Whether young or old, single or married, it is important to properly protect oneself against financial loss. This certainly includes losses from automobile accidents or home losses due to fire and theft. The agent who represents property and casualty companies (commonly referred to simply as P&C) is in a position to greatly help the general consumer.

Insurance companies are a vital part of society and the economy. Insurance companies are financial intermediaries, which means that they obtain money from one source and redirect it to another. Banks, savings and loan associations, as well as insurance companies, basically collect small sums of money from their clients and policyholders, pool the money, and then lend larger sums to and/or invest larger sums into other entities. Of course, not all financial intermediaries operate in this exact manner. Consumer and sales finance companies generally obtain large sums of money in the commercial paper market and then lend it in smaller sums to individuals and businesses. However, the basic formula is the same either way; there is merely a difference in the direction of the money.

There is a need for efficient collectors and distributors of capital because there is a demand for business capital. Business capital is in short supply as any small businessman or woman knows.

There are many economic aspects to insurance involving our society. Many areas of business, besides that of available cash flows, could not exist as it is today without the aid of insurance. Therefore, the benefits of insurance for society outweighs any cost involved.

Many industries take more than one form. This is also true for insurers. In the United States insurers are either owned privately or ran by a government unit.

Within both the privately ran and the government ran insurers, there are additional sub-categories. For example, a company may be a proprietary or a cooperative company. There is a general difference between a proprietary and cooperative company. A proprietary insurer is organized and operated for profit. A cooperative insurer is formed and operated to furnish insurance at cost to its members.

This is an oversimplification to some degree. For example, a proprietary insurer may be formed and operated by another business to obtain their insurance at cost. In this situation, the subsidiary insurance company is called a captive insurer. They may be formed as an alternative to self insurance.

Insurance, as we all know, is bought to offset the risk, which exposes a person or persons to losses resulting from perils. The term "risk" is often interchanged with the terms hazard and loss. Risk is generally considered to be the uncertain potential for loss. There are varying degrees of risk; risk is usually not desired.

In simplistic terms, insurance is the transfer of risk from one entity to another. An insurance policy transfers the threat of financial loss from the policyholder to the insurance company. Of course, if insurance were merely risk transfer, then insurance regulation would simply address this issue. As we know, insurance deals with much more than risk.

It has been said that an insurable exposure is one for which insurance may be purchased. That determination is the function of the analysts and the underwriters employed by insurance companies.

The ability to predict probabilities, a necessary part of predicting risk and loss, requires the use of the "law of large numbers." No insurance company can afford to insure a type of loss that will likely happen to large numbers of people in a single occurrence.

The words, "chance of loss," are often used in place of the word or term "risk." However, they may not always mean exactly the same thing. "Chance of loss is the long-run relative frequency of a loss" states the text book Principles of Insurance written by Robert Mehr and Emerson Cammack. The chance of loss is often stated as a percentage since it often expresses mathematical probabilities of probable numbers and severity of losses out of a given number of exposures. To put this in simpler terms, if a person flips a coin, there is the 50/50 chance that heads will land face-up. This may be stated as 50/50, 1/2 or 50%. So it is with chance of loss. The probable number of losses is the numerator and the number of exposures is the denominator.

When insurance companies figure their chances of loss, it is a serious venture. To miscalculate such chances could cause the company serious financial losses. This is true regardless of the type of policy involved.

Chance of loss is also the basis upon which rates or premiums are established by the insurance companies. A degree of accuracy is absolutely necessary.

Insurance protection brings about another factor: morale and moral hazards. While similar, each type of hazard is actually distinct. A morale hazard involves human carelessness or irresponsibility, rather than an intentional act. This might occur because an individual or a business was aware that they had insurance protection, so their actions were not well thought out. Moral hazard (no "e" at the end), on the other hand, does involve an intentional human act. Moral hazards include such things as arson for profit and other types of fraud. Both types of hazards include humans and their actions.

Insurance, as we know, is purchased to offset the risks we are exposed to, whether that risk involves our homes, cars, health or lives.

Insurance underwriters and analysts rely on specific risk numbers to offset their chance of loss. To use a gambling term, one might say that insurance companies "play the numbers." It has often been said that insurance companies are the best scorekeepers there are. They are more likely to know the possibilities of either loss or gain than anyone else.

The "law of large numbers" is related to the degree of risk. Of course, insurance agents and insurance agencies also play the "numbers" game. Most professionals are well aware of how many times they must hear "no" before the "yes" comes along. Without becoming involved in the complicated mathematics, the law of large numbers basically states: the greater the number of similar units exposed to a similar loss, the more accurate the loss predictions based on that data will be. The law of large numbers may also be called the law of probability. Of course, the law of large numbers is not really a "law" at all. It is an entire branch of mathematics.

With life insurance, for example, statistics are readily available to the insurance companies. The statistics show the probability of death according to sex, ages and even professions.

In the 17th century, European mathematicians were putting together crude mortality tables. They discovered that the percentage of female and male deaths among each year's births tended toward a constant if sufficient numbers of births were tabulated. It was not until the 19th century that Simeon Denis Poisson named this principle the "law of large numbers."

While risk, in its simplest form (exposure to danger or adversity) is easy enough to understand, when risk is applied to the insurance field, it becomes more complex.

The insurance industry tends to tie risk and the possibility of financial loss together. The chances and types of risk may be divided into categories. There are basically two types of risk:

(1) fundamental risk and particular risk and

(2) pure and speculative risk.

While fundamental and particular risk are linked together as are pure and speculative risk, each one is specific and separate. A fundamental risk is a type of risk to which society in general (or at least a large number of people) are exposed to in a single occurrence. A particular risk is one to which relatively few people are exposed to in a single occurrence. Sometimes it can be very difficult to make a distinction between the two types of risk. A recession is a risk to a large portion of society, so that would be a fundamental risk, whereas investors who contribute to a specific project are involved in a particular risk because only those investors are exposed to that particular loss.

Some types of risk seem to have properties of both fundamental and particular risk. This may especially be true when it comes to disability insurance. Particular risks, since they involve small numbers of people, are easier to insure.

Pure risk is a chance of financial loss that does not offer a chance of financial gain simultaneously. A speculative risk, on the other hand, does offer the chance of both financial loss and financial gain at the same time.

These tend to be logical. When a person's car is damaged in an accident that is a financial loss. If no accident occurs, the owner of the car does not receive any financial gain. Pure loss is sometimes described as a loss or no loss situation. There is never any gain with pure risks.

With speculative risks, the person involved is taking some type of action that purposely exposes them to the possibility of a loss. There are two elements involved in speculative risks:

1. There is a chance for gain as well as loss,

2. The individual usually creates a speculative risk for themselves by their own intentional actions.

There are many types of speculative risks including such things as gambling and some forms of investing. Between pure and speculative risks, pure risks are more easily insurable. In most insurance matters, those risks with a low frequency and high severity lend themselves best to insurance coverage.

When it comes to insurance policies, many people have heard the saying "What the big print giveth, the little print taketh away." In actuality, this saying is not true. Most states have laws requiring that "conditions" and/or "exclusions" be in type at least as large and clear as the statements of coverage. In some cases, the type must be larger or in boldface type.

Unfortunately, an agent would have a difficult time convincing a policyholder whose claim has been denied that this is true. Few policyholders ever actually read their policies. The insured often first realizes that their policy does not cover everything when a claim is denied. It is at that point that an insurance agent or an insurance company is typically accused of "hiding the details."

All coverage under any insurance contract is subject to some type of limitations. It is very important that insurance agents outline those limitations (of course, we have all had the occasion where, after fully covering the limitations in a policy, the client says "so this covers every thing?").

The term "risk" may be used in many different ways. Simply put, risk means exposure to danger or adversity. When investments are involved, risk is generally defined as uncertainly concerning loss. The two key words here are "uncertainty" and "loss." It is important to understand that risk is connected to the uncertainty, not to the loss.

The basic function of insurance, as we know, is to handle risk. The accuracy with which losses may be predicted is the measure or degree of risk.

There is some amount of social risk as well as financial risk. Generally speaking, most people try to avoid most risks in their lives. The average person would not cross a street in heavy traffic, for example. Past such daily risk avoidance, however, fear of risk has an economic price. Risk may discourage investors and can affect how financial resources are placed. Poor areas of cities often experience this. As an agent, you may find that your companies do not like to place insurance in certain areas that experience high rates of claims.

Insurance does not completely eliminate risk because achieving an infinite number of exposure units is not possible. One may always expect some deviation of actual results from expected results. Certainly, statistics, upon which the predictions are based, can never be perfect either. Even if the statistics used for predictions were absolutely accurate, there is no reason to believe that tomorrow's losses will exactly duplicate yesterday’s losses. Therefore there will always be uncertainties in predicting insurance losses.

It is a simple fact of life: all drivers cannot be trusted to do the "right" thing. Many states mandate that drivers carry minimum amounts of liability insurance in order to guarantee compensation if they are at fault for an accident. Even so, it is best to carry personal insurance and not count on the other guy to do so.

An insurance policy is a contract between the insured and the insurance company. The insured pays a "premium," which is the price or cost of the policy. The insurance company agrees to pay for the insured's losses resulting from events, which the policy covers. Fire, burglary or a car collision would be examples that would be covered under a property and casualty policy. Policies typically have what is called a "policy limit." That means there is a limit to the amount of money the insurance policy will pay on a loss.

If a driver causes an accident, or is somehow shown to be at fault, it will not matter how large or small his or her policy is. Damages will be awarded according to many factors, but not that one. If he or she has a judgment levied against them for $100,000, for example, and his or her liability policy has a $25,000 limit, he or she will still be required to pay the full amount awarded. People have lost their homes, savings and everything else they own due to being under-insured. Therefore, a larger insurance policy not only assures compensation for those who are wronged, but it also protects the driver from the financial consequences.

Whether the policy is for property and casualty or life and health, insurance policies seldom (if ever) covers every possible kind of loss. If an insured is concerned about a specific cause of a loss, questions should be asked to be sure it is covered under their policy.

Many insurance contracts or policies contain "deductibles." A deductible is a specified amount of money that the insured must pay on a claim before the insurance company will pay anything. The deductible is usually per claim or per accident, so it may apply as often as a claim or accident occurs. Any losses under the deductible amount simply come out of the insured's pocket. The higher the deductible, the lower the premium cost for the policy.

It is human nature to want an insurance policy to return the premiums paid in. As a result, a common complaint of consumers involves high deductibles. However, the sensible way to buy insurance is to construct the policy so that large losses are covered. Most people can handle the smaller ones themselves. Of course, the term, "smaller claims," may mean different figures to different people. It is necessary to understand that one household may be able to handle a $500 loss themselves while another household may have difficulty coming up with $200.

Automobile coverage is actually six different types of coverage. Which components that will be required by law will vary from state to state. The six parts include:

1. Bodily injury liability insurance,

2. Property damage liability insurance,

3. Collision insurance,

4. Comprehensive insurance,

5. Medical payments insurance

6. Uninsured motorists coverage.

The first one, bodily injury liability insurance, covers someone else who is hurt or even killed.

The second one, property damage liability insurance, usually concerns the other driver's car which is damaged in an accident. It can, however, also include other types of property such as structures, fences, sign posts, and so on.

Both bodily injury and property damage liability coverage will pay for legal defense if claims or lawsuits are brought against the policy-owner. This is very important since a legal defense can be extremely expensive. Both of these components generally have policy limits for which damages will be paid.

The question that commonly comes up is what situations are covered and what situations are not covered? While state laws do vary, generally any situation in which the car is being driven by the policy-owner, members of their family living in the same household, or anyone who has the owner's permission to drive the car would be covered. As well as variances in state laws, policies may also vary to some degree. In some policies, any person who has a "reasonable belief" that he or she has permission would be covered. This might involve the friend who drives the car because the owner is intoxicated. Certainly a thief would not be covered. In some states, only the licensed owner of the vehicle and his or her spouse may give permission to others to drive the car while in other states, any driver listed on the policy may allow another to drive the car.

The third element of a policy, collision insurance, covers the car when it is damaged as a result of colliding with another car or object. This particular component applies only to the car itself. It does not cover whatever the car actually hit.

The fourth one, comprehensive insurance, gives coverage for damages that were not the result of a collision. That might include damages from a windstorm, theft or fire, to name a few.

The fifth one, medical payments insurance, pays (as the name implies) the doctor and hospital bills and, if necessary, funeral expenses for the policy-owner and members of his or her family who live in the same household regardless of who caused the accident.

It is important to realize that liability insurance will not pay for injuries sustained by the policyowner and members of his or her family living in the same household. That is because liability coverage refers only to third party claims. The policyholder and family members are first parties in the contract (policy). The insurer is the second party to the contract or policy.

TO RECAP: the first party is the policy-owner,

the second party is the insurance company and the third party is the other driver.

The medical payments insurance covers any passengers riding in the car. That would include someone else's car being driven by the policy-owner and covered family members as long as they had permission to drive the car. Medical payments insurance would also cover pedestrians that were injured.

Premium rates for automobile insurance are higher in cities and suburbs. That is because that is where most of the cars are and, as a result, most of the accidents occur. However, rates are on the rise everywhere.

There are many reasons why auto insurance premiums are going up. For one thing, today's new cars are increasingly more complex and, therefore, more expensive to repair. Another factor, which any rush hour driver can verify, are the steadily increasing number of vehicles on our roads. As roads become more congested, more accidents are bound to happen. In rush hour traffic one accident often involves more than two cars as chain reactions occur.

Theft takes a heavy toll on automobile insurance as well. In cities such as Boston it is out of control. Los Angeles holds the little-desired title for fraud.

Medical costs also play a major role in the soaring costs of auto insurance. The cost of medical care can be extremely high - especially if someone else is paying for it.

Certainly a factor in the rising premiums is the cost of litigation and settlements. There is more litigation now than ever before. Also settlements in injury cases tend to be much higher these days. Sometimes, badly written no-fault laws actually encourage litigation rather than discourage it.

Also a factor is the cars chosen. More and more buyers have gone to smaller cars and sports vehicles. These types of cars are more likely to be involved in collision and injury claims than are larger cars.

Personal Injury Protection (PIP) is a broader form of medical payments and it may vary from state to state. PIP may cover, as well as medical payments, such things as lost wages and the cost of replacing services normally performed by the injured person (such as cooking). As stated, personal injury protection is sometimes called no-fault coverage because it is required in states that have no-fault laws. Such coverage is usually also available in states that do not have no-fault laws, however.

The sixth part, uninsured motorists coverage, pays for injuries caused by a driver who has no insurance coverage. In many states, this type of coverage is mandatory.

Each of these six types of automobile coverage has its own separate premium. The total cost of the policy is the sum of all the components. It is not always necessary to have all six components in the total auto package. Some of the parts are mandated by state law.

For many people, legal contracts can be intimidating. Breaking down a policy into its separate parts is often the first step to understanding the policy. As can be seen by the previous six components, an automobile policy is not nearly as complicated as many believe.

The problem is simply that few people ever actually read the policy which they have purchased. This is true not only of auto policies, but rather of insurance policies in general. Most consumers rely upon their agent to explain the policy, which they have purchased. The agent must hope that his or her explanation was clearly understood and then remembered.

Reading the Policy:

An auto policy is typically broken down into three standard parts:

(1) the declarations page,

(2) the insuring agreement, and

(3) the conditions of the policy.

The declarations page is where the policy-owner's name will be stated along with the autos covered, the time period of coverage (January first through April first, for example) and the premium amount. Also listed is the description of the coverage provided (from the six components previously reviewed) and the dollar limits.

The insuring agreement is the main part of the policy. Policy terms (or definitions) will be stated. Perhaps most importantly, the benefits given in exchange for the premium will be stated. Who is covered under the policy will also be stated. This can be important information if the policy-owner is in the habit of loaning out his or her car. Sometimes this may tie in to the listed definitions or policy terms. For example, a "relative" may be defined as any person who is related to those listed on the declarations page as named insured and living in the same household.

Exclusions will also be listed. An exclusion is a provision in the policy which denies coverage for specified perils, persons, properties or locations.

The third part in an auto policy, the conditions of the policy, describes the policy-owner's responsibilities when a claim occurs. It may state how much time is allowed to report the claim and the types of proof of loss that will be required by the insurance company.

This portion of the contract will also generally list the conditions under which a policy may be canceled. The policyholder may cancel their coverage at any time, but the insurer must follow set procedures. Certainly non-payment of premium is an obvious reason for which the insurance company may cancel the policy. They may generally also cancel the policy if the policyholder deliberately concealed or misrepresented any facts when applying for the coverage. If this were the case, the company could refuse to pay any losses that occurred.

It is probably not surprising that the most serious legal risk in driving is that of injuring or killing another person. Liability is, as a result, the most expensive type of coverage. Many states require by law that liability insurance be carried. Generally, it is considered wise to buy higher liability insurance limits than the law requires since state mandated requirements are often too low to give adequate protection.

If the policy-owner or any other driver covered under their policy, is found to be responsible for an accident that injures another person, they may be held liable for his or her medical bills (hospital and doctors), rehabilitative care and therapy, long-term nursing care and perhaps even the injured person's lost wages. Often there may be additional cash rewards given for pain and suffering. Consumer publications often recommend at least $100,000 of bodily injury protection per person and $300,000 per accident. The cost of such protection will depend upon the insurance company and the amount of risk the insured represents.

Many people purchase what is called umbrella policies. If a person has over $300,000 in assets, many professionals do recommend that such a liability policy be considered. As the name suggests, an umbrella policy is a policy, which is carried over all other liability insurance. It comes into play only when other coverage is exhausted. Most standard policies go up to a $300,000 limit. It is possible, however, to purchase policies with limits as high as $400,000 or even $500,000. Generally, an umbrella policy can be bought from the same company that insures the policy-owners home and automobiles.

Consumers look to their agent for suggestions when buying insurance. Recommending the proper coverage is often more a matter of "fact finding" than anything else. As questions are asked and answers are given, the client will often recognize their own needs as the facts are written down in front of them. The "fact finding" should always be written down and then filed with the client's files at the agency office for future reference. The Family Automobile Policy (often simply referred to as a FAP) has several parts to it:

1. Part I consists of Coverage A, bodily injury liability and Coverage B, property damage liability. Under this coverage, the insurer agrees to pay to third parties money to cover any damages for which the insured is legally obligated due to bodily injury or property damage arising out of ownership, maintenance or use of an automobile.

2. Under Part II, Coverage C, the insurer agrees to pay all reasonable and necessary medical expenses to the insured, their relatives and other persons as a result of an accident involving an owned car or a non-owned car while being operated by the named insured, a resident of the household or any other licensed driver who was operating the vehicle with the permission of the insured.

3. Part III, which are Coverages D through I, provide protection against loss resulting from physical damage to an owned or non-owned automobile.

4. Part IV is Coverage K, which is found in some policies. Under Part IV, the insurer agrees to pay a stated accidental death benefit in case of the death of the named insured resulting from bodily injury sustained while occupying or by being struck by a motor vehicle, providing that death occurs within 90 days of the accident.

Each part of the Family Automobile Policy (FAP) contains its own recovery limitations, definitions and exclusions. Coverage under a FAP will vary from contract to contract and among insurers not using standard bureau forms. There are also generally limited policies available in the marketplace at a lower cost. As a result, the FAP owned by one person may differ from that owned by another.

Some states have what is called "no-fault" laws. In such states, each driver's own insurance policy reimburses their medical claims and loss of wages, even if the other person was technically at fault. Even if a driver lives in a no-fault state, professionals still recommend that larger liability policies be carried, because one can still be sued for pain and suffering in most cases.

Rates vary greatly from company to company. Of course, rates are also based on one's personal driving history (the number of tickets received and so forth). Although there may be "standard" policies, there is no such thing as a "standard" price. It is always wise to price shop. According to one leading survey, 73 percent of drivers simply purchased a policy with the first company they contacted, without doing any price comparison at all. Only eight percent compared the rates of four companies or more.

Many insurance experts recommend that consumers consider purchasing their policies from independent agents, since they often carry multiple companies. Of course, this is no guarantee that the agent will suggest the lowest priced policy. Besides, as agents, we are often aware that price is not the only indicator that should be considered. Insurance agents are usually most aware of which companies do the best job when it comes to claim payments.

Women often state that they dislike shopping for car insurance because they feel that they are "out of their element." There is no basis for such feelings. One need not know the mechanics of a car in order to decide upon an auto policy.

Car insurance is probably one of the most basic types of insurance. If the policyholder causes an accident, he or she wants their policy to cover the cost of the other person's injuries, damage to his or her car or property, legal costs and any pain-and-suffering damages that might be awarded. The policyholder also wants their own costs covered. This would include injuries or losses suffered by passengers. In addition, he or she may want theft, towing, auto rental (for a car while theirs is being repaired) and loss of earnings as a result of injuries.

Auto liability coverage is for bodily injury. Many policyholders misjudge the amount of liability needed. It is common for too little to be carried. Liability for bodily injury is absolutely necessary. It covers losses incurred by pedestrians, passengers and other drivers due to the negligence of the policyowner or those covered under his or her policy.

Liability is probably one of the most important aspects in an auto policy. The potential for liability claims are especially great these days. Liability covers the injuries or deaths of other people and damage to their property when the policyholder is deemed responsible for the loss. It protects the policyholder's own assets as well, because if he or she did not have liability protection, he or she would have to liquidate their own assets to pay the costs of a judgment.

There are single-limit polices, which spell out the maximum amount the insurance company will pay for each accident. How the money is paid out is not set, so the company will pay any combination of personal injury and property damage, not to exceed policy limitations. Single-limit policies are the most flexible form of liability coverage.

There are also split-limit policies, which sets specific ceilings on each segment of coverage. In other words, only up to a set amount will be paid for personal injury, property damage, or pain-and-suffering. This is usually stated in the policy as 100-300-50, for example. It would mean the insurance company would pay up to $100,000 for the injuries of one person (including medical bills, loss of earnings, death and pain-and-suffering awards); up to $300,000 for the injuries of two or more people; and up to $50,000 for property damage. Damage occurring to one's own vehicle or property would not be included. If judgments were awarded that were higher than the insurance contract covered, those balances would have to come out of the policyholder's own pocket.

Liability insurance also covers the cost of investigating the accident and settling the claim. If the case goes to court, the company will provide an attorney, paying his fees. The policy often pays any reasonable expenses the policyholder might incur in getting to court, including loss of wages. It is important that the policy also cover anyone who drives the policyholder's car with their permission. Policies will not generally cover any car that was rented out or entered into a race (regardless of whether it is a legal or illegal race).

Some states set minimum amounts of liability insurance that must be carried; others do not. Anyone with substantial assets should carry an umbrella policy of up to $1 million or more for liability judgments. These days, $1 million is not excessive in view of past court awards.

No matter how much liability insurance is personally carried, it covers only the "other guy." It is not intended to cover the policy-owner's own personal costs if they are injured. The policyowner would need to collect from the other driver's insurance company (and hope that he or she was adequately insured). Of course, if the other driver is under-insured the policyholder can attempt to collect damages from them personally. If, however, they have no collectable assets, they may have little ability to collect damages. Since such a situation is clearly not just or fair, this is often an argument for the establishment of no-fault laws (where a driver can, in effect, insure themselves).

There are several ways by which to judge the amount of liability needed:

1. Protecting one's own assets means buying enough insurance to cover the highest judgments that might be assessed. The richer a person is, the more liability is needed. A policyholder who owns substantial property or assets is much more likely to be sued than is a person who has nothing.

2. Protecting oneself is often a wise buy. By this, we mean carrying insurance to cover one's own losses due to an uninsured motorist or an under-insured motorist. Generally, it is only possible to buy as much coverage for oneself as is purchased to cover the other person. If a $20,000 cap is on the policy for the other driver, there will also be a $20,000 cap on the policy-owner.

3. Protecting the injured is not only a legal requirement in some states, but certainly a social and moral obligation as well. When a driver causes injury to another person, they have an obligation to pay for it. That requires an adequate amount of insurance even if the policy-owner does not have assets to protect. Higher liability limits may not even be much more expensive. Certainly it is worth inquiring about.

It could be argued that all insurance is property insurance to some degree. The buyers wish to protect themselves against loss of property already accumulated or loss of property to be earned (as is the case for life insurance). Even so, the concept of property insurance is restricted to losses resulting from causes other than life, disability or death.

Property Damage:

For property damage, liability coverage covers, as the name indicates, damage done to someone's property. While that is most often a car or other vehicle, it may be any type of property such as fences, a gasoline pump at a filling station or even a building. The amount carried is usually figured on the cost of replacing a car, however. Since cars do vary greatly in price, the amount covered may vary greatly from policy to policy.

Medical Payments:

Medical auto insurance covers reasonable medical and funeral expenses for the insured and anyone riding with the insured, even if the accident is not his or her fault. Usually, the limits are fairly low, because the policy is relying on judgments to cover larger injuries. This segment would also typically cover anyone driving the policyholder's car with their permission. The car does not have to be in motion for this type of coverage to be used. For example, if your Great Aunt Martha is getting into your car and stumbles, hurting her ankle, your medical insurance would pay her doctor bills (up to the limits of the policy). Some policies double the coverage available if seat belts were worn at the time of the injury.

Some medical policies will not pay if the policyholder's regular health insurance will cover the cost of medical treatment. They will, however, fill in the gaps left by any deductibles or coinsurances that apply.

Medical payments pick up the tab for hospital and doctor bills of anyone injured in the policyowners car, without regard to who caused the accident. It also covers the policyowner's family if they are hurt as pedestrians or while riding in another vehicle.

This would generally even include such things as a bus or taxi. Usually this type of coverage would also cover a person who was injured while getting into or out of a stationary vehicle. Sometimes medical coverage offers less benefits than the policy-owner may realize. If regular major medical health insurance benefits exist medical bills are already covered. If the auto insurance will pay only those bills not covered by the regular major medical policy, the actual payments may be limited to deductibles and co-payments. In no-fault states, medical payments are typically a part of the basic auto-insurance policy.

If the injured person is on Medicare due to age or disability, Medicare will require the auto insurance to cover the bills. Generally, the bills are still sent to Medicare first, but reimbursement is expected from the auto insurance.

Personal-Injury Protection (PIP):

In no-fault states, personal-injury protection is required by law. The policy-owner is covered for:

Ø their own medical bills up to a specified limit,

Ø part of lost wages,

Ø funeral expenses and,

Ø in some states, replacement services (such as house cleaning when the wife is injured, for instance).

State laws vary so, of course, collectable amounts also vary. There may be no ceiling or there may be a relatively low ceiling for specific benefits. In New York, for example, medical bills under $50,000 must be paid only through their no-fault auto policy (without using other medical policies). There are also definite limits set on what doctors and therapists may charge.

Collision:

Collision pays for the repair of the policyholder's car if it is damaged in an accident or other mishap. This is true even if the accident is the policyholder's fault. If the car is ruined beyond reasonable repair limits, the insurance company will generally give the policyholder its cash value. This is sometimes called "totaling the car out." This figure is generally arrived at by taking the cost of the car and deducting depreciation. The theory is that the policyholder will be able to replace it with a car of like value.

Collision coverage is usually required by the lender for new unpaid-for vehicles. The lender wants to be sure they will receive their money in the event that the car is totaled. The insurance money would be needed, in that case, to repay the loan.

Typically, collision insurance covers the fair market value of the vehicle, which is usually determined by the book value, minus the cost of making repairs, minus a charge for unusually high mileage. As a result, this type of coverage is often not a good buy for old or already damaged cars.

When a loan is taken out to purchase an automobile, the lending institution typically requires that collision insurance be carried. Most people want to insure new cars for collision, because it would be a major loss if the vehicle were destroyed. Many professionals do not recommend carrying collision insurance on old cars. The cost of the insurance often does not warrant it because the vehicle is worth so little.

Collision policies typically have a deductible in the contract. A deductible is the amount of the repair bill (paid before the insurance company steps in) that would be the policyholder's responsibility. The actual amount can vary widely. Of course, the larger the deductible, the smaller the premium cost.

Collision coverage covers repairs to the policy-owner's vehicle no matter who caused the accident. The price of this type of coverage will depend upon such factors as the size of the deductible and where the policy-owner lives. If the accident is not the fault of the policy-owner, the insurer may arrange for the deductible to be paid by the other driver or the other driver's insurance company.

Comprehensive Coverage:

Comprehensive insurance covers theft and damage from vandalism, fire, projectiles (that baseball that goes through the windshield), animals, flood, explosions and other perils. Sometimes it also includes towing costs and other incidental bills. It will not pay for the normal wear-and-tear that a car receives. Comprehensive coverage will not pay for mechanical breakdowns.

Comprehensive does not always have deductibles, but the premium cost will be less if there is. The insurance company will not pay more than a car's value. Therefore, once again, if the car is old and does not have much value, comprehensive coverage is probably not worthwhile to purchase.

Comprehensive coverage is considered to be essential for new cars and, sometimes, even for older ones. This type of coverage pays for damage to the vehicle from such things as fire, flood, vandalism, theft, rocks thrown on the freeway and so forth. This coverage does generally contain deductibles which might range from $50 to $500. Of course, the higher the deductible, the lower the insurance premiums.

Comprehensive insurance covers the vehicle's fair market value which normally declines with time. Comprehensive tends to be cheaper than collision insurance.

Uninsured And Under-Insured Motorists:

Uninsured motorist coverage is required by law, in many states. This type of insurance pays the cost of the policy-owner's own injuries if they are hit by:

Ø An uninsured driver who is at fault,

Ø An at-fault driver whose small insurance policy won't cover all the damages, or

Ø A hit and run accident.

Many more consumers are now carrying coverage for uninsured motorists. This type of insurance pays for whatever damages occur for bodily injury, and sometimes property damage, when the policyholder would have been legally entitled to receive it from the other driver, had he or she carried insurance, or a hit-and-run driver (where the other driver is not identified).

Generally, this coverage also covers lost wages. In some states, the driver might even be reimbursed for damage to the vehicle.

Uninsured and under-insured motorist coverage covers more perils than does the other types of coverage. It might even be possible to collect for pain-and-suffering. If the policy-owner does not have disability insurance it may serve to fill this gap.

Many states allow an individual to buy as much insurance to protect themselves as they buy to protect the other guy. In no-fault states, uninsured motorist coverage kicks in when the policy-owner is injured badly enough to sue. The policy-owner can collect from this policy on top of their no-fault, personal-injury protection.

Some people prefer to carry sound, adequate life, health and disability insurance rather than uninsured motorist protection. In some situations, uninsured motorist coverage really isn't necessary. In Michigan, for example, no-fault benefits are most generous. In addition, it is hard to sue for pain-and-suffering there. In such a case, uninsured motorist benefits are not financially worthwhile.

Towing and Service/Rental Car Reimbursement:

Most professionals feel towing and service/rental car reimbursement benefits are a matter of personal preference. The premium cost is generally affordable although sometimes coverage may be duplicated if the policy-owner belongs to an auto club. Certainly, duplication of benefits should be avoided whenever possible.

Wage Loss and Substitute Services:

This type of coverage is required in no-fault states and often included in other polices as well. Wage loss and substitute services benefits will pay at least part of one's lost income because of an injury. It will also cover the services that are associated with the accident, such as child care.

Setting Auto Insurance Rates:

Not everyone pays the same for auto insurance. Insurance companies set their rates according to statistics that have been collected. Those that fall in groups with higher accident rates pay more for their insurance than those who fall in groups that experience lower incidence of accidents. Those groups are generally referred to as risk groups. Of course, personal irresponsibility will push individual rates higher, as well. There are several factors when determining the cost of auto insurance:

Ø Age: single individuals who are under the age of 25 often pay higher rates. Sometimes the rate can be lowered if the driver is on a policy with his or her parents.

Ø Marital Status: once a person marries, especially if he or she is under 25, rates are often lower for auto insurance. Statistics show that marriage is a factor in safety. Some companies put widowed and divorced persons into higher-risk categories, which does, of course, mean higher insurance rates. Young women do tend to pay lower rates than do young men; single women pay less than single men. With most companies, this can continue up to the age of 65. Overall, statistics show that women have fewer accidents than men.

Ø Residence: since insurance companies are excellent scorekeepers, it will not surprise an agent to learn that statistics are even kept in relation to accidents and location. As a result of these statistics, men and women pay lower auto insurance rates when they live in less populated areas. Even within the same city, one zip code area will often pay less than another zip code area. Those who live in rural areas typically pay less than those who live in cities; people who live in smaller cities are charged lower rates overall than are those who live in larger cities.

Ø Occupation: some occupations are considered to pose higher risks. Some experts charge that there is no rational statistical information regarding automobile accidents and occupation. Even so, there are still insurance companies who do rate drivers using occupation as one of the elements. Often, those who work in occupations that deal with alcohol are charged more. This would include bartenders and cocktail waitresses. Some say this is because they make less believable witnesses if the insurance company decides to fight the claim in court. Occupation may also play a part in one's insurance rates if he or she is employed in an occupation that the insurance company dislikes financially. By this we mean an occupation that is known for not paying bills. Certainly, it is unjust to be charged higher rates based on the actions of others, but the consumer often is not aware that this even played a part in the premium rates charged.

Ø Driving Record: few would argue that this should not play a part in calculating insurance rates. Safe drivers should get better rates than unsafe drivers. How insurance companies use driving records can vary widely from company to company.

Ø Use: the more a car is used, the higher rates often are. This is not surprising since higher use means higher exposure to other drivers and conditions.

Ø Other Drivers: even if the policyholder is a safe driver, he or she may have a member of their family that is not. If he or she drives the policyholder's car, their rates may be higher as a result. Policyholders often see their rates go up when their teenage children begin to drive, for example.

Ø Type of Car: some types of cars cost more to insure. There can be several reasons for this, including the likelihood of it being stolen. The cost to insure inexpensive, low-priced cars is often less.

Ø Merit Rating: A few states, such as Hawaii, have banned rates based on personal characteristics, such as sex and age. These states have attempted to link automobile rates directly to personal performance and responsibility. Of course, if an accident occurs, rates can go up sharply. Because merit-rating does not penalize the responsible person who just happens to be in a high risk group, it is considered a fairer way of charging premiums.

No-Fault Insurance:

Some states are no-fault insurance states. These states usually require that personal injury protection (often simply referred to as PIP) be purchased by car owners. Under this system, victims of accidents are theoretically compensated more swiftly and justly. That is because payment is not based on "proving fault" (thus the name). Proving fault in an automobile accident can easily take two or more years. No-fault states provide immediate payment of medical bills and loss of income to the victims. For poorer citizens, no-fault states may work very well since they do not have to settle for whatever they can get in order to pay the bills that are due immediately. If the other driver is well off, he or she could feasibly delay payment in those states in which fault must be proven. Under no-fault insurance, financial ability is not an element because each person's own insurance company pays promptly for any medical bills and loss of earnings that result from the accident. It must be noted, however, that the bills will only be paid up to the limits of the policy.

Not all no-fault states have set their laws up well, but in those that have, the lawyers may be cut out completely in small cases because limits are set on who can sue. Of course, this does not appeal to everyone, especially these days when many people prefer to sue for pain and suffering, even in small cases. Some states require that there be $2,500 worth of medical injuries before there can be a lawsuit. In those states, the number of auto cases has dropped dramatically and insurance costs have been contained. However, some states have the dollar point as low as $500 which, by some estimates, have actually escalated small cases (bills are extended in order to reach the $500 mark) that would not have ordinarily reached that high in medical bills. In these states, there has been no evidence of cost containment. Most industry experts feel that good solid no-fault laws will be hard to come by in most states because the legislatures who must pass the laws are primarily made up of lawyers. Good no-fault laws often cut out the lawyers and their resulting fees.

No-fault is a system in which the driver's own insurance coverage pays for the losses regardless of who caused the accident. It is due to this fact that the protection purchased is called no-fault insurance. It is generally felt that such a system keeps down the cost of insurance premiums since it eliminates much of the legal costs associated with proving blame. As previously mentioned, badly written no-fault laws actually do not keep the costs down, but this section will assume that the laws were well written and, therefore, are not actually encouraging such problems.

"Fault" states must establish blame, as the name implies. Whoever is at fault must pay for the damages or losses brought on by the accident. Of course, the driver at fault may not necessarily have insurance (even in states which require it). Even if the driver at fault does have insurance, the amount carried may not be adequate in all cases. The insured driver may, of course, sue for a larger amount.

In "no-fault" states, each driver's own insurance company covers their losses. Even if the accident was totally the driver's fault, their insurance will still pay. No-fault coverage does generally have a ceiling on their payments. If the limit is set too low, the injured driver may find the losses are far greater than the coverage provided by their policy. Even in a no-fault state, a driver may go to court and try for a pain-and-suffering award. In such a situation, fault must be proven.

In either type of state, the insurer will investigate the accident, handle the settlement negotiations, give legal council and pay any judgments against the driver up to the limits within the policy.

In states that do not have no-fault laws, the person who caused the accident (and his or her insurance company) are liable for the losses resulting from the accident. Sometimes, in order to collect from the person who was at fault (the person who caused the accident), it is necessary to sue and establish in court that the accident was their fault.

Lawsuits are usually time consuming. In California, for example, it takes an average of five years for a civil case to come to court. Obviously, medical care cannot be delayed for five years! Many families have suffered severe financial difficulty as a result of medical bills and loss of income.

Lawsuits are also expensive. As much as one third to one half (plus costs) may go to the attorney. The basic idea of no-fault laws are to get accident victims' bills paid promptly regardless of who caused the accident. Another benefit is lowered insurance premiums since the number of lawsuits are reduced dramatically which saves hundreds of dollars in legal fees. More of the premium dollars go towards losses instead of into litigation expenses.

Although it is generally advisable for people to buy their own homes, that is not always possible, at least initially. Therefore, most people rent their living quarters for a period of time.

Renter's Insurance:

Most insurance specialists recommend that a tenant insure their possessions. If the landlord has insurance, it will only be on the structure and not the tenant's possessions. The tenant will also want liability insurance, in case a visitor hurts themselves while on the premises. Depending upon the circumstances, the landlord might be responsible for injuries relating to the structure itself, but injuries relating to the actions of the tenant may not be covered by the landlord's policy. For example, if one of the children left their roller skates on the sidewalk, causing a fall, the liability would rest with the tenant rather than the landlord.

A tenant's policy is similar to a homeowner's coverage, but without coverage for the structure itself. It is important to purchase enough insurance to cover at least the cash value of the contents. Many renters prefer to purchase replacement value, so that their belongings could be replaced at today's costs. Cash value is the current retail price less depreciation. Replacement value is the actual cost of replacement at current retail prices.

Homeowner's Insurance:

Few people are able to simply walk into home ownership. For most, it is a difficult journey of saving and doing without. It would be most foolish to leave such an acquirement uninsured.

Property Insurance covers damage to or theft of the insured's possessions. Casualty insurance (also called Liability insurance) pays for the insureds legal responsibility to other people for property damage or bodily injury losses. Automobile and homeowner's policies typically cover BOTH property and liability coverage.

Homeowner policies are designed to protect owners and tenants from loss or damage to their property and also to provide protection against liability claims. The point of homeowner insurance is to protect an individual's home and the contents within it. Some people are natural gamblers willing to play the odds that their home will never be damaged or destroyed and that their belongings will never experience a loss. The problem is, should they loose that bet, it could wipe out everything they own. It makes more sense to spend a few dollars for the sake of safety.

The policies generally have two sections:

(1) property exposures and

(2) liability exposures.

Often consumers believe that an item mentioned in their policy receives complete coverage. This is not necessarily the case. For example, if a diamond ring is covered against theft in a homeowners policy, that does not necessarily mean it will also be covered should the diamond drop out of its setting and become lost. These are the types of things that need to be fully explained to the insured. A "floater" may possibly be added to the homeowner's policy to include the loss of the stone. A floater is a separate policy or addition, which may be added to the original policy. It is often called an "endorsement." Floaters may also be used to raise the dollar limits in policies. Many homeowner policies would cover the theft of a ring only up to $1,000 or $2,000. An endorsement or floater could increase the amount of coverage.

Often floaters or endorsements provide "all-risk" coverage. In other words, they insure against all risks, except for specific exclusions which are listed in the policy.

The first section, property exposures, may cover such things as the structure or dwelling itself, other structures on the property, personal property and loss of their use during repair. In addition, there may be coverage for such things as debris removal, fire department charges, trees, shrubs and other plants, theft of credit cards, property removal and reasonable repairs following a loss.

Replacement cost means the amount it would cost to have the house repaired or rebuilt; it does not refer to market value. In some situations, replacement cost might actually equal the market value, but this is not always the case. In fact, older homes often require more money to rebuild than the market value would have been. It is important that the insurance agent consider this when insuring an older home whose market value is below replacement costs.

As building costs rise, it is important that each property/casualty agent maintain a relationship with his clients and continue to update their policies. A policy should never fall below 80 percent of the replacement cost.

As agents, we know that consumers often hesitate to increase the premium amount of their policies (even when it makes sense). However, when the simple concept of replacement value is explained, most consumers prefer to be covered adequately. Placing a higher deductible on the policy might be an option that allows adequate coverage while keeping premiums reasonable. With higher deductibles, the consumer will be responsible for more of the smaller losses, but the major loss (the house itself) will still be covered by insurance.

The second section, liability exposures, covers personal liability and medical payments to others. It may also include coverage for claim expenses, damage to the property of others and first-aid expenses.

Homeowner's insurance is often the broadest coverage most people will ever buy. It literally covers the roof over their heads and the shirts on their backs. In addition, it covers their legal liability to others. Even so, the average consumer generally never even attempts to understand what they are buying.

A standard homeowners policy does not cover many types of natural disasters. Separate coverage is needed for floods and earthquakes. In many cases, a separate policy will also be needed for those who wish to be covered for hurricane damage.

For the consumer to keep up with changing times and values, it is necessary to constantly update their coverage. It is generally considered unnecessary to insure the actual value of the land since it cannot be stolen or damaged in the same way that the structures upon it may be.

Most professionals recommend that "replacement value" be the determining factor in the amount of coverage needed. Replacement value is often different than "market value". Market value is the amount the homeowner could sell their home for. Replacement value is the amount of money it would take to rebuild the home should that be necessary. In areas where the housing market is depressed, for example, a home may only sell for $90,000 but rebuilding it could easily cost $125,000. Determining the cost of rebuilding often requires an appraisal.

Some insurance companies calculate replacement cost by multiplying the square footage of a house by the square foot construction costs for new homes in the homeowner's area. By doing so, an appraisal probably would not be necessary. The construction cost is often supplied by the local builders association. Most property and casualty agents can supply this information.

Once the replacement cost is known, the policy should cover no less than 80 percent of the total replacement value.

As a recap:

Replacement Value is what it would cost to replace a structure with a building of like kind and quality.

Actual Cash Value is replacement value less depreciation for its use and age.

Market Value is the dollar amount that the homeowners could sell their home for.

While the standard homeowners policy may automatically put replacement value on the structure, it is not unusual for it to put only actual cash value on its contents. Therefore, your clients will appreciate an exact explanation of which they have in advance of a claim.

Insurance companies typically will not pay replacement value on claims unless coverage for at least 80 percent of the total replacement value of the home is carried. If 80 percent of the total replacement value is in place, that usually qualifies as full replacement value. The reason that 80 percent would be considered full replacement is simply because few homes totally burn down. Generally, 80 percent would be more than enough to rebuild the home.

When a homeowner carries less than 80 percent of the total replacement value on their home, this will affect