When Should You Drop Collision Coverage?

 Many people with newer cars keep collision coverage on their policies, but they also may not know when or if they should drop this coverage. While there's no set rule for determining whether collision coverage becomes unnecessary for your particular situation, there are some simple considerations to make if you're debating whether or not you should keep it on your policy. We've outlined them here.

 

 

What's your vehicle's actual cash value?

 

This is one of the easier things to determine because you can find several sources that will provide actual cash value (ACV) estimates online or through publications. Common sources for ACV estimates are N.A.D.A. Guides, Kelley Blue Book and Black Book. These will give you a good idea of what your vehicle is worth.

 

If you're not sure which source to use, you can contact your insurance company to see how its claims department determines ACV in your area. Often, one of these guides is used by claims representatives to establish a vehicle's ACV.

 

Remember to be realistic about the condition of your vehicle to get a realistic ACV estimate. If your vehicle has dents, sun damage, torn upholstery, etc., these may lower your vehicle's ACV.

 

How much do you pay for collision coverage?

 

Factor in the price you pay for collision coverage. If your collision premium is $250 for a six-month policy term, you're paying $500 per year to insure your vehicle against damage that may never happen. For your situation, is the cost worth the potential risk?

 

If your vehicle is worth $2,500 and your collision premium is $500 per year, you're paying 20 percent of your vehicle's value for one insurance coverage.

 

On top of that, the most you'd receive in a total loss settlement would be $2,000, and that doesn't factor in the amount you're paying for collision coverage. Should you keep collision at this point? Well, it depends on your personal situation — more on that later.

 

Keep in mind that collision premiums generally decrease as your vehicle ages, so the cost for collision coverage may be less next year than it is this year.

 

What's your collision deductible?

 

What deductible did you choose when you added collision coverage to your policy? Did you select a $500 deductible? $250? $1,000? It is important to consider the amount of your deductible because, if you ever have to use collision coverage, you'll be responsible for paying that amount out of pocket.

 

If you selected a $500 collision deductible and you pay $250 every six months for your collision premium, you could be paying $750 out of pocket to have and use collision coverage for each policy term, so consider what you're able to handle financially. Would the amount paid by your insurance company help you after you've paid your deductible?

 

What can you afford out of pocket?

 

Sit down and think about what's best for you, right now. If you're living paycheck to paycheck, a $500 settlement from your insurance company may be exactly what you need to replace a totaled car. However, if you've amassed a pretty comfortable financial nest, you may be able to afford $5,000 or more out of pocket.

 

Before you decide, also consider more than just money factors. If you drop collision coverage and have to replace your vehicle unexpectedly, are you able to spare the time it takes to shop for a new car? If you're without a car for a few days, will you be able to get to work or other scheduled engagements without your vehicle? Is a rental car feasible until you find a new vehicle?

 

What services or options would you forfeit if you drop collision coverage?

 

Finally, consider what else you're bypassing by dropping collision coverage. If you don't have Collision coverage, will forfeiting options for other coverages affect you negatively? For instance, with some companies, if you drop Collision coverage, you won't be able to purchase Rental Reimbursement coverage.

 

Should you keep collision coverage or drop it?

 

Your personal situation purely drives this decision. If you have a $1,000 collision deductible on a vehicle that's worth $1,000, you're basically paying for insurance that's not going to pay you when you need it. Some people choose higher deductibles because the premium is lower, which means up-front costs are lower. Think about this before making your decision. Focus on what you can handle, including time and money considerations, before you decide. You may be surprised at what you discover.

Did You Know...

FRACKING DAMAGE IS NOT COVERED

 

 

This article was released in 2012:

 

Nationwide Mutual Insurance Co. has become the first major insurance company to say it won't cover damage related to a gas drilling process that blasts chemical-laden water deep into the ground.

 

The Columbus, Ohio-based company's personal and commercial policies "were not designed to cover" risk from the drilling process, called hydraulic fracturing, or fracking, Nationwide spokeswoman Nancy Smeltzer said Thursday.

 

The process injects chemically treated water into wells to fracture shale thousands of feet underground and release trapped gas or oil. There are rich shale deposits in parts of Pennsylvania, New York, Ohio, West Virginia and elsewhere.

 

Health and environmental groups claim fracking can contaminate drinking water. The gas industry says it's safe if done properly. Nationwide said risks involved in fracking operations "are too great to ignore" and apply to policies of commercial contractors and landowners who lease property to gas companies.

 

The Nationwide policy first came to light when an internal memo detailing underwriting guidelines was posted on websites of upstate New York anti-fracking groups and landowner coalitions seeking gas leases. Smeltzer confirmed that the memo was genuine but said it wasn't intended for public dissemination.

 

The memo reads: "After months of research and discussion, we have determined that the exposures presented by hydraulic fracturing are too great to ignore. Risks involved with hydraulic fracturing are now prohibited for General Liability, Commercial Auto, Motor Truck Cargo, Auto Physical Damage and Public Auto (insurance) coverage."

 

It said "prohibited risks" apply to landowners who lease land for shale gas drilling and contractors involved in fracking operations, including those who haul water to and from drill sites; pipe and lumber haulers; and operators of bulldozers, dump trucks and other vehicles used in drill site preparation.

A spokesman for a research and outreach program of the Independent Petroleum Association of America, whose members drill most of the nation's oil and gas wells, said nothing in what Nationwide said represented a change in policy for the company. Simon Lomax, the research director for Energy In Depth, said insurers don't sell products specific to individual steps of the oil and gas development process.

 

"But practical implications aside, the fact that the company would send out a statement this reckless, and this uninformed, should tell us a lot," Lomax said in an emailed statement. "For starters, it tells me that I won't be buying home and car insurance from this company."

 

Opponents of fracking point to some highly publicized accidents that resulted in contamination.

 

In late 2010, Houston-based driller Cabot Oil & Gas Corp. settled for $4.1 million with residents of Dimock, Pa., over gas found in their water. State environmental regulators determined Cabot contaminated the aquifer underneath homes with explosive levels of methane. A Cabot spokesman said levels of contaminants found didn't pose a threat to human health or the environment.

 

Jeffrey Hanneman, the Texas-based director of environmental practice at the insurance broker Aon Risk Solutions, said the Nationwide move was "really unique" and he doesn't expect it will be the beginning of a trend.

 

"To date, all we've seen are some that were hesitant to write environmental coverage," Hanneman said. "But the Nationwide is sort of a broader ban on all the ancillary services related to it (fracking)."

 

Hanneman noted that there haven't been any substantial claims that targeted companies other than those that own and operate the wells or the contractors who do the drilling. And even those claims have been few and far between.

 

He said one factor that may be driving Nationwide's decision is that increasing publicity — much of it negative — surrounding fracking makes it possible that any damage claims would go beyond the big oil and gas companies to include the hundreds of supporting businesses such as haulers.

 

Mike Elmendorf, president of the general contractors' group Associated General Contractors of New York State, said the Nationwide decision was unwelcome news for his members who do work for the gas industry and was not based on facts.

 

With a record of shale gas development having been done safely, "it is hard to fathom the rationale for this decision," Elmendorf said. "It would seem Nationwide is not on job creation's side."

Water, water everywhere, but no flood insurance

What’s wrong with us? We’ve lost thousands of dollars of household goods and priceless remembrances because of torrents of water in our streets, homes and basements — yet we still don’t have flood insurance.

Some 81% of Americans know that the standard homeowners’ insurance policy doesn’t cover flood damage, but barely one in 10 has a flood-insurance policy, according to Bankrate.com.

What’s more, flooding is the No. 1 natural hazard in the U.S., according to the National Flood Insurance Program, a division of the Federal Emergency Management Agency. Flash floods alone are the top weather-related killer in the U.S.

“Flooding is very common, and people need to wake up to the fact that they may need flood insurance,” says Doug Whiteman, insurance analyst at Bankrate.com, which recently asked people what they knew about flood insurance.

It’s something to consider ahead of this year’s hurricane season, which is roughly June 1 through Nov. 1 and is forecast to be a tough one.

Meteorologists at the University of Colorado warn that the tropical Atlantic has warmed unusually over the past several months, and there’s an “above-average probability” that a major hurricane will make landfall. They’re looking for nine hurricanes this year, four of which are expected to be major, and 18 named storms. Remember that it’s not always the hurricane’s winds that wreak havoc, but the storm surges and flooding that come with them.

As entire neighborhoods throughout the Midwest grapple with heavy spring rains and flooding, just six months after Hurricane Sandy lambasted the East Coast from Florida to the New England states, we find that one in five homeowners still seems clueless about flood insurance. That’s true even after insurance agents reported a surge in new flood-insurance policies in New York and New Jersey post-Hurricane Sandy.

You must get a flood-insurance policy on top of your homeowners’ insurance. The basic homeowners’ policy underwrites your home’s structure, your personal belongings like furniture, clothes, electronics, and sports equipment, liability and additional living expenses if you cannot stay in your home because of damage from a fire, storm or any other insured disaster. All, of course, have limits — and one of them is if the home is flooded. In some high-risk areas, you won’t be able to get a mortgage without flood insurance.

There’s a good tool at Floodsmart.gov that will give you the risk level of your property and direct you to insurance brokers who can help you get coverage under the National Flood Insurance Program. The average flood-insurance policy will set you back about $600 a year, though costs vary widely.

Here’s what you should know about flood insurance:

• It covers physical damage to your property and possessions.

• You may need both building and contents coverage. Building insurance covers the home’s foundation and the equipment necessary to keep it running, like a furnace, water heater and circuit breaker. It will even underwrite carpeting, paneling and wallboard. Contents insurance covers items like a washer and dryer, a freezer and the food inside it.

• Flood insurance doesn’t cover moisture, mildew or mold that could have been avoided. Nor does it cover property outside the house, like the deck, sidewalks and hot tubs. Not all basements are covered either.

• The costs vary, depending on the design and age of the property, what the flood risk is and the amount of coverage.

• The coverage doesn’t start when your check is cleared. There’s typically a 30-day waiting period, which means if you’re looking to avoid this year’s hurricane season, now is the time to jump in.

Connecticut Commissioner Offers Advice on Preparing for Winter Storm

As the Northeast and New England states brace for a major blizzard, Connecticut Insurance Commissioner Thomas Leonardi is offering policyholders tips on preparing for the storm and filing claims if there is property loss.

“One of the most important things consumers can do right now is take stock of what they have. Take the time now to make a home inventory or update an existing one,” Commissioner Leonardi said. “This will be extremely helpful should the need arise to file a claim. Do not hesitate to contact the insurance department if you have questions or complaints.”

Commissioner Leonardi offered the following advice on what types of damages may or may not be covered. The commissioner said, however, that policies may vary in coverage. He recommended that consumers contact their insurance agent or the state insurance department with questions about the specifics of their policies.

• Snow removal: Homeowners insurance does not cover injuries to the homeowner during snow removal. However, snow removal professionals should be covered under their own liability policies.

• Ice dams: Interior or exterior damage caused by an ice dam on a roof is generally covered. However, many policies do not pay for ice dam removal.

• Frozen pipes: Most policies cover pipe replacement and water damage. However, coverage may not apply if the homeowner turned off the furnace for the winter without winterizing the home.

• Tree Damage: In general, the policyholder of the property that is damaged by a falling tree – not the tree owner – should file the claim with his or her insurance company. The insurance policy covers the cost to remove the tree from the damaged property and the resulting damage, minus the deductible. If the tree damaged a covered structure, the claim would be made on the homeowner’s policy. If the tree damaged a vehicle, the claim would be made on the auto insurance policy.

• Storm power outages: An all-risk policy generally pays for damage caused by loss of power and appliances damaged by the outage. Check the policy to see if it covers spoiled food. Most policies will not pay for shelter when the homeowner loses power for extended periods of time unless there is damage to the home that causes it to be uninhabitable.

• Renters: Landlord’s insurance will pay for winter damage to building. It will not pay for damage to personal contents, which must be covered by the renter’s own insurance.

Before the storm, the commissioner recommends the following steps for consumers:

• Keep the policy and other important documents together in a safe place.

• Review the policy to understand the coverage – call the company or agent with questions.

• Create or update the home inventory. Take photos of the possessions and Note model and serial numbers. Assemble original sales receipts and/or appraisal documents.

After the storm, consumers are advised to take following steps if damages have been sustained:

• Call the insurance company’s 24-hour claims phone number as soon as possible; provide policy number and other relevant information and documents.

• Take photographs/video of the damage. Make repairs necessary to prevent further damage, but do not make permanent repairs until the insurance company inspects the damage.

• Save all receipts from temporary repairs.

• Keep a diary of all conversations, e-mails and other correspondence with the company.

Actual-Cash Value vs. Replacement Cost

Standard replacement-cost provisions on Commercial Property forms often offer the insured the option to accept settlement on an actual-cash-value (ACV) basis, but the insured can later opt to receive the replacement-cost amount.

 

This can cause some confusion.

 

The policy usually provides a time period for notifying the carrier that the insured intends to make a claim for the replacement cost. The insured must actually make the repairs before the replacement-cost amount is paid. But the amount of time given to make the repairs is generally some variation on “as soon as reasonably possible” after the loss or damage.

 

How soon is that?

 

There is no absolute answer to how long it should take to make the repairs. The only set time limit is how long the insured has to notify the insurer of the replacement-cost claim. “Couch on Insurance 3d” states that the reasonable time “turns upon the circumstances of the case and is ordinarily a question for the jury.” So, the answer is a subjective one.

 

Sometimes what seems like a straightforward answer to a question leads to more complex issues. For example, an insured recently asked us the following regarding a claim on a Businessowners form:

“Our insured is considering accepting an ACV settlement on some of the soft-metal hail-damaged fascia and gutters on his building. If the policy continues as written with replacement cost and the building sustains damage that necessitates replacement of these same items, will the company, under the language of the policy, still be required to pay for the full replacement cost of the materials that have already been paid for under this prior loss?”

 

Our immediate response was that if the insured experiences a subsequent, separate loss, then the full replacement cost of the damaged property should be paid.

 

As we continued discussing the scenario, though, another issue arose that threatened to make the solution a little more complicated. The ISO Businessowners form contains the following language in the loss-payment section:

“You may make a claim for loss or damage covered by this insurance on an actual-cash-value basis instead of on a replacement-cost basis. In the event you elect to have loss or damage settled on an actual-cash-value basis, you may still make a claim on a replacement-cost basis if you notify us of your intent to do so within 180 days after the loss or damage.”

 

It seems pretty clear that, in the situation that our client presented, a separate loss the insured wants to adjust on a replacement-cost basis after the 180-day time limit outlined in the loss-payment section would receive the full replacement cost.

 

But what if the insured suffers hail damage and accepts an ACV settlement and thirty days later suffers hail damage again to the same property? If the insured submits a claim for replacement-cost coverage at that point, would the carrier consider it within the 180-day period and pay only the difference between the ACV settlement already received and the replacement cost?

 

Our first reaction is that our original answer to the question stands, regardless of the 180-day time period. However, we are curious if anyone has run into this situation—and if so, how it was handled? The fact that our client was concerned that the insured would not receive full replacement-cost coverage for a different loss implies that someone may have experienced similar situations before.