to pay for the service. Unlike credit score, risk score for insurance-related matters will not be available for you, but both probably indicate the same thing which is financial stability. If you are currently in the market to purchase auto insurance, and it turns out that you have quite unusual activity on your credit history within only certain time frame, you can wait until one month to allow the credit activity to go back to its usual condition. If you cannot keep the credit score stable, prepare yourself to pay more expensive premium fee.

3. Budgeting by installments is not always efficient.

Installments can pay almost all items, and consumers think that it is indeed the best way to budget the expense. When it comes to auto insurance, you can ask the company to divide the annual premium into a monthly basis, quarterly, or on six month. Please put in mind that dividing the annual premium will cost you “fractional premium.” You can consider this additional service fee to arrange the installment. It can be as cheap as $10 per payment; the more you break it down, the most fractional premium to pay.

Most companies will probably offer you to pay in installments since it makes more money for them. When you apply for insurance, it is wise to ask whether there is any additional charge for installments option, and then you can compare the difference. If the fractional premium is not very expensive, then perhaps it is worth it. Another big difference between upfront payment and installments is that certain companies will immediately cancel your coverage if you miss one payment; even worse, they can do it without notification. It is best to pay up front if you can; the entire process will be easier, and you can indeed save few dollars.

Every vehicle model and type has certain premium rate

Of course, you all know that sport cars need more expensive insurance policies than a van, but insurance companies will not tell you the exact numbers. In general, it is true that attractive, sporty, luxurious car with turbocharged engine will go very quickly on the road, and it increases the risk of accidents, but this is not always true considering the discounts for safety features, security features, mileage (especially when you drive it less), etc. Auto insurance companies have a specific system to know the premium for all car models you can buy, based on the system rating by ISO (Insurance Service Office). Every type of car is rated from 3 to 27; higher number means a higher premium. Insurance Service Office says that it will not release the rating system for publication because its clients are insurance companies.You will not get the rating system from your insurer; you may not even find it anywhere at all. The best thing you can do when you want to purchase a new auto is to ask the insurance how much insurance premium you need to pay for a new car that you want to purchase. If you keep a good relationship with an independent agent, he/she should be able at least to predict the price based on raw calculation.

4. Filing claim increases your premium.

People are always interested to see insurance companies reduce premium fee to attract potential customers. It is indeed one of the best things customers get from the competition in the market, but your insurer can increase the price right away after you file your first claim. The industry standard is to increase premium fee up to 40% of the base rate after first-at-fault accident. With the help of an online car insurance calculator you get a base rate of $500, your premium increases by $200. Some companies have different rules, but there is always a big chance your premium will go up after the first-at-fault claim. Some insurers offer “first-accident forgiveness,” meaning your first actual claim will not affect the premium at all, but the variable and requirement for eligibility can be different from company to company. You should ask your insurer if such discount is available and how to qualify for it.

Insurance Company Loyalty Doesn’t Pay

I had a conversation with a friend the other day that gave me inspiration for this topic. My friend, who I will call an insurance company loyalist, said “I have been with my insurance company for 52 years. When I call they jump.” We discussed this belief for a little while as I wanted to get a little more insight from his perspective. For the purpose of this week’s topic, it is coming from the perspective of being in CA, considering CA insurance law. If you are from another state, your laws may be different, and I am not an attorney so this is not legal advice.

In 1988 California voters passed Prop 103, which was a insurance reform proposition. It is my understanding that this law, while primarily focused on regulating rates, protects insurance consumers by preventing the use of discriminatory tactics by insurance companies. What this means is that insurance companies have to treat a 1 day customer, with the same service as a 52 year customer. If the insurance company gives preferential service to the older customer over the newer customer they are subject to penalties and fines if the Department of Insurance were to investigate complaints of this nature. Typically the penalties far exceed the value of any client, so insurance companies do not waiver in their treatment of their customers regardless of tenure. So for my friend, while the company may listen a little more politely, their policy for him is the same as a new customer. If they jump for him, they jump for everyone. As an insurance shopper, just know that your treatment is the same no matter how long you are with a specific company.I am not privy to the world of corporate leaders, but I would bet in the insurance company boardrooms, and executive meetings, the opposite of ‘jumping’ is the case. Given how much insurance companies study the business for profit, I would bet loyalist customers are the most profitable customers for insurance companies. Once the insurance loyalist is set in their comfort zone, they can be taken advantage of with changes in policies or direction. These corporate leaders don’t talk about special privileges for loyalists, but rather take the insurance loyalist for granted, assuming that no matter what they do as a company, or how they treat their customers, the loyalists will stay. Similar to some sports teams, where no matter how bad the product is, the fans stick around in faith for their team. In the meantime the executives get healthy bonus payment and the company makes healthy profits on the back of these consumers. Since my goal is to give good tips or advice on insurance shopping, it makes sense to get you to think about these things.

What I did tell my friend was he, like any insurance consumer, should shop his insurance regularly or talk to his agent about pricing other companies, to could confirm his pricing is the best. Why throw money away over a brand? I told him the primary factors in determining his best rate are: his driving record (tickets and accidents), the number of years of driving experience he has, and how far he drives each year.

There are other factors that insurance companies may use in determining rates and those are the important ones for insurance shoppers and finding the best price. Did his company offer a loyalty discount of some type? Yes. I asked him, what his 52 years of loyalty was worth to his company. We did some math and his loyalty discount was worth about 7%. Moving forward, knowing that your 52 years of brand loyalty to an insurance company was worth about 7%, would you stick around especially if there were greater discounts elsewhere?

In the category of these other factors, there are companies with discounts for college degrees or targeted professions worth 15% or more. Did his company have something like that? No, he said. From the perspective of being an insurance shopper over a company loyalist, in just this one discount he potentially was sacrificing an additional savings of 8%. This is only one example of potential savings for insurance shoppers. Companies advertise discounts for alumni associations or organizations you belong to, or extra discounts for having an ‘extra’ clean driving record. The key for insurance shoppers is to be willing to look around. It doesn’t take much to shop for comparison quotes, and the insurance shopper and the insurance loyalist both may save some money.My take on the matter, you don’t have to shop your insurance every year, but I would look for the triggers indicating you should. Did your rate change from one policy period to another but your primary rating factors did not? Is there a change that your company or agent pass off as simply ‘new rates’? Does the explanation you hear not make a lot of sense? Not every company raises their rates at the same time, or changes discounts that you qualify for, so if that happens to you, use your triggers to be a new insurance shopper.

Using Captive Insurance Companies for Savings

Small companies have been copying a method to control insurance costs and reduce taxes that used to be the domain of large businesses: setting up their own insurance companies to provide coverage when they think that outside insurers are charging too much.

Often, they are starting what is called a “captive insurance company” – an insurer founded to write coverage for the company, companies or founders.

Here’s how captive insurers work.

The parent business (your company) creates a captive so that it has a self-funded option for buying insurance, whereby the parent provides the reserves to back the policies. The captive then either retains that risk or pays re-insures to take it. The price for coverage is set by the parent business; reinsurance costs, if any, are a factor.

In the event of a loss, the business pays claims from its captive, or the re-insurer pays the captive.

Captives are overseen by corporate boards and, to keep costs low, are often based in places where there is favorable tax treatment and less onerous regulation – such as Bermuda and the Cayman Islands, or U.S states like Vermont and South Carolina.

Captives have become very popular risk financing tools that provide maximum flexibility to any risk financing program. And the additional possibility of adding several types of employee benefits is of further strategic value to the owners of captives.While the employee benefit aspects have not emerged as quickly as had been predicted, there is little doubt that widespread use of captives for employee benefits is just a matter of time. While coverage’s like long term disability and term life insurance typically require Department of Labor approval, other benefit-related coverage’s such as medical stop loss can utilize a captive without the department’s approval.

Additionally, some mid-sized corporate owners also view a captive as an integral part of their asset protection and wealth accumulation plans. The opportunities offered by a captive play a critical role in the strategic planning of many corporations.

A captive insurance company would be an insurance subsidiary that is owned by its parent business (es). There are now nearly 5,000 captive insurers worldwide. Over 80 percent of Fortune 500 Companies take advantage of some sort of captive insurance company arrangement. Now small companies can also.

By sharing a large captive, participants are insured under group policies, which provide for insurance coverage that recognizes superior claims experience in the form of experience-rated refunds of premiums, and other profit-sharing options made available to the insured.

A true captive insurance arrangement is where a parent company or some companies in the same economic family (related parties), pay a subsidiary or another member of the family, established as a licensed type of insurance company, premiums that cover the parent company.

In theory, underwriting profits from the subsidiary are retained by the parent. Single-parent captives allow an organization to cover any risk they wish to fund, and generally eliminate the commission-price component from the premiums. Jurisdictions in the U.S. and in certain parts of the world have adopted a series of laws and regulations that allow small non-life companies, taxed under IRC Section 831(b), or as 831(b) companies.

Try Sharing

There are a number of significant advantages that may be obtained through sharing a large captive with other companies. The most important is that you can significantly decrease the cost of insurance through this arrangement.

The second advantage is that sharing a captive does not require any capital commitment and has very low policy fees. The policy application process is similar to that of any commercial insurance company, is relatively straightforward, and aside from an independent actuarial and underwriting review, bears no additional charges.By sharing a captive, you only pay a pro rate fee to cover all general and administrative expenses. The cost for administration is very low per insured (historically under 60 basis points annually). By sharing a large captive, loans to its insureds (your company) can be legally made. So you can make a tax deductible contribution, and then take back money tax free. Sharing a large captive requires little or no maintenance by the insured and can be implemented in a fraction of the time required for stand alone captives.

If done correctly, sharing a large captive can yield a small company significant tax and cost savings.

If done incorrectly, the results can be disastrous.

Buyer Beware

Stand alone captives are also likely to draw IRS attention. Another advantage of sharing a captive is that IRS problems are less likely if that path is followed, and they can be entirely eliminated as even a possibility by following the technique of renting a captive, which would involve no ownership interest in the captive on the part of the insured.