FAQ

Frequently Asked Questions

Q: I've just paid off my bank loan on my four-year old vehicle and they no longer require me to carry Collision or Comprehensive coverage. Is it a good idea to drop these coverages and reduce my insurance costs and when should I consider this?

Answer: The answer to this question will vary depending on the individual situation of the person at the time. Collision and Comprehensive coverage are both optional coverages, intended to protect an individual's financial interest in a specific asset, in this case their automobile, against possible loss due to an accident or other mishap. While vehicles tend to depreciate in value rather quickly, most vehicles represent a significant financial asset for their owners. With the initial cost of a new vehicle commonly exceeding $20,000. these days, if we consider a depreciation factor of 50 0n the case of a four year old vehicle, this still represents a real financial value of $10,000. or more. In order to consider whether you should delete these coverages, you must first ask of yourself, if I were to suffer a loss that destroyed my car, could I replace it with my present resources, either through my personal savings or by adding a full car payment to my monthly budget, without creating any financial hardship for me and my Passenger Vehicle. If you are not able to answer "YES" to that question, then my advice to you is that you should maintain these coverages.

There may be some options available that will enable you to reduce your insurance costs now that your lending institution is not insisting on specific coverages. You may consider increasing your deductible on these coverages, again keeping in mind your personal financial situation and understanding the extent to which a loss to your vehicle could upset your finances. Anyone can have an accident, no matter how good a driver they may think they are. Don't be fooled into thinking that someone else will always be responsible for loss or damage to your car and that their insurance will pay. It is your financial wellbeing you could be placing at risk here and for most of us, the cost of purchasing this protection is not a great problem. If you are considering a change to your coverage, remember to discuss your options with your insurance broker so that you will better understand the implications of any changes you might decide to make.

Q: I've just started a new business which I am operating from my home. Does my homeowners insurance policy give me the coverage I need to protect my business equipment and my liability should one of my customers get injured?

Answer: Homeowners Insurance Policies are intended to insure private personal residences, not businesses. So not only will the policy not provide protection for your business property and the liability exposures arising from your business, you may find that you have jeopardized coverage for your personal property, including the building and contents, if you have first not obtained permission from your insurer to operate a business from the premises.

Most insurers will permit the incidental use of an office from the home and will extend the personal liability coverage under the homeowners policy at a nominal additional premium. This extension will only provide protection against a loss arising from the use of the premises (ie. A customer who falls on the steps while visiting) and does not provide coverage for any liability arising from the operations of the business. (such as a negligent act in the course of performing your work). This type of liability coverage for the most part can only be obtained by purchasing a specific commercial liability policy, and often the premium charged can be the company's established minimum premium of $500, $750, or even higher, depending on the insurer and the type of business you are operating.

With respect to your business property, as stated earlier, the homeowners policy will provide little or no protection for business property. Some insurers include a small limit of $1000 (sometimes $2000) for business property as a special extension under the homeowners policy but this is usually restricted to cover property while on the premises only and in most cases is no where near being adequate, considering most homeowners policies pay on the basis of replacement value.

Once again, in order to obtain the necessary coverage, a proper commercial policy covering the value of your business property and identifying such concerns as on premises vs. off premises use, should be acquired. Again insurers have established minimum policy premiums which would apply, however, by combining these property coverages with the earlier mentioned liability coverages, all with one insurer you may be able to avoid excessive costs.

Most independent insurance brokers are familiar with these situations and can assist in keeping your insurance costs under control. In recent years, insurers have recognized the growing demand for "home operated" business coverages, and some have developed specific enhancement coverages, designed for use with the homeowners policy, to help address some of the need in this area.

These business endorsements (policy enhancements) extend the property coverages under the homeowners policy to cover business property (in some cases, both on or off the premises) and as well provide liability protection under the same extension (premises only). These types of extensions usually are limited to "low risk" liability types of businesses which do not involve any type of processing that might increase the danger of fire or other insured peril. For these types of businesses the cost for adequate coverage can be significantly reduced well below the minimum commercial policy premiums usually charged by insurers. So, if you are operating a business from your home, no matter how small an operation it may be, be sure to first obtain permission from your insurer so as not to violate any of the conditions of your homeowners policy. Secondly discuss with your broker how best to properly protect your liability exposures and business property against loss or damage. And if your not already working with an independent insurance broker, its about time you did!

Q: Why are my insurance rates rising? I'm accident free.

Answer: There are many reasons why rates are rising. First you have to remember that the principal of insurance is that the many pay for the losses of the few. Thus, your rate is affected by your personal record as well as that of all the insured people in your group. Second, claims are rising, both the cost and the number of them. The Insurance Bureau of Canada (IBC) says that the fastest growing category of claims is for soft tissue injury, such as sprains and strains after a motor vehicle accident. The IBC says that soft tissue injury claims have grown so rapidly that insurance rates haven't kept pace. So everybody's insurance is rising now. The fact you haven't had claims means that your rates aren't going up as much as people who've had claims.

Another category of rising claims is fraudulent claims. These cost us about $500 million per year. Third, return on investment has declined. When the stock market was steadily rising, the insurance companies' return on investment was high enough to give companies extra room to compete with each other on rates for your business. Now, the market is not performing well and return on investment is lower. This contributed to hardening the rates. Finally, the insurance industry faces a higher tax burden than other industries in the financial sector, such as banks.

Q: Will a comprehensive claim affect my premium?

Answer: While a comprehensive claim will not affect your driving record, it could affect your premium. Two or more comprehensive claims in a short span of time will likely affect your rate. Or, your insurer might ask you for a higher deductible, not offer this coverage, or cancel you altogether if you've had a number of comprehensive claims. Examples of comprehensive claims are theft, vandalism to your vehicle, or glass damage due to a pebble coming up from the pavement.

Q:Is my all terrain vehicle (ATV) covered by my Homeowners policy?

Answer: No, ATV's are excluded from Home-owners policies. You must buy an Auto policy for them. You can be charged by the police with no insurance by merely crossing the road on one.

Q: Why am I penalized for putting a claim through on my policy? I thought that's what insurance is for.

Answer: Insurance is about risk sharing where the losses of the few are spread among the many who contribute small and like amounts to the insurance pot. Thus, your personal contribution to the pot is based on your own loss history as well as that of the group. So your insurance will pay for your claim. But, your claim might result in a reassessment of your loss history which could result in a higher premium for you in the future. Thus, the claims you submit affect your future insurance payments.