FAQ: Understanding Your Insurance Policy

What is an Insurance Premium?
The price of an insurance policy, typically charged annually or semiannually, that is paid to the insurer by the insured for covering a risk.

How does my company determine my premium?
Insurance companies determine rates based on many factors, which differ from company to company, and from customer to customer. For Auto Insurance, your company will examine your age, type of vehicle, driving record, miles driven to and from work, claims history, personal credit history and your address. 

How do I know if I have enough coverage? 

Washington, Oregon and Idaho all require drivers to carry Bodily Injury Liability limits of at least $25,000 per person/$50,000 per accident. If your net worth exceeds $300,000, consider buying additional liability insurance. Most insurers offer limits up to $250,000 per person/$500,000 per incident for an additional premium. And to protect yourself, your passengers and your investment in your vehicle, consider optional coverages including Personal Injury Protection, Uninsured/Underinsured Motorist, Collision and Comprehensive auto coverage.

Insure your home, not the land on which it sits. Your insurance policy will cover the home for its estimated replacement cost, which does not include the value of the land. For example, a home with a market value of $500,000 may only need $300,000 in coverage for the structure. Homeowners Insurance policies provide a minimum of $100,000 liability coverage, but higher limits are available. Most insurers offer Homeowners Liability Coverage up to $500,000 per incident.

How does Bodily Injury Liability coverage work?
This coverage provides protection for injury or death claims made against you or any driver of your vehicle involved in an auto accident and the cost of legal defense. The coverage pays up to the dollar limit you've purchased. 

What is Comprehensive Coverage?
It pays for vehicle damage other than those caused by a collision, overturn, depreciation and normal wear and tear. Examples of what is covered include: theft, fire, hail, windstorm, flooding and glass breakage. Covered perils are listed in your policy. Be sure to review exclusions. This coverage is also available with a deductible. 

What is a deductible?
The amount of loss paid by the policyholder. Either a specified dollar amount, a percentage of the claim amount, or a specified amount of time that must elapse before benefits are paid. The bigger the deductible, the lower the premium charged for the same coverage.

What is Uninsured/Underinsured Motorist Coverage?
UIM provides the insured driver(s) and passengers bodily injury coverage, up to the policy limits, for those involved in an accident caused by the owner or operator of an insured vehicle, a "hit-and-run" driver, or when the at-fault driver's policy limits are insufficient to cover losses. 

Do I need Uninsured/Underinsured Motorist (UIM) Coverage?
UIM Coverage is not required by law. However, UIM coverage can protect you if you're ever in an accident caused by someone else who either doesn't have mandatory liability insurance or whose UIM Coverage is less than the damages and injuries you may suffer. In this scenario, you would have to pay for the outstanding medical bills or take the other driver to court.

What is Personal Injury Protection (PIP)?
PIP is the portion of an auto insurance policy that covers the treatment of injuries to the driver and passengers of the policyholder’s car. 

How do I file an insurance claim?
Call your insurance agent as soon as possible, regardless of who is at fault. Find out whether you're covered for this loss. Even if the accident appears minor, it's important that you let your insurance company know about the incident. Ask your agent or company representative how to proceed and what forms or documents are needed to support your claim. Your insurance company will require a “proof of claim” form and, if there is one, a copy of the police report. Increasingly, companies allow you to monitor the progress of your claim on their web sites. Supply the information your insurer requests. Fill out the claim form carefully. Keep good records. Get the names and phone numbers of everyone you speak with and copies of any bills related to the accident. 

Ask your insurance agent or company representative the following: 

  • Does my policy contain a time limit for filing claims and submitting bills? 
  • Is there a time limit for resolving claims disputes? If I need to submit additional information, is there a time limit? 
  • When can I expect the insurance company to contact me? 
  • Do I need to get repair estimates for the damage to my car? 
  • Will my policy pay for a rental car while my car is being repaired? If so, how much?

How do I know if I'm being charged a fair price?
We recommend that consumers compare rates among several companies, either directly with companies or through an independent insurance agent. If the quotes are comparable, that's a good indicator that you're being charged a fair price for insurance. Insurance rate plans are filed with and examined for fairness and adequacy (and in Washington, must be pre-approved) by state insurance regulators, but shopping around will help make sure you’re getting the best rate and coverage. 

What is GAP Coverage?
An automobile insurance option, available in some states, that covers the difference between a car’s actual cash value when it is stolen or wrecked and the amount the consumer owes the leasing or finance company. 

What is Actual Cash Value?
A form of insurance that pays damages equal to the replacement value of damaged property minus depreciation.

What is Replacement Cost?
Insurance that pays the dollar amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy.

What does credit have to do with my insurance?
Credit-based insurance scores give insurance companies another tool to ensure that customers get a fair rate, based on each policyholder’s unique circumstances. Some companies use a high insurance score to give policyholders lower, preferred rates when other factors such as type of vehicle or driving record would usually require higher rates. Click here
for more facts to why companies look at credit to determine rates. 

What is an Insurance Score?
Insurance scores are confidential rankings developed for insurers based on credit history and other information. This includes whether the consumer has made timely payments on loans, the number of open credit card accounts and whether a bankruptcy filing has been made, but also may include such information as driving record and previous claims history. An insurance score is a measure of how consumers manage their financial affairs, not of the total of their financial assets. Neither credit scores nor insurance scores include information about income or race. 

How does a speeding ticket or accident affect my insurance?
What you pay for insurance is based on your level of risk. If you cause a car accident or receive a few speeding tickets, you can expect your insurance rates to increase to because you are seen as a higher-risk driver based on your driving record. If you are not at fault in a covered loss, your insurance should not be affected – though if you are filing insurance claims frequently, your rates or coverage may be changed by your insurer. If that happens, remember that you can talk with your insurance company or agent about how to improve your coverage or rate – or shop around to find coverage and prices that meet your needs.

What does my homeowners insurance policy cover?
Most Homeowners policies pay for damage to the structure and contents of your home by a covered peril. A covered peril is a sudden and accidental event or a theft that causes damage or loss. Covered perils vary by policy type and company, so make sure your policy covers the perils that are common to your area. 

What is NOT covered by my homeowners insurance?
Floods from outside your home, including water main breaks, sinkholes, mudflow, landslides, earthquakes (but special coverage for these perils is usually available – ask your company or agent for help to find coverage). Also – intentional acts committed by the insured or a family member are excluded from coverage.

What is covered under my Renters Insurance policy?
Renters Insurance is a similar to homeowners insurance, except coverage is limited to the insured’s personal belongings, up to policy limits, and doesn’t pay for damage to the rented home, apartment or condo. Like a homeowners policy, it covers against perils such as fire, theft, windstorm, hail, explosion, vandalism, riots, and others. It also provides personal liability coverage in case someone files a claim or lawsuit for injuries or damages against the policyholder. Renters insurance typically also provides additional living expenses, known as loss-of-use coverage, if a policyholder must move while his or her dwelling is repaired. It also can include coverage for property improvements. Possessions can be covered for their replacement cost or the actual cash value that includes depreciation.

What is an Umbrella Policy?
If you are ever sued, your standard homeowners or auto policy will provide you with some liability coverage, paying for judgments against you and your attorney's fees, up to a limit set in the policy. But if your policy limits stop at $300,000 and damages to an injured party total $1 million, your personal assets – your home, business, retirement and/or investments could be at risk in a lawsuit. A personal umbrella liability policy provides additional protection. It kicks in when you reach the limits on any underlying liability coverage in a homeowners, renters, condo or auto policy. It will also cover you for things such as libel and slander. 

How can I get coverage for my boat and recreational vehicles?
Most Homeowners and Renters insurance policies provide limited coverage for property damage for small boats (less than 25 mph engine) such as canoes and sail boats. Larger and faster boats, yachts and personal watercraft like jet skis and wave runners require a separate Boat Insurance policy. Check with your insurance company to find out if your boat or personal watercraft are covered. Similarly, damage to a small camp trailer might be covered under your homeowners policy, but larger, more expensive travel trailers need stand-alone coverage – as do RV’s that serve as both motor vehicle and “home away from home.”

How can I reduce my premium without reducing my coverage?
First, we recommend that you shop around. Prices vary from company to company and can change over time. Also, consider raising your deductibles. By choosing higher deductibles on Collision and Comprehensive Coverage, you can lower your costs substantially. For example, increasing your deductible from $200 to $500 could reduce your Collision and Comprehensive costs by 15 to 30 percent. 

Buy a sensible vehicle. Cars and trucks that are expensive to repair and maintain tend to have higher insurance costs. While shopping for insurance, ask companies about discounts they may offer.

Maintain a good personal credit history. Some insurance companies include your personal credit history as part of the underwriting process. These are called Credit-based Insurance Scores. Statistics show that drivers with lower scores file more claims than those with higher scores. Most people have better credit scores than they think – and most policyholders are paying less today for insurance due to having good credit scores. Click here for more information about credit and insurance scores.

What is the difference between a collision claim and a comprehensive claim?
A claim applies to your Collision Coverage if your vehicle collides with another object regardless of fault, such as colliding with another vehicle, tree or a building. A claim applies to your Comprehensive Coverage (also known as "Other Than Collision" Coverage) if your vehicle is stolen, lost or damaged in some other way. Examples of what is covered include: auto theft, vandalism, fire, hail, windstorm, collision with animals and glass breakage.

What about items stolen from my vehicle?
Your personal possessions not attached to the vehicle – for example a laptop, mobile phone, camera, handbag, luggage or store-purchased items stolen from your vehicle – are covered losses under a standard homeowners or renters policy. They are not covered by your auto-related insurance policies. Not all such personal possessions are included – check your home or renters policy to see what’s covered and what’s excluded.

What kinds of questions should I expect to answer when I am applying for an insurance policy?

You should be prepared to give your agent the make and model of the vehicles you own, roughly how many miles you drive each year, and what kind of liability coverage you'll need. Your agent also will want to know how many people drive the vehicles, the ages of the drivers, driving records of each household member and where you live. In addition, you also will have to provide specific information about your vehicle such as the Vehicle Identification Number (VIN) of your vehicle, passive restraint systems, anti-lock brakes and anti-theft devices. If any of the drivers in your household are students, they may qualify for discounts for good grades, and some insurers offer additional discounts for young drivers who take an online driver instruction course offered by the insurer.

Your agent will likely ask you what kind of home you own or rent, approximately how much your possessions are worth, and what kind of liability coverage you'll need. You'll need to tell your agent how many people live in your household, what kinds of pets you own and the general condition of the home. Make sure to inquire about “replacement cost coverage” that increases as the value of your home and/or the cost to replace/rebuild go up over time.

What if I share my apartment with a roommate? Do we need separate Renters Insurance policies?
Yes. Your Renters Insurance Policy covers your liability and personal possessions only. 

Some of the above information was provided by the Insurance Information Institute.

FAQ: Understanding Your Insurance Policy