Frequently Asked Questions

A: No, it’s actually quite simple. In fact, most home premiums are paid by a mortgage company so we deal with lenders every day. All you have to do is call your mortgage company and notify them that you’re changing insurance carriers. This lets them know that they’ll be receiving proof of new insurance soon and to update the account once they receive it.

A: Yes, home claims of any kind can cause your home premium to increase. The amount of increase is typically based off a couple things. First, different types of claims carry different surcharges. Claims considered preventable, such as when your dog bites the mailman when you allowed it to roam free in your unfenced yard would carry a very high surcharge. Claims considered Acts of God, such as tornadoes or hail storms, generally carry lower surcharges. On average, a surcharge is generally applied for 5 years with most carriers. Some more, some less. Depending on the size of the claim, it may be in the insured’s best interest to pay for small claims themselves. The cost of the surcharge over the next 5 years could be more than the claim itself. Plus, if you accumulate multiple home claims within a 5 year period, some carriers could non-renew or cancel your policy. Having multiple prior claims could also cause you to be ineligible as a new applicant with most preferred carriers. There are a number of standard and substandard carriers willing to write new applicants with multiple claims, but their premiums are substantially higher even before they include surcharges from the claims. Talking to your agent about a loss prior to filing a claim directly with the company is always a smart move.

A: There are a number of reasons the insurance value can be quite different from the market value for a home. The most common cause for the difference is the market value includes the value of the land whereas insurance value does not. In some cases, the value of the land can be as much or more than the value of the structure on it. Since homeowners insurance only insures the structure, the value of the land is not a factor. Therefore, the insurance value is lower than the market or tax value. If the home burns down, the land is still going to be there. There are also times when the insurance value can be above the market value of the home. Following the housing market crash in 2008 home values plummeted. During these years the replacement value (the actual cost of construction and materials to rebuild a home) often exceeded the market value of the property.

A: There are two coverage sections that make up the majority of an auto policy, Liability Coverage and Physical Damage Coverage. Liability coverage offers protection for property you damage. For example, in most states, if you accidentally back into another vehicle, your liability coverage would pay for the damage you caused to the other vehicle or property as well as any injuries sustained during the collision by persons within or around that vehicle. Liability coverage does not include coverage for your own vehicle. Physical Damage coverage covers your own property. Using the same example, this coverage would pay to fix the damage your own vehicle sustained when you backed into the other vehicle. In states that require auto insurance to be licensed or to register a vehicle, liability coverage is typically the only coverage required.

A: Claims not only affect your premium, but like home policies, can also affect your eligibility when applying for coverage with a new carrier. Have too many claims, accidents or moving violations, such as speeding tickets, within the last 3 to 5 years and a company can remove physical damage coverage from your policy or deny you as a new applicant for coverage. This can leave you without coverage to repair or replace your own vehicle should it be damaged. Both accidents and violations carry a surcharge based on the states regulation where the insurance was purchased. For example, in North Carolina carriers are required to follow the SDIP (Safe Driver Incentive Plan) Guidelines created by the North Carolina Department of Insurance. Each type of accident and violation has a corresponding point value based on the SDIP guidelines. The carrier can only charge up to the amount of allowable points based on the type of incident.

A: There’s no formula to refer to that tells when coverage should be removed from a vehicle based on its age or value. Each case is different. Some people remove physical damage coverage and go with liability only coverage as soon as the loan is paid off and physical damage is no longer required. Others may decide to maintain full coverage as long as the vehicle is on the road. It really boils down to whether or not you can afford to be without that specific vehicle or whether replacing the vehicle would cause a financial burden on yourself or family.

A: Yes. Some, but not all, companies charge a Short Rate Cancellation Fee. This fee is generally a percentage based on the time remaining until the end of the term, and the premium that would have been paid for that time had you kept the policy. For example, if your premium is $1000/year and you cancel in 6 months, the company may charge you a 20% fee on the remaining $500 that you would have paid for the rest of the policy term. This means they could charge you $100 just to cancel your policy. It also means the more time you have remaining in your policy term, the higher the fee will be. This primarily only applies to Auto policies.

A: Newly licensed drivers incur an Inexperienced Operator Surcharge (IOS) for the first three years they’re licensed. Each year, as they gain a full year of driving experience, the surcharge goes down a little until it completely comes off following the completion of the 3^rd year.

A: Yes, there are a couple options to minimize the surcharge. First, keep the number of drivers greater than the number of vehicles on the policy. If the number of vehicles on the policy is less than the number of drivers, the new inexperienced driver will typically be listed as an occasional/part time operator instead of a principle/full time operator, which is far more expensive. Second, adjust the coverage on the car they drive. Increasing the deductibles or lowering the coverage to liability only instead of full coverage on the vehicle they drive will also lower the premium.

A: The word “audit” is an intimidating term that elicits visions of the IRS knocking on your door. Insurance audits are nothing of the sort- although they can be done in person on occasion.  When you buy an insurance policy, the premium is usually an estimate only.  That means that the rates are set based on what you tell the agent, but are subject to change based on the actual exposure you have during the policy term.  For example, if you receive a quote based on $1k in annual payroll, and you actually have $100k in actual payroll, you can expect to receive a bill due retroactively for 100x your original estimated premium.  This is ALWAYS true for Workers Compensation and often true for General Liability policies- although General Liability policies are not audited with the same frequency as Work Comp.  The audit simply looks at your accounting records (QuickBooks, tax documents, hieroglyphics on a stone tablet, or whatever you happen to use) to determine what your revenues and labor expenses were relative to what you estimated them to be, and the premium is adjusted accordingly.  If you paid too much, it can work in your favor as well.

A: It is only required if you need to keep your insurance policy and/or you want to avoid paying 3 times the estimated premium. Audits that are returned non-compliant can be increased by 200% and if your policy is still in force, it won’t be for long.  Rates are determined based on what you tell the insurance company.  If they can’t confirm that information through the audit process, they will send you a bill for the maximum allowed by law and promptly send a notice of cancelation.  Even if you don’t need or want the policy anymore, that bill will be turned over to a collections agency and will not go away.  Suffice it to say that ignoring an audit request is never going to be the path of least resistance for your wallet.

A: If you’re lucky, you’ll get a form to fill out or some sort of “self-reporting” audit. As long as you don’t contradict yourself or give any information that appears to be erroneous, you can answer the questions on the form and that will be the end of it.  It’s ok to put $0 if you really have $0.  If you have no employees and no payroll and no subs, than put $0 in all the relevant boxes, sign it and return it.  Just be prepared to provide tax documents and/or bank account and/or other accounting records that can substantiate that information if it is requested.  If you have a phone audit or an audit in person, the auditor will ask for all of the items I just mentioned and they will compile everything in an effort to determine 3 primary items: 1) How much did you pay to whom to do what jobs? 2) How much of that went to employees or individuals without insurance? 3) How much was paid to subcontractors with their own insurance AT THE TIME THE WORK WAS PERFORMED AND PAID FOR?  Each dollar figure for each different kind of job carries a predetermined corresponding premium.  The result of every audit is simple math to compare what was estimated with what actually occurred in terms of your business operations.

A: A ghost policy looks like and is just like any other Workers Compensation policy. It is an unofficial term used to describe a Workers Compensation policy where the owner is excluded and there is no payroll estimated for the policy term.  If you buy a “ghost policy” and then you hire someone (or use an uninsured sub) at any point during the policy term, they are still covered by your insurance policy.  It is NOT possible, in any state, to buy a Workers Compensation policy that can be prevented from covering anyone you hire- UNLESS they have their own policy.

A: This question would be answered a little differently by the labor department in each state, but for insurance purposes, the best rule of thumb when it comes audit time or claim time is that there are only 2 classes of labor cost: 1) Laborers (subs, contractors, etc.) with insurance; and, 2) laborers without insurance. If the subs do not have their own coverage, then they are treated the same as employees and it is assumed that you will be liable for them as if they were employees- regardless of whether they receive a 1099, W2, or cash with no accounting records at all.  From a General Liability standpoint, if a customer paid you for it, you’re responsible for it.  From a Workers Compensation standpoint, if you paid a worker, you’re responsible for the worker.  Again, the only exception being if they had their own coverage in place with limits equal to yours.

A: There are a handful of states that have specific exemption allowances for sole proprietors or owners/officers (TN and TX come to mind). However, if your state does not (and most don’t), then there is no legally binding way to prevent your insurance policies from covering the people you hire- even if they don’t want your coverage and you don’t want to give it to them.

A: There is definitely a distinction between the legal requirement to carry Workers Compensation and the practical reality of not having it. For the reasons explained above, if someone pays you to do work and does not verify that you have Workers Compensation coverage (even if you’re excluded on your own policy), they are legally obligated to pay for injuries you sustain. Even if you don’t have enough employees to trigger a legal requirement, it is a perfectly legitimate request on the part of your customer to protect them from potential liability.

A: There are two primary types of Life Insurance, Whole Life and Term Life.  The easiest way to remember the difference between them is to think of Term Life as temporary and Whole Life as permanent insurance which remains in force until the day you die, or until you are 120 years of age, whichever comes first. Click on each type of policy below to learn more.

Term Life Insurance is used to protect people for a specified amount of time. Premiums are fixed for the specified amount of time and only increase at pre-determined intervals such as 1 year, 5 years, 10 years, or 20 years. It can be used as protection until Whole Life Insurance, which is generally more expensive, can be afforded. Term Life can also be an effective way to supplement Whole Life insurance during high-need years, such as when family and other financial responsibilities are outpacing income. It carries a guaranteed death benefit but no cash value or other financial incentives.

Whole Life Insurance was designed to provide permanent life insurance protection plus other living benefits, which include cash value accumulation as long as premiums are paid, eligibility to earn dividends, and the access to cash value via loans and partial surrenders. Once approved for coverage, your policy can never be canceled by the carrier as long as premiums are paid when due. It builds cash value that can be used in the future for any purpose via a policy loan. For example, you can borrow cash value for a down payment on a home, to help pay for your children’s education, or to provide retirement income.

A: Yes, you can convert a Term Life Policy to a Whole Life Policy at any time including at the end of the term. In addition, most companies won’t require you to undergo any medical evaluations or answer any medical questions.

A: In most cases its best to speak to your agent prior to calling your insurance company. Your agent can provide coverage insight and remind you of your deductible. Obviously you don’t want to file a claim if the loss amount is below your deductible and you’ll be paying for it anyways. Of course, there are times when you should definitely call the carrier directly and bypass your agent. Most of the time this is to make sure additional losses aren’t sustained to your property. For example, if a tree fell on a section of your home and damaged the roof and there’s a large storm headed your way… call the company immediately! Hopefully they can send someone to your home to cover the damaged roof area and avoid additional water damage inside. A claim could also occur on a day your agent isn’t in the office and you can’t wait until he/she returns. In that case, go ahead and call your insurance company directly.

A: The issue with calling insurance companies directly is many of them automatically open a claim, even if you’re simply asking whether or not something’s covered. They don’t all do this, but there are many that do. Their outlook is “Well, if it would have been covered, we would have been forced to pay out money”. There are cases when this is true, but maybe you just want some coverage clarification for something you read in your policy. This is where your Smart Insurance independent agent comes in. They can answer your questions and give advice without having to file a claim on your policy. Only once you’re ready to file a claim, should that avenue be explored. Unlike independent agents, many captive agents, like those that represent many of the large name brand companies you see on TV, are required to file a claim anytime a customer calls with claim related questions. Even if they open a claim and don’t pay any money out, it could still appear on your claims history report as a $0 claim. If you have several $0 claims it can effect your eligibility with other carriers, and it could keep you from getting discounts for being claim free.

A: Yes, home claims of any kind can cause your home premium to increase. The amount of increase is typically based off a couple things. First, different types of claims carry different surcharges. Claims considered preventable, such as when your dog bites the mailman when you allowed it to roam free in your unfenced yard would carry a very high surcharge. Claims considered Acts of God, such as tornadoes or hail storms, generally carry lower surcharges. On average, a surcharge is generally applied for 5 years with most carriers. Some more, some less. Depending on the size of the claim, it may be in the insured’s best interest to pay for small claims themselves. The cost of the surcharge over the next 5 years could be more than the claim itself. Plus, if you accumulate 2 or more home claims in a 5 year period, some carriers could non-renew or cancel your policy. Having multiple prior claims could also cause you to be ineligible as a new applicant with most preferred carriers. There are a number of standard and substandard carriers willing to write new applicants with multiple claims, but their premiums are substantially higher even before they include surcharges from the claims. Talking to your agent about a loss prior to filing a claim directly with the company is always a smart move.

A: Yes. Claims not only affect your premium, but like home policies, can also affect your eligibility when applying for coverage with a new carrier. Have too many claims, regardless of fault, within the last 3 to 5 years and a company can remove physical damage coverage from your policy or deny you as a new applicant for coverage. This can leave you without coverage to repair or replace your own vehicle should it be damaged. In most states, Comprehensive claims typically don’t carry a surcharge. Types of Comprehensive claims would be a windshield ding from a rock, a tree falls on your car, hail damage, etc. Collision claims are typically accidents that occur while driving. Colliding with another vehicle or property would fall under collision. Collision claims carry a surcharge based on the states regulation where the insurance was purchased. For example, in North Carolina carriers are required to follow the SDIP (Safe Driver Incentive Plan) Guidelines created by the North Carolina Department of Insurance. According to the SDIP guidelines in NC, each accident has a corresponding point value based on how much money was paid by the insurance company. Insurance companies cannot, by NC law, charge more than specifically outlined in the SDIP guidelines. Each state has its own set of the rules and guidelines carriers are required to follow. An accident in one state could cost more in another state with the same carrier.