Insurance FAQ

Insurance FAQs provided by Premier Mountain Insurance

Insurance can be tricky.  We’ve compiled some of our most frequently asked questions on this page.

Home Insurance FAQs in Colorado

Q: What is the difference between “actual cash value” and “replacement cost”?

A: Covered losses under a homeowners policy can be paid on either an actual cash value basis or on a replacement cost basis. When “actual cash value” is used, the policy owner is entitled to the depreciated value of the damaged property. Under the “replacement cost” coverage, the policy owner is reimbursed on an amount necessary to replace the article with one of similar type and quality at current prices.

Q: What’s the difference between the dwelling limit and the dwelling maximum replacement cost?

A: The dwelling limit is the amount the insurance company believes it would cost to rebuild your house.  The dwelling maximum replacement cost is the most they would spend rebuilding your house.  Most companies include some level of extended replacement cost.  This is primarily to account for spikes in labor and material costs that could occur, especially if there was a major loss in the area (such as a wildfire or tornado). what is other

Q: What are “other structures”

A: Other structures is included in most standard home policies.  It would cover structures not attached to your home, but on your property.  This would be your fence, but could also include a gazebo, built-in sandbox, shed, etc.  Most policies include 10% of your dwelling limit for separate structures.  Even though 10% might be excessive, there’s normally no cost savings for removing or lowering this coverage.

Q: What is a “Percent Deductible”?

A: Insurance companies in Colorado started rolling out percent deductibles around 2010.  Oftentimes we’ll see a flat deductible on your home with a separate wind and hail deductible. Common percent deductibles we see are 1/2%, 1%, 2% or even 5%!  The percent is not the percent of your claim (like in health insurance), but rather the percent of your dwelling coverage (coverage A).  If your home is insured for $524,000 and you have a 2% wind and hail deductible, your wind and hail deductible would be $10,480 (524,000 x 2%).  With a wind and hail deductible, your deductible will increase every year as your dwelling coverage increases.  Learn more about wind and hail deductibles by clicking here.

Q: What is the difference between sewer & drain backup and service line coverage?

A: Sewer and drain backup covers the damage that a sewer backup would cause to your personal property and house.  Service line coverage covers the costs to repair or replace the sewer line (or most other utility lines on your property, entering or exiting your home). Imagine if your sewer line was clogged due to tree roots growing inside the line.  Now the toilet handle gets stuck in the running position and you leave town for the weekend.  All weekend the water is backing up into your basement.  Service Line coverage would pay up to the policy limits to repair or replace the sewer line.  Sewer and drain backup coverage would pay up to the policy limits to replace the damage it caused to your basement and any personal property that was destroyed (furniture, clothes, etc.).

Q: What preventive actions can reduce premiums – certain types of roofs, security systems, other improvements that help reduce premiums?

A: In Colorado, the most common cause of an insurance claim is hail.  The age of your roof and the type of roof you have can have the biggest impact on your home insurance price.  Stone coated steel roofs and concrete roofs provide the biggest discounts as high as 50%.  New asphalt roofs and especially impact resistant asphalt roofs can provide discounts of about 40%.

Bundle your insurance policies with the same company.  Almost all companies offer a discount on your home insurance by bundling your auto insurance with the same company.  Some companies offer additional multi line discounts for umbrellas, business insurance, life insurance and other types of insurance.  These discounts can be as high as 40% if you’re able to take full advantage.

Keep a clean claims record and carry a higher deductible.  Resist the temptation to file claims.  Certain types of claims will raise your rates.  These are claims that the insurance company believes you could have avoided.  Theft claims, water claims and certain fire claims are all types of claims that will likely raise your rates.  As a general rule of thumb, don’t think about your insurance policy as a maintenance plan.  It should be for major losses.  The average consumer files a home insurance claim once every 17 years.  Consider carrying a deductible of $5,000 or even $10,000, these deductible options can save you a tremendous amount on your home insurance.

Q: What is the best way to inventory your home in case you had a major loss.

A: I recommend you walk around your house with your smart phone, videoing every room, every closet, opening every drawer.  Once you complete this video, save it to a cloud or off – site.  When someone has a major loss, they are responsible to tell the insurance company everything that you owned and was destroyed.  No matter how good your memory, you will forget thousands of dollars’ worth of personal property.

Anything you have, that might be out of the ordinary should also be documented.  This will just make your claim go that much easier.  Do you love custom made clothes and have tens of thousands of dollars’ worth of clothes in your closet?  An insurance adjuster may ask that you back this up with pictures, receipts, etc.  Especially if the clothes aren’t consistent with clothes owned by other people in your career or economic status.

Car Insurance FAQs in Colorado

Q: I have an older car whose current market value is very low – do I really need to purchase car insurance?

A: Colorado has insurance laws that require drivers to have at least $25,000 / $50,000 / $15,000 in car liability insurance. These laws were enacted to ensure that victims of car accidents receive compensation, when their losses are caused by the actions of a negligent individual.

Often times the cost of repairing the damages to an older car is greater than its value. In these cases, your insurer will usually just “total” the car and give you a check for the car’s market value less than the deductible. Many people with older cars decide not to purchase any physical damage coverage.

Q: What is full coverage auto insurance?

A: Full coverage is not an insurance term, it means something different to everyone. I believe banks started using the term to mean coverage mandated by the state plus coverage for your vehicle. When your bank or leasing company tells you to get full coverage. They mean comprehensive and collision. However, you as a consumer might assume full coverage means everything is covered. This is never the case when it comes to insurance. You may think you have ‘full coverage’ but are missing important coverages such as rental reimbursement, towing and roadside assistance, glass coverage, uninsured motorist, higher liability limits and many other coverages. When you’re buying auto insurance, try to avoid using the term full coverage. This will prevent any misunderstandings between you and your agent.

Q: Why am I required to buy uninsured motorist coverage? Shouldn’t they be buying their own insurance?

A:  You’re not required to buy uninsured motorist coverage in Colorado. However, state law mandates that if the primary named insured declines the coverage, they must sign a waiver.  That being said, we highly suggest you purchase as much uninsured motorist coverage as your policy allows.  Uninsured Motorist coverage protects YOU, not uninsured motorist. Find the answers to these important questions: Do you have enough uninsured motorist bodily injury? How important is uninsured motorist bodily injury coverage in Colorado?

Q: Should I buy the insurance that the rental car companies offer?

A: With a few exceptions, your personal auto insurance policy in Colorado extends to non-owned vehicles.  A rental car would normally fall into this category.  The best coverage that you have on any car on your existing policy, is the coverage that extends to non-owned vehicles.  If you have three cars and two of them only carry liability and one has $100 deductibles, the car with $100 deductibles would extend to rental cars. If you have a bunch of older vehicles with liability-only coverage, liability is what would extend to a rental car, no comprehensive or collision! There are a couple of charges that a rental car agency may try and charge you, that your car insurance wouldn’t cover.  These would be diminished value and the rental rate of the vehicle for each day it was off the road getting repairs.  These rules only apply to private passenger vehicles.  If you’re renting a moving truck, or other commercial vehicle, there’s likely no coverage extended.

Q: How can I keep my insurance affordable when I need to add my teenage son/daughter to the policy?

A: Insuring teenagers is expensive, and it only seems to be getting more expensive. There are a few things you can do to minimize the price increase.

  1. Make sure they maintain at least a 3.0 GPA
  2. Some companies give discounts if they completed drivers ed.
  3. Ask about telematics. Many companies have telematic discounts.  The discounts can be even bigger for young drivers.
  4. Ask an independent agent to shop your rates. Your car insurance will be thousands of dollars a year if you have a teen on your policy.  Even a savings of 10% can mean hundreds of dollars in savings.

Umbrella Insurance FAQs in Colorado:

Q: What is a personal umbrella liability policy?

A: The personal umbrella liability policy is designed to increase your liability protection. This single policy acts as an “umbrella” over all of your other personal liability policies — home, car, boat, RV, etc., so you have a higher personal liability limit, than what would otherwise be available. In certain circumstances, an umbrella insurance policy may provide personal liability coverage that is otherwise excluded from your other policies. For example, an umbrella insurance policy provides coverage anywhere in the world, whereas your car insurance policy usually provides coverage in only the US and Canada.

Q: How do I know if I need a personal umbrella liability policy?

A: It used to be that the only people who needed personal umbrella liability policies were wealthy individuals, who had sizable amounts of personal assets that would be at risk in a lawsuit.

However, in our very litigious society, even individuals with modest incomes and assets are often subjects of large lawsuits. Since those with modest incomes are even less able to pay damages than a wealthy individual, Premier Mountain Insurance recognizes the need to provide coverage limits greater than what can be obtained from their homeowner insurance or car insurance policies.

Life Insurance FAQs in Colorado:

Q: How much life insurance should an individual own?

A: “Rule of thumb” suggests an amount of life insurance equal to 6 to 8 times annual earnings. However, many factors should be taken into account when determining the right amount of life insurance for you and your family.

Important factors include:

  • Income sources and amounts other than salary earnings
  • Whether or not you are married and, if so, what is your spouse’s earning capacity
  • The number of individuals who are financially dependent upon you
  • The amount of death benefits payable from social security and an employer-sponsored life insurance plan
  • Whether any special life insurance needs exist – (mortgage repayment, education fund, estate planning need, etc.)

Calculating the correct amount of life insurance to buy in Colorado is not as simple as it appears. We recommend contacting Premier Mountain Insurance at: 303-452-6662 to help determine the right amount of coverage you need. As an independent agency, Premier Mountain Insurance has unbiased advisors that will help you avoid buying too much, show you appropriate and optional coverages for your need, and recommend a company that will best serve your interests in Colorado.

Q: What about purchasing life insurance for a spouse or children?

A: In certain circumstances, it is advisable to purchase life insurance for children. However, generally such purchases should not be made in lieu of purchasing appropriate amounts of life insurance on the family breadwinner(s).

It is of utmost importance that the income-earning capacity of the primary breadwinner be fully protected, if possible, through the purchase of the required amount of life insurance. This should be done before purchasing life insurance for children or on a non-wage-earning spouse. Life insurance on a non-wage-earning spouse is often recommended for the purpose of paying for household services lost due to this individual’s death. In a dual-earning household, it is important to protect the income earning capacity of both spouses.

Q: Should term insurance or cash value life insurance be purchased?

A: This depends on your personal circumstances.

First, recognize that in any life insurance purchasing decision, two questions must be answered:

  1. “How much life insurance should I buy?”
  2. “What type of life insurance policy should I buy?”

The first question should always be initially resolved. For example, the amount of life insurance that you need may be so large that you can only afford it through the purchase of term insurance, since term insurance has a lower premium.

If your ability to pay life insurance premiums is such that you can afford the desired amount of life insurance under either type of policy, then it is appropriate to consider the second question — what type of policy to buy. Important factors affecting this decision include your income tax bracket, whether the need for life insurance is short-term or long-term (e.g., 20 years or longer), and the rate of return on alternative investments possessing similar risk.

Q: How does mortgage protection term insurance differ from other types of term life insurance?

A: The face amount under mortgage protection term insurance decreases over time, consistent with the projected annual decreases in the outstanding balance of a mortgage loan. Mortgage protection policies are generally available to cover a range of mortgage repayment periods – (e.g., 15, 20, 25 or 30 years.) Although the face amount decreases over time, the premium usually remains the same. Further, the premium payment period is often shorter than the maximum period of insurance coverage — for example: a 20-year mortgage protection policy might require level premiums be paid over the first 17 years.

Q: Can an existing life insurance policy be used to provide for the repayment of an outstanding mortgage loan?

A: Yes. An existing policy, either term or cash-value life insurance, can be used for many purposes, including paying off an outstanding mortgage loan balance in the event of the insured’s death. Although a lender may offer a mortgage protection term policy to you, the lender rarely requires it.

Credit life insurance is frequently recommended in conjunction with taking out an installment loan when purchasing expensive appliances, a new car, or for debt consolidation.

Q: Is credit life insurance a good buy?

A: Credit life insurance is frequently more expensive than traditional term life insurance. If you already own enough life insurance to cover your financial needs, including debt repayment, the purchase of credit life insurance is normally not advisable due to its relatively high cost.

Other Insurance Questions:

Q: What are the advantages to using an agent to purchase insurance?

A: By using an independent agency such as Premier Mountain Insurance, the policyholder receives more personalized service. Having direct contact with Premier Mountain Insurance can be very important when purchasing insurance, and absolutely necessary when filing a claim. Premier Mountain Insurance is able to deliver quality insurance in Denver, Thornton, Westminster, Littleton, Arvada, Aurora, Golden, Morrison, Highlands Ranch, Ken Caryl and other Denver Metro communities.

Q: What is an umbrella policy and what amount of coverage do you recommend?

A: An umbrella policy is excess liability protection that is secondary coverage after your auto insurance liability is maxed on an auto claim or your home insurance liability is maxed out on a personal liability claim.  Sometimes I refer to umbrella policies as lawsuit protection.  This is because, if you’re ever sued for causing bodily injury or property damage to another individual (excluding in the course of your business), your personal umbrella policy could help you.  A typical auto insurance policy may have $100,000 or $250,000 in coverage for liability.  If you cause an auto accident and the medical bills, pain and suffering and lost wages exceed the limits you have on your auto policy, your umbrella will kick in.

$100,000 isn’t what is used to be.  With the ever-rising cost of health care and the increasing litigious society, people are surprised to learn that the average vehicle liability award in 2014 was $444,020!  Another surprising statistic is the percent of awards exceeding $1,000,000 in Southwest United States was 21% in 2013 & 2014!  Without an umbrella policy, it’s very possible that an accident could ruin your life through seized assets and years and years of garnished wages to pay off the accident.

The amount of umbrella coverage that you need comes down to two main things: 1) Your Net Worth. 2) Your income. The more net worth you have and the more income you’re able to generate indicates how large of an umbrella you need.  In Colorado assets exposed in the event of a judgement include, your primary residence (if it exceeds $75,000 in value!), personal automobiles (if the value exceeds $5,000), cash on hand and money held in financial institutions, investments and personal property.  In addition to your assets, your 25% of your future earnings are also up for garnishment.  A calculation of your assets and future earning potential will determine the amount of coverage that you will need.  Umbrellas start at $1,000,000 in coverage and go as high as $100 million in coverage.  You could expect to pay between $100 and $500 for a $1,000,000 umbrella, depending on your individual circumstances.

Insurance policies are contracts between you and the insurance carrier.  The above answers do not apply to every policy. Consult your agent or policy to determine the coverage you have.