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Introduction to Life Insurance.

If you are planning to purchase a life insurance policy or an annuity contract, you should first consider your needs and understand the different type of insurance products that are available. Many more consumers are using life and annuity products as part of their financial planning goals. Consumers spend substantial sums of money each year on life insurance policies or annuity contracts knowing very little about what it is that they are getting. This guide was developed to help consumers make educated decisions and to help them understand both the benefits and the risks involved in financial planning.

The purpose of this information guide is to help you understand what type of life insurance policies or annuity contracts are available. If one type of policy or contract does not fit your needs, then ask and find out about other available policies or contracts, many of which are described in this information guide. You can research more information on life insurance policies or annuity contracts by checking with a licensed life insurance agent or a licensed life insurance company. You can also visit your public library for material or books on financial planning. Life insurance or annuity information is also available on the Internet. In addition, The California Department of Insurance (CDI) has a toll-free Hotline telephone number and website that can provide further information and assistance on life insurance policies and annuity contracts. Please see the many ways to contact the CDI on the last page of this information guide. This information guide is divided into two sections: Life Insurance and Annuities.

Defining Your Needs

The purchase of life insurance is an important decision for both you and your family. There are many reasons why life insurance policies or annuity contracts are purchased, but these reasons should be based upon your financial planning needs. Factors such as your marital status, number of dependents and cost for their support, future education needs, current and anticipated family income, and your current assets and debt obligations all play a role in determining the amount of life insurance that is right for you.

Choosing the Amount of Life Insurance

Your need for life insurance will vary with your age and responsibilities. The amount of insurance you buy should depend on the standard of living you wish to assure for your dependents. You should consider the amount of assets and sources of continuing income available to your dependents when you pass away. Simply stated, you should choose an amount of life insurance that is determined necessary to meet the needs you are trying to satisfy. A balance needs to be achieved in this process. To be over-insured can negatively affect your budget and threaten your long range financial goals just as much as being under-insured can. While each person must individually assess their responsibilities, needs, and financial situation, it is important to be careful to choose an amount of life insurance that reflects your specific circumstances without under-insuring or over-insuring.

Steps To Determine How Much Life Insurance You Need:

1. Determine how much life insurance you need based on the factors mentioned above.
2. Decide how much money you can afford to pay.
3. Choose the type of life insurance policy that meets your coverage goals and current family budget. Fitting these two factors together will move you toward a successful overall financial plan.

Once you have completed these steps, you will be able to move ahead and contact several life insurance companies (through an agent or broker) to shop for the right type of policy for you.

There are many reasons for purchasing life insurance, among
which are the following:

• Insurance to provide financial protection and security for surviving family members upon the death of the insured person.
• Insurance to cover a particular need such as paying off a mortgage or other debt upon the insured's death.
• Business insurance to compensate a company on the death of a key employee or to provide a surviving partner the resources to buy out the deceased partner's share of the business.
• Insurance to provide funds to pay estate taxes or other final obligations necessary to settle a deceased person's estate.
• Insurance to provide the funds necessary for the deceased person's burial expenses.

Choosing the Appropriate Type of Life Insurance

There are two basic types of life insurance: term life insurance and cash value life insurance.  There are many policy variations between these two types of life insurance.

Term Policies provide life insurance for a specified period of time. This period could be as short as one year or provide coverage for a specific number of years such as 5, 10, 20 years or to a specified age. If you die during the term period, the company will pay the face value to your beneficiary. If you live beyond the term period you had selected, no benefit is payable. As a rule, term policies offer a death benefit with no savings element or cash value. If you have a limited amount to spend, and only need insurance for a specified period of time, you may be able to get more coverage by buying term insurance than by buying cash value insurance. Keep in mind that the cost of term insurance increases as you get older, which may make it more expensive than cash value insurance in the long run. Today's term policies usually have two sets of premiums: guaranteed maximum premiums and current premiums. Current premiums are usually much lower, but they can be changed by the insurance company. The insurance company cannot increase the current premium above the guaranteed maximum premiums shown in the policy. When you buy term insurance, you need to make a choice as to how long you want the protection. You may renew the policy without a physical examination for the period of years specified in the policy. Some term insurance can be converted to cash value insurance up to a specified age with no physical examination. Premiums for the converted insurance will most likely be higher than the premiums you would be paying for the term insurance. If you do not pay the premium for your term insurance, it will generally lapse without cash value, as compared to a permanent type of policy that has a cash value component.

Cash Value Insurance combines death benefits with a cash value accumulation feature. The buyer of a cash value policy pays more in the early years than for term insurance, but the premium not needed to pay for the cost of the death benefit accumulates with interest within the policy. If the policy is surrendered before the insured person dies, there may be a cash value paid to the owner, less any outstanding loans placed against the policy.

Make sure the agent/broker provides you with the method by which the cash value is determined and that they obtain this information based on the policy's guaranteed value. It is not a good idea to buy a cash value life insurance policy if you plan to surrender early due to substantial surrender penalties. If all premiums are paid, cash value insurance usually lasts for the entire life of a person and pays death benefits to the beneficiaries named in the policy upon the death of the insured. The cash value can be used as loan collateral for borrowing funds at the interest rate specified in the policy. Any outstanding loans are deducted from policy proceeds at death or at policy surrender.

Some of these products may enjoy tax advantages while they remain active. Therefore, a policy lapse or surrender may create a taxable event and may generate a Form 1099. Form 1099s are sent to the IRS for tax purposes; be sure to check with your tax advisor. Some of the most popular types of cash value insurance are described below:

Whole Life Insurance (also known as straight life, ordinary life, and traditional permanent insurance) is designed to provide coverage for your entire lifetime unlike term insurance which provides protection for a specified time period. To keep the premium level, the premium at the younger ages exceed the actual cost of protection. This extra premium builds a reserve (cash value) which helps pay for the policy in later years as the cost of protection rises above the premium. Whole life policies stretch the cost of insurance over a longer period of time in order to level out the otherwise increasing cost of insurance. Under some policies, premiums are required to be paid for a set number of years. Under other policies, premiums are paid throughout the policyholder's lifetime.

Universal Life Insurance is the most flexible of all the various kinds of policies because it treats the elements of the policy separately; universal life allows you to change or skip premium payments or change the death benefit more easily than any other policy. It works by treating the three elements of the policy, premium, death benefit and cash value separately. Cash values are accumulated by crediting premium payments and interest to a fund from which deductions are made for expenses and cost of insurance. Interest rates are linked to an external index such as Treasury bills. Because the cash value element of this type of policy is interest rate sensitive, predictions of future Life costs are highly dependent upon the accuracy of interest rate projections. The policy can also be structured to operate like term insurance.

Variable Life Insurance has a death benefit that varies in relation to the investment experience of the assets underlying the policy. A higher rate of return on the invested fund will cause the death benefits to increase, while a low or negative rate will cause the death benefits to decrease.

Variable Universal Life Insurance combines the flexibility of universal life insurance with the investment account features of variable life insurance.

If you would like any further Information on Life Insurance, feel free to contact me.

Have you taken a Home Inventory?

Would you be able to remember all the possessions you’ve accumulated over the years if they were destroyed by a fire? Having an up-to-date home inventory will help you get your insurance claim settled faster, verify losses for your income tax return and help you purchase the correct amount of insurance.

Start by making a list of your possessions, describing each item and noting where you bought it and its make and model. Clip to your list any sales receipts, purchase contracts, and appraisals you have. For clothing, count the items you own by category -- pants, coats, shoes, for example –- making notes about those that are especially valuable. For major appliance and electronic equipment, record their serial numbers usually found on the back or bottom.

• Don't be put off!  
  If you are just setting up a household, starting an inventory list can be relatively simple. If you’ve been living in the same house for many years, however, the task of creating a list can be daunting. Still, it’s better to have an incomplete inventory than nothing at all. Start with recent purchases and then try to remember what you can about older possessions.
• Big ticket items  
  Valuable items like jewelry, art work and collectibles may have increased in value since you received them. Check with your agent to make sure that you have adequate insurance for these items. They may need to be insured separately.
• Take a picture 
  Besides the list, you can take pictures of rooms and important individual items. On the back of the photos, note what is shown and where you bought it or the make. Don’t forget things that are in closets or drawers.
• Videotape it  
  Walk through your house or apartment videotaping and describing the contents. Or do the same thing using a tape recorder.
• Use a personal computer  
  Use your PC to make your inventory list. Personal finance software packages often include a homeowners room-by-room inventory program.
• Storing the list, photos and tapes  
  Regardless of how you do it (written list, floppy disk, photos, videotape or audio tape), keep your inventory along with receipts in your safe deposit box or at a friend's or relative's home. That way you’ll be sure to have something to give your insurance representative if your home is damaged. When you make a significant purchase, add the information to your inventory while the details are fresh in your mind.

With Permission © Insurance Information Institute, Inc. – ALL RIGHTS RESERVED -


 A home inventory guide is available to all consumers through the Department of Insurance Home Inventory Guide.

If you have any questions, please feel free to contact me.

You were in an Accident, now what??

Driving on California’s highways can be a risky  proposition.  Whenever you’re in a vehicle, there’s a chance you’ll be involved in a traffic accident.  Whether it’s a small fender bender or a major injury accident, knowing in advance what to do can help you avoid costly mistakes.  This guide discusses what to do after an accident and what to expect when you file an automobile insurance claim with your insurance company.  For your convenience, an accident checklist is contained herein which can be kept in your vehicle for future reference.

When purchasing insurance, carefully review the application before signing it to be certain that the coverages, policy limits, and deductibles suit your needs.  After you receive the policy, review the declaration page.  It contains important information on who is covered, the vehicles insured, as well as the coverage limits and deductibles.  Make sure the information is correct and the coverage is what you purchased.  If changes are needed, send your request to your agent and/or insurance company in writing and keep a copy.  Use "certified mail/return receipt requested" to verify receipt of your letter.

Become familiar with your automobile insurance policy before it’s needed.  Read the policy thoroughly so you know what is covered and what is excluded.

SOME OF THE MOST FREQUENTLY ASKED QUESTIONS ABOUT AUTOMOBILE INSURANCE CLAIMS ARE DISCUSSED BELOW:

What to Do If There Is an Accident

Q. What Should I Do at the Scene  of an Accident?

A. Immediately stop at the scene.

• Call 911 if there are injuries.
• Call the police.  In some areas police authorities may not come to every accident scene.  They may consider factors such as the severity and location of the accident (e.g., some police authorities will not come to the scene if the accident is on private property).  However, you should attempt to notify the police.  You should also be aware that most policies require notification of police within a specified time period if the accident is a hit and run.
• Obtain names, addresses, telephone numbers, and  driver’s license numbers from all drivers. Obtain license plate(s) and vehicle identification numbers.  Ask to see driver’s license(s) and vehicle registration(s) to verify that the information is accurate.
• Obtain names, addresses, and telephone numbers of other passengers and any witnesses.
• If you have a camera, take photographs of the damage, the position of the cars, and the accident scene (e.g., traffic controls, visual obstacles).
• If the owner of a damaged car or damaged property cannot be located, leave a note with the names and addresses of the driver and owners of the involved cars.
• Notify your agent and/or your insurance company immediately.
• If anyone is injured or the vehicle damage exceeds $750.00, you must report the accident to the Department of Motor Vehicles within 10 days.  Failure to notify the DMV may result in the suspension of your driver’s license.

Things to Avoid at the Scene of an Accident

• Do not argue with other drivers and passengers.  Save your story for the police and your insurance company.
• Do not sign statements regarding fault or promises to pay for damage.
• If another party offers to pay your deductible, don’t sign anything releasing him or her from further responsibility.   By releasing the other party, you jeopardize your insurance company’s subrogation right, and the company may refuse to pay for damage to your car.

Frequently Asked Questions

Q. What Happens After I File the Claim With My Insurance Company?

A. Your insurance company will contact you for additional information, such  as a detailed account of the facts, or a written or recorded statement. An examination under oath may be requested.  As part of the investigation, other drivers and  witnesses may be contacted.  If you have medical payments or an uninsured motorist claim, you must provide documentation of your injuries, medical expenses, lost wages, et cetera.                   

Q. What Should I Do if the Insurance Company Does Not Contact Me?

A. A claim representative should contact you within a reasonable period of time after you report the loss. However under certain circumstances the insurance company can take up to 15 days to contact you.  If you do not hear from anyone, call your agent or insurance company for assistance.  If they are not responsive, or you believe there is an unreasonable delay in settling your claim, contact the Department of Insurance.

Q. How Does the Insurance Company Evaluate Vehicle Damage?

A. A qualified adjuster or appraiser usually inspects the vehicle damage. The adjuster or appraiser then writes an estimate based on the initial inspection. If further damage is found during the repair process, the shop will contact the insurer to get the additional cost of repairs approved. Keep in mind the insurer may send out an adjuster to re-inspect the additional damages. If the damage is relatively minor, the company may instead ask you to submit competitive repair estimates. Remember, it is your responsibility to sign and authorize the shop to repair your vehicle once you are satisfied with the final estimate and repair facility.

Q. What Will the Company Pay on a Physical Damage Claim Under a Standard Auto Policy?

A. Generally, the company will pay the lesser of 

• The amount necessary to repair the vehicle or 
• The actual cash value (ACV) of the vehicle.Read your policy to be certain of what is and isn’t covered.  Pay particular attention to exclusions.  For example, there is usually no coverage for stereo equipment, a telephone, or tires and wheels unless the equipment was permanently installed by the automobile manufacturer.  Coverage is usually available for such special equipment for an extra premium charge.

Q. What Is Actual Cash Value (ACV)?

A. Actual Cash Value - Unless otherwise defined in the policy, actual cash value in California means fair market value. The fair market value of an item is the dollar amount that a knowledgeable buyer (under no unusual pressure) is willing to pay, and a knowledgeable seller (under no unusual pressure) is willing to accept.

Q. What Is an Appraisal Provision?

A. Most standard policies contain an appraisal provision, which can be helpful in the event that you do not agree with your company on the amount of loss.  Read your policy to see if it contains one.  Under this provision, either of you can demand an appraisal.  Each party selects a competent appraiser.  The appraisers then select an umpire.  If the appraisers cannot agree on the amount of loss, their differences are submitted to the umpire.  An amount that any two agree upon is binding. Each party pays its appraiser;  the umpire fee is shared.

Q. How Is the Check or Draft Prepared?

A. The check may be made payable to the insured and any lienholder, such as a bank or finance company.  If the vehicle is repaired, the company may also include the repair facility as a payee.

Q. Who Is Responsible for the Balance of a Car Loan?A. The borrower is responsible for the balance of the loan, even if the vehicle is stolen or damaged beyond repair. If your claim payment is less than the loan balance, the lender will expect you to pay the difference.  Coverage commonly referred to as “gap” insurance can usually be purchased to protect against this situation.

Q. Will the Company Pay for a Rental Car While Mine is Being Repaired?

A. Yes, if you have purchased rental vehicle coverage.  Review your policy before you rent a vehicle.  Although policy limits vary, the company pays up to  a specified amount per day for a specified number of days.  The coverage ends when  your vehicle is repaired, the loss is paid or after the specified period, whichever comes first. If your vehicle is stolen, the policy may automatically provide transportation expenses.  Again, review your policy to be sure.  This type of coverage usually begins 48 hours after the theft and ends when your vehicle is recovered, the loss is paid or after a specified period, whichever comes first.

Q. What Is a Collision Damage Waiver and Will the Company Pay These Charges for the Rental Vehicle? 

A. The terms of the rental agreement make the customer responsible for collision damage while he or she has possession of the vehicle.  Additionally, rental companies insure themselves for damage to the vehicle caused by collision. For an additional fee, the rental company will waive all or a portion of the customer’s obligation to pay repair costs for damage to the vehicle caused by collision.  Both the amount of the fee and the language of the waiver vary.  Coverage for collision damage to the rental car under your personal automobile policy depends upon the policy language.  Read your policy carefully.  Ask your agent or company before you rent a vehicle.

Q. What Is the Salvage Value?

A. This is the remaining value of your damaged vehicle if your  vehicle is determined to be a total loss.  It is usually determined through bids from salvage buyers.  The company may sell the salvage to the highest bidder.  However, it is not obligated to do so.  If you decide to keep the damaged vehicle, the highest salvage bid may be deducted from your settlement.  In effect, you are “buying back” your vehicle for the salvage value.  If you retain possession of the salvaged vehicle, it is your responsibility to file a salvage certificate with the Department of Motor Vehicles.

Q. What Is Subrogation?

A. Subrogation is the right of the insurance company to recover from a third party the amount of damages it paid to you.  For example, if another party is at fault in an accident that damages your car, and you have a collision claim, your company will ask the other party to reimburse the money it paid on your claim.  The policy requires your cooperation with the company's subrogation efforts.  Also, you cannot do anything that jeopardizes the company's right of recovery. For example, you cannot sign an agreement releasing the other party in exchange for payment of your deductible.

Q.   Is the Company Required to Help Me Recover My Deductible?

A.   Yes and no.  The insurance company must advise you as to whether or not they intend to pursue subrogation.  If the company pursues subrogation, they are required to include your deductible as a part of the process.  However, if the company does not pursue subrogation they are required to advise you of that fact so that you may pursue your deductible on your own.  If their efforts are successful, in whole or in part, the company will  reimburse you in accordance with the recovery.  For example, if 100 percent of the paid claim is recovered, you will receive 100 percent of your deductible; if the recovery is 65 percent, you will receive 65 percent of your deductible.  Any expenses or fees (e.g., legal fees, incurred by the company in its recovery efforts) will be apportioned between the company and you, if recovery is made.  However, if you choose not to have the company include your deductible in its efforts, you can seek recovery directly from the other party on your own.  But before you do, discuss the matter with your company to avoid jeopardizing its recovery.

Q.   Is the Car Covered Outside of California?

A.   Most policies provide coverage in other states, U.S. territories and possessions, and Canada.  As is the case in California, many other states and territories have enacted financial responsibility laws requiring drivers to carry a specified amount of automobile insurance to cover losses resulting from ownership or  operation of a motor vehicle.  If the financial responsibility equirements where you are traveling are higher  than your policy limits, your company will meet the higher requirements.  Most policies do not provide coverage in Mexico, so if you plan to drive your car there, it’s wise to buy that coverage separately.  Check your out-of-state coverage before you travel.

California’s financial responsibility law is set forth commencing with Section 16020 of the California Vehicle Code.  Among other things, it requires all drivers to be able to pay damages resulting from ownership or operation of a motor vehicle.  Drivers must show ability to pay damages (called financial responsibility) of at least $15,000 for each person injured or killed in an accident, of at least $30,000 for injury/death to two or more persons in one accident, and of at least $5,000 for property damage from any one accident.  If you are cited by a peace officer for any moving violation, or are involved in an accident, you may be asked for written proof of financial responsibility.  This can be done by recording the name of your insurance company and policy number on the vehicle registration card issued by DMV.  This proof of insurance should be kept in the vehicle or in the driver’s wallet or purse so it will be available when driving any car.  For further information, contact the CA Department of Motor Vehicles.

Q.   What Should Be Done if a Lawsuit (Summons and Complaint) Arises Out of an Accident?

A.   Notify your agent and insurance company immediately.  Keep a copy for yourself and mail or deliver the original documents to your company.  Do not give statements or discuss the accident with anyone except a verified representative of your company.  If the lawsuit arises out of a covered loss, your company will provide legal defense.

Q.   Is a Newly Acquired Vehicle Covered?

A.   Most policies provide 30 days automatic coverage for a vehicle that replaces a vehicle already on your policy.  The coverage normally is the same coverage you had on your previous vehicle.  Notify your broker-agent as soon as possible of any replacement vehicle.  If you wish additional coverage, there is  usually a requirement that you notify your agent or your company within a designated time period.

Most policies also provide automatic coverage for a newly acquired vehicle that is an addition to the vehicles you already have on your policy. There are usually specific conditions that must be met.  For example, the purchased vehicle must be reported to your agent or company within a designated time period (e.g., 30 days) or there may be a requirement that in order for coverage to automatically apply, all of your other owned vehicles must be insured with the company.

Important Tips

1. Read your policy.  Don't wait until after an accident.
2. If you don't understand your policy, ask your agent and/or company for clarification.
3. If you have an accident, call the police.  If there are injuries, call paramedics.
4. Get as much information as possible at the accident scene to furnish to your agent and/or insurance company.
5. Immediately notify your agent and/or insurance company of an accident.
6. Cooperate with the insurance adjusters/investigators to aid in their efforts.
7. If you don't understand something about the claims procedure (e.g., amount of settlement offer), ask your agent and/or insurance company representative to explain.
8. Notify your agent or company in writing of any change in your vehicle ownership.

Your Rights Under the Fair Claims Settlement Practices Regulations

In general, insurance companies are required to do the following:

•  Advise you of all benefits, coverage, time limits or other provisions of your insurance policy. 
• Acknowledge claim, start investigation, provide forms and instructions, and provide reasonable assistance immediately but in no event later than 15 days after receiving notice of claim.  (Notice of claim is any written or oral communication to the insurance company which reasonably apprises the insurer that you wish to make a claim.)
• Respond to communications received from you immediately but in no event later than 15 days.
• Accept or deny the claim immediately but in no event later than 40 days after receiving proof of claim.  (Proof of claim is documentation in your possession which provides any evidence of the claim and supports the magnitude or the amount of the loss such as estimates of repair or police report indicating theft of your vehicle, et cetera.)
• Unless the insurer has provided you with the name of a specific towing company prior to your using a towing facility, the insurer must pay reasonable towing expenses.
• Offer a fair settlement.  If you suffered a total loss, settlement must include taxes, license and transfer fees.  The settlement must reflect the value of a comparable vehicle of like kind and quality.  If you retain the salvage, deductions from the settlement for salvage must be fair, measurable, and discernable.
• Once the claim has been accepted, the insurer must pay the claim immediately, but in no event later than 30 days from the date settlement was reached.
• Advise you whether or not they will pursue subrogation.  If the insurance company pursues subrogation, they must include your deductible unless you have already recovered your deductible.

Financial Peace University-Free Preview is THIS MONDAY!

For more information on Financial Peace University check out the Dave Ramsey Website by Clicking HERE

For more information on this upcoming class Click HERE

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What if I lease a car?

If you lease a car, you still need to buy your own auto insurance policy. The auto dealer or bank that is financing the car will require you to buy collision and comprehensive coverage. You'll need to buy these coverages in addition to the others that may be mandatory in your state, such as auto liability insurance.

• Collision covers the damage to the car from an accident with another automobile or object.
• Comprehensive covers a loss that is caused by something other than a collision with another car or object, such as a fire or theft or collision with a deer.

The leasing company may also require "gap" insurance. This refers to the fact that if you have an accident and your leased car is damaged beyond repair or "totaled," there's likely to be a difference between the amount that you still owe the auto dealer and the check you'll get from your insurance company. That's because the insurance company's check is based on the car's actual cash value which takes into account depreciation. The difference between the two amounts is known as the "gap."
On a leased car, the cost of gap insurance is generally rolled into the lease payments. You don't actually buy a gap policy. Generally, the auto dealer buys a master policy from an insurance company to cover all the cars it leases and charges you for a "gap waiver." This means that if your leased car is totaled, you won't have to pay the dealer the gap amount. Check with the auto dealer when leasing your car.
If you have an auto loan rather than a lease, you may want to buy gap insurance to protect yourself from having to come up with the gap amount if your car is totaled before you've finished paying for it. Ask your insurance agent about gap insurance or search the Internet. Gap insurance may not be available in some states.


With Permission © Insurance Information Institute, Inc. – ALL RIGHTS RESERVED -

Thinking about using an "Insurance Broker"?

Tip 1: Obtain the broker's business card.

By law, a broker must include his or her license number on his or her business card, and on any written price quote given to you. Obtain the business card of each broker who talks to you about insurance! If the broker says he or she does not have a business card, ask him or her to write down his or her first, middle and last name, along with his or her license number. Keep the business card or piece of paper along with your other insurance papers.

The California Department of Insurance Web site www.insurance.ca.gov lists all licensed brokers. You can find out whether the person who helped you buy insurance is licensed by checking this Web site, or by calling the Department of Insurance at (800) 927-HELP or (213) 897-8921. If you buy insurance from a person who does not have a license, you are legally entitled to have any broker fee you paid refunded.

TIP 2: Understand the difference between an insurance company and an insurance broker

Brokers are not insurance companies; they are independent insurance salespersons. The broker represents you, the client. In order to find insurance for you, a broker will usually review the premium rates and coverages of several insurance companies.

A broker will usually have the words "insurance agency", "insurance broker", "insurance brokerage", or "insurance services" in its business name. An insurance company is responsible for paying any claims you have; a broker is not. An insurance company will usually have the word "insurance company", "casualty company", "indemnity company", "insurance underwriters" or "assurance company" in its name.

Some insurance companies will use the services of another business, called a "managing general agent" or "general agent". These businesses may perform underwriting, claims handling, and billing on behalf of the insurance company issuing the policy.

Remember, when purchasing insurance through a broker you could be dealing with several different companies:

1. The insurance broker
2. A managing general agent
3. The insurance company

In addition, if you need to borrow money to help pay your premium, another type of company, a "premium finance company", may be involved.

TIP 3: Obtain and keep important insurance papers.

Application

When you apply for insurance, the broker will probably help you complete an insurance application form. This form will be sent to the insurance company. Read the application carefully before you sign it. Do not sign the application if any information on it is missing or incorrect, even if the broker says it is OK to do so, or that the wrong information will save you money. An insurance company can sometimes deny your claim if you signed an application with incorrect information. Obtain and keep a copy of the application.

Binder

When an insurance company accepts an application, it typically mails the actual insurance policy several weeks later. If you need insurance right away or within a few weeks, the broker should provide you with an insurance form called a "binder" or "certificate of insurance."

These forms provide you with proof that you have insurance coverage until the insurance company actually sends you the policy. A binder of certificate should show the name of the insurance company, the date your insurance takes effect, your name, a description of your vehicle, the types of coverage you bought, the liability coverage limit if you bought liability insurance, and deductibles if you bought comprehensive or collision coverage. Obtain and keep the binder. Don't accept a broker's word that you are covered or will be covered as of a certain, future date; get it in writing. Every broker should be able to give you a binder if you need coverage quickly.

Receipt

You will usually have to pay some or all of the premium to the broker when you apply for insurance. Obtain a signed receipt for your premium payment.

Insurance company payment plans

Many people choose to pay their insurance premium in installments. For these people, the insurance company may offer an installment payment plan for a small, extra charge. However, not all companies offer such plans.

Premium finance companies

Another option for people who cannot, or prefer not to, pay their insurance premium all at once, is to obtain a loan from a "premium finance company". With premium financing, you will pay a down payment to the broker when you apply for the insurance. The finance company will pay the full premium to the insurance company. After that, you will reimburse the finance company over several months. Be aware that premium financing typically includes a nonrefundable fee and an interest rate that is usually much higher than banks impose on credit cards.

In order to obtain premium financing, a premium finance application form must be completed. Do not let a broker sign this form for you - obtain it, take your time to read it carefully, ask the broker to explain anything you don't understand, then sign it if you still want to have premium financing.

The form will contain very important information - how much you will have to pay, how often, how much the fees are, what the interest rate is, an what the total principal and interest will be. Once you sign-up for premium financing, it may be expensive to cancel it.

If a broker suggests using a premium finance company, be sure to ask the broker about insurance companies that offer installment payment plans. Even if an insurance company with an installment plan charges more premium than an insurance company that does not have an installment plan, your total cost of insurance may be less if you don't have to pay loan fees and interest to a premium finance company.

Broker fee disclosure and agreement

To charge a broker fee, a broker must have you sign a broker fee agreement, and must give you a special broker fee disclosure. Obtain copies of both these documents.

TIP 4: Take your time and ask questions.

Read all forms carefully, and take your time. Don't let anyone try to rush you. Ask questions - a broker should take the time to explain everything slowly and with words you understand. If a broker makes any promise to you, get it in writing. Never sign any form that has empty spaces - have the broker draw a line through those spaces before you sign the form.

TIP 5: Find out more about insurance.

Insurance is expensive. You can save a lot of money, possibly hundreds of dollars each year, year after year, by learning more about insurance. A good place to start is at the Department of Insurance Web site at www.insurance.ca.gov, or by getting brochures from the Department of Insurance help line, 1-800-927-HELP (4357) or (213) 897-8921. You can obtain pamphlets about many insurance topics, such as different types of insurance, how to file claims, and how to buy insurance.

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Renters Insurance Vs Condo Insurance, Is there a difference?

Renters Insurance

News reports of apartment fires often include tragic stories of renters who have lost everything because they weren't insured. Your landlord does not provide insurance for your personal property. Having all your personal possessions destroyed in a fire or other insurable event, without coverage, is a tragedy that does not have to happen.

To protect your belongings, you should consider purchasing renter's insurance, also known as "tenant's insurance." The renter's policy may be used to provide coverage for your personal contents located in the property that you occupy. Coverage is also provided for loss of use, personal liability protection and medical payments to others.

Coverage generally Provided under a Renter's Policy:

• Coverage C - Personal Property  - An amount, designated by the insured, subject to a minimum as determined by your insurance company
• Coverage D - Loss of Use  - 20% of Coverage C
• Coverage E - Personal Liability  - Generally subject to a minimum of $100,000
• Coverage F - Medical Payments to Others  - Generally Subject to a minimum of $1,000

Condominium Insurance

Condominium insurance covers the unit-owner and is similar to renters insurance. Coverage includes interior damage to your unit, personal property and improvements. Loss of use is generally limited to 40 percent of the contents limit. The condominium association generally purchases insurance for the building structure and common areas, such as corridors. Loss Assessment Coverage can be an important policy provision for you. It covers you for certain assessments the condominium association makes. However, you should check if it covers you for earthquake losses and how much it will provide you in the event of an earthquake loss. You should also carefully analyze the type of insurance your association has and how it would affect you in the event of a loss. Most condominium association policies cover the common areas and walls.

What Limits should I set on My Policy?

The "dwelling" limit should be the amount it would cost to replace your home. This may have nothing to do with the purchase price or the current market value of your home, as homeowners insurance does not generally cover the land value of your insured property. Your insurance policy is not governed by the real estate market, but by the cost of the materials and labor involved in rebuilding your home. Insurance companies have formulas that they use to evaluate the replacement cost of your home. Since the formulas developed are unique for each company, different insurers may suggest or require different limits of coverage for your dwelling limit. 

The following information can assist you to determine if the limit set by your company accurately reflects the price it would cost to rebuild your home in the event of a total loss:

• Contact your agent or broker for assistance in evaluating your dwelling limit. In order to prevent a "he said, she said" situation from arising in the future, you need to document your discussions and inquiries in writing.
• Review your dwelling limit initially and upon renewal. Discuss any changes to your home in writing to your agent, broker, or insurer that may cause your dwelling limit to increase or decrease.
• Know the replacement cost of your home. Be familiar with the building materials that make up your home including the construction type and any special features. 
• Stay informed as to the current building costs in your area. Contact local general contractors and ask what the current price per square foot is for a home similar to your own.
• Keep accurate records of updates, renovations, and improvements to your home. Save receipts and samples of materials used when possible and contact your insurance agent or broker to increase the dwelling limit when appropriate.
• Contact your agent, broker, or insurance company to request a comprehensive inspection of your home if you believe your policy limits may be inadequate.

If you believe that your dwelling limit is undervalued or overvalued, and you have submitted documentation in writing to your agent, broker, or insurer to raise or lower the limits and your request is refused, then contact the DOI.  

The "contents" limit is generally around 50% of the dwelling amount; however, this is a guideline only, as the most competent source on the replacement value of your personal possessions is you. Be sure to take into account all of your personal property when calculating the contents limits. Read and understand the limited coverage amounts for specific types of personal property such as:

• Jewelry
• Fine arts
• Silverware
• Antiques
• Collectibles
• Firearms
• Computer hardware and software
• Business personal property
• Money

The limited coverage amounts for specific types of personal property are not separate limits in addition to the contents limit. These limits are included in the overall contents limit and represent the maximum paid out for that specific type of personal property. Therefore, it is very important to add an endorsement (sometimes referred to as a "rider" or a "floater") to coverage which specifically schedules and takes into account the value of personal property that you may own above the special limits. Contact your agent or broker to discuss how to adequately cover any personal property that is valuable, falls above the limits, or is in any way out of the ordinary. Also, make sure to take into account commonplace household items when calculating your contents limit. Often, people concern themselves only with big ticket items purchased for use in their homes and neglect to account for all the many things you need to run your household and enjoy your home such as small appliances, kitchen utensils, linens, window coverings, and sundries. Remember, personal property also includes clothing, shoes, accessories, and personal items.

Two major problems suffered by homeowners on their Residential Property/Homeowners insurance policies in the Northern and Southern California fires were:

(a) Many of the dwellings were under-insured, i.e., insured for amounts inadequate for rebuilding. Insurers sometimes refer to this as inadequate insurance-to-value.

(b) The problem of increased cost of construction was evident in many situations. When rebuilding, homeowners have to comply with new building code requirements. In some instances the difference between the dwelling limit and the code upgrades was a significant amount. Also, the extreme heat of some fires (and some new building code requirements) necessitated building new foundations along with appropriate debris removal. This is a situation that can be easily overlooked when determining building limits.

An important part to owning any property is protecting the property to the best of your ability. Homeowners insurance is a vital component to the protection of your property. By knowing and understanding the coverage and limits of your policy, and by making sure that values are current, your greatly add to you and your family's peace of mind in any loss situation.

What is covered under Homeowners Insurance?

What Is Covered By Homeowners Insurance?

The homeowners policy contains two sections. Section I provides property coverages (A, B, C and D) while Section II provides liability coverages (E and F). A brief description of the individual coverages follows:

• Coverage A - Dwelling
• Coverage B - Other Structures
• Coverage C - Personal Property
• Coverage D - Loss of Use
• Coverage E - Personal Liability
• Coverage F - Medical Payments to Others

Coverage A - Dwelling

Coverage A provides major property coverage that protects your house and attached structures if it is damaged by a covered peril.

Coverage B - Other Structures

This coverage provides protections to other structures on the residence premises that are not attached to the dwelling. Items covered include detached garages, tool sheds, etc. Coverage B is normally limited to 10% of the coverage A limit. However, you may purchase more coverage for an additional premium.

Coverage C - Personal Property

This coverage provides protection for the contents of your home and other personal belongings owned by you and other family members who live with you. Coverage C is normally 50% of coverage A or is subject to an established amount agreed upon by you and the insurance company.

Coverage is limited on certain types of property that are especially susceptible to loss, such as:

• Jewelry
• Furs
• Fine Arts
• Silverware
• Antiques
• Collectibles
• Firearms
• Money

Additional amounts of insurance may be purchased. You may want to consider scheduling these items separately. Ask your agent for specifics.

Coverage D - Loss of Use

This coverage will help with additional living expenses if your home is damaged by a peril insured against to the extent that you cannot live in your home. These expenses include, but are not limited to, housing, meals and warehouse storage. Coverage D is normally limited to 20 percent of Coverage A.

Coverage E - Personal Liability

This section of the homeowners policy will provide coverage in the event you or a resident of your household are legally responsible for injury to others. Coverage E normally provides a defense and will pay damages, as the insurance company deems appropriate. There are some exceptions. The liability coverage will not protect you in all situations, such as an intentional act. All of the exclusions and specific language can be found in your policy.

Coverage F - Medical Payments to Others

This coverage pays for reasonable medical expenses for persons accidentally injured on your property. For example, if a neighbor's child is injured while playing in your home, the medical payments portion of your homeowner's policy may pay for necessary medical expenses. medical payments coverage does not apply to your injuries or injuries of those who reside in your household. It is not a substitute for health insurance. Business activities are also excluded. All of the exclusions and specific language can be found in your policy.

Perils Generally Covered by a Homeowners Policy if Damage is caused by:

• Fire or lighting
• Windstorm or hail
• Explosion
• Riot or civil commotion
• Aircraft
• Vehicles
• Smoke
• Vandalism & malicious mischief
• Theft
• Volcanic eruption
• Falling objects
• Weight of ice, snow, sleet
• Sudden & accidental water damage
• Breakage of glass

Perils Generally not covered by a Homeowners Policy if Damage is caused by:

• Flood
• Earthquake
• Earth movement
• Termites
• Insects, rats or mice
• Water damage cause by seepage or leaks
• Losses to house vacant for 60 days or more
• Mold
• Wear and tear or maintenance
• War
• Insurrection
• Tidal wave
• Neglect
• Nuclear hazard

Important: Read exclusions in your insurance contract.

Earthquake, flood, mold, earth movement, and "wear and tear" are some of the perils that are usually excluded. When an insurer writes your homeowners coverage, the insurer is legally obligated to offer you earthquake coverage for an additional premium. The earthquake coverage may be written directly by the homeowner's insurer, by a separate insurer, or through the California Earthquake Authority (CEA).

You may elect to buy specialized homeowners coverage that provides additional protection for your dwelling and contents beyond the standard coverage limitations in most homeowner's policies. Ask your insurance agent or broker about available endorsements to extend coverage. Endorsements to coverage such as building code upgrade can greatly add to your protection in a loss.

Earthquake Coverage

Every offer of earthquake insurance must provide coverage for your dwelling, for your personal property (not less than $5,000 or 10% of the covered dwelling loss), and for any additional living expense (ALE) of at least $1,500. You may waive ALE coverage if you or your family do not occupy the dwelling you wish to insure. CIC Section 10089(b) states that the maximum deductible that can be charged is 15% of the policy dwelling limit. It is common for the deductible to be the maximum 15%. If you desire earthquake insurance offering more than the minimum limits and a deductible less than the maximum established by law, then you may contact your current residential property insurer or earthquake insurer to see if higher limits or lower deductibles are available. (Please see the "California Earthquake Authority" section of this brochure.) Also, you may want to contact a broker-agent to assist you with securing a monoline "stand-alone" policy. Stand-alone policies are offered by a few specialty insurance companies who do not require you to purchase your homeowners insurance from them in order to offer you earthquake coverage. They offer a stand-alone policy, which is referred to as a monoline policy (one line of insurance) by the insurance industry.

ALE coverage is designed to pay for the cost associated with living somewhere else while repairs are being made to your home. Typically your insurer will cover increases in your normal living expenses to help you maintain the standard of living you had before an earthquake damaged your home and personal property. ALE coverage can include costs for the following:

• Temporary rental home, apartment, or hotel room
• Restaurant meals
• Telephone or utility installation in a temporary residence
• Relocation and storage
• Furniture Rental
• Laundry

Payment on ALE coverage is limited to the reasonable time required to repair or rebuild your home, or for you to permanently settle in another residence. It is important to note that ALE only covers the extra amount you have to pay in order to maintain your normal standard of living while outside your home. ALE coverage can also pay costs you may incur due to the police or other civil authority denying access to your home in the event of an evacuation

Earthquake Insurance Offer and Response
Many property owners utilize earthquake insurance to help defray the expense of costly earthquake repairs. Residential property insurers (insurance companies that sell homeowners policies and policies for qualifying condominiums and apartments) are required under California Insurance Code (CIC) Section 10081 to offer earthquake coverage for the peril of earthquake. The mandatory earthquake offer must:

• Be made in writing
• Describe coverage amounts
• List the deductible offered
• State the policy premium

You have 30 days from the date of mailing from the insurance company to accept the offer of earthquake coverage. If your homeowners insurance company does not receive a response from you, then they consider the offer rejected. Your insurance company is only required to make the offer of earthquake coverage every other year. The law prohibits an insurer from canceling, rejecting, or refusing to renew a residential property policy solely because the policyholder has accepted the offer of earthquake coverage.