General Insurance Questions

What kinds of questions should I be expected to answer when I am applying for an insurance policy? Why do insurers ask all of these questions?

When you apply for an insurance policy, you will be asked a number of questions. For example, your name, age, sex, address, etc. In addition, you will be asked a number of other questions which will be used to determine what type of risk you are.

For example, when an insurance company is deciding whether or not to supply automobile insurance to a potential policy owner, it will want to know about the person's previous driving record, whether there have any recent accidents or tickets and what type of car is to be insured.

All of this information will be used for two purposes.

1. Based upon the responses to these questions, the insurance company will decide whether the profile of the applicant is consistent with the type of risks the insurer is trying to attract. Some insurers specialize in offering insurance to only very safe drivers and therefore will only accept applications from people who fit the profile of a safe driver.  While others may base their policies on those who are considered a higher risk, and charge accordingly.
2. Once the insurer has decided that your risk profile is consistent with the types of risks it accepts, the answers to the questions will be used to determine which rate catagory should be applied. For example, the insurance company will decide whether you should be offered insurance at the high risk driver rate or the low risk driver rate.

Collectively, this entire process is known as the underwriting process and every insurance company has one. The primary function of the underwriting department in an insurance company is to decide whether or not to offer insurance to a person who has completed an application.

If the answer is yes, then the underwriting department seeks to determine the "quality" of that risk so that the proper premium can be charged. That is, high risk people should pay more than low risk people because of the greater possibility of experiencing a loss.

My child is heading off to college this fall. What insurance issues does this raise?

As you send your children off to college, you probably have a lot of things on your mind - whether they'll eat right and get enough sleep, how to pay the tuition bills, what to do with that empty bedroom, etc. For most people, insurance concerns are pretty low on the priority list. But there are some important issues you should consider.

Issue #1: Health insurance - make sure your child is covered.
Your medical plan probably covers your children until they're somewhere between 20 and 24 years of age, regardless of whether or not they live at home. But if the plan is an HMO and your child's college is far from home, accessing an approved provider may prove difficult. As an alternative, consider purchasing health insurance coverage through your child's college. Many colleges and universities offer low-cost health insurance for students. Cost and level of coverage vary greatly from one school to the next, but school-subsidized health insurance is often less expensive than continuing coverage through your existing health plan. And since health care is typically provided on-campus, it may be easier for the student to access.

Issue #2: Homeowner's/Renters insurance - make sure your child's possessions are covered.
If your child lives in a dorm or other university housing, their personal property is typically covered under your homeowners insurance policy. Check your policy for coverage limitations on computers and stereos, if your child can't live without these. Once a student moves out of the dorms and into an apartment, they are usually no longer covered under your policy. Off-campus students should purchase a renters insurance policy to cover their possessions.

Issue #3: Auto insurance - make sure the car is covered.
If your child will be taking a car to school, make sure the car is properly insured. If the child owns the car, then the insurance policy must be in the child's name as well. If the child is "borrowing" a car from Mom and Dad, the child must be listed on the insurance policy. Some insurance companies may require the child to be listed as the primary operator, since the car is in the child's possession and not the parents'.

How often should I check my Social Security earnings record? Is there much of a chance that an error may occur?

You should check your Social Security earnings record at least once every three years. Errors in your earnings record are more likely to occur if you change jobs frequently or have more than one employer.

To check your earnings record, you should complete and return an SSA-7004, Request for Earnings and Benefit Estimate Statement. You may complete and transmit the SSA-7004 online. Or, if you prefer, you may download the SSA-7004 from the Social Security Web site server and mail it to them. Within four weeks after submitting the request, you'll receive a statement from them showing your earnings as reported to Social Security by your employer(s).

What do I give up by not using an agent to purchase insurance?

The disadvantage of not using an agent to purchase insurance is that the policyholder does not receive as much, or often any, personal service. A licensed agent with whom there is direct contact can be vital when purchasing a product and absolutely necessary when filing a claim.  Without an agent to act as your personal advocate during the claims process, you are left to take care of the details on your own... not sure who to contact at the insurance company or who you can really trust to help you during the times in life when you need help the most.  Without an agent you are on your own to absorb the frustration and expense of resolving your problems.

Am I at risk if I don't use a licensed agent?

Many "direct writing" insurance companies/providers fail to tell you that the "call center personnel" who will take your information and issue the policy ARE NOT licensed to sell insurance, therefore lacking the professional knowledge to guide you toward an acceptable level of protection.  These companies are conducting business using a loophole within the law which allows the company to have 1 license while everyone else works without it. Going this route can place your financial future at risk because unlicensed personnel are trained to simply sell you a policy without being aware of what "real" protection means.  

For instance, imagine you own a $150,000 home and your auto insurance policy's liability limits are $50,000.  When you purchased the policy you were told this was plenty of protection considering your state's minimum requirement for liability is $20,000.  Yet if you have an accident and are sued for $200,000 your policy is only going to pay out $50k, leaving you responsible for the remaining $150k.  Since your home would cover the difference, a court judgment could force you into selling your home as a way to settle the suit.  If your policy's liability limits had protected you at a minimum of $200,000, the policy would be paying for the total suit.  

Because direct writers are typically located hundreds (if not thousands) of miles from where you live, many won't hesitate to sell you a policy with low liability limits as a way to simply make the policy cheaper while convincing you to buy it.  Leaving you extremely vulnerable to financial disaster.

Learn More:

General Questions | Auto Questions | Homeowners Questions
Life Questions | Renters Questions | Insurance Credit Scoring