Insurance Score, Credit Score, and You…

Insurance scoring is a system that is used by various insurance companies to predict risk. It is not the same thing as a credit score; however, it does use a lot of the same characteristics. Many insurance companies include credit-based insurance scoring as one of the factors that goes in to the final rate that you will be charged by the insurance company. As a result, monitoring your credit report and increasing your credit score can actually impact the pricing of your homeowners and automobile insurance.

Unfortunately, I can’t tell you how each company comes up with their insurance credit scoring models since that information is top-secret and proprietary to each individual insurance company. However, I can tell you that it is becoming extremely important to monitor what is listed in your credit report.

I realize that there are a lot of catchy jingles on commercials these days to get your attention and attract your clicks online. Some of these websites claim to offer free credit reports, scores, or monitoring. However, the official site that was established by the Federal Trade Commission (FTC) to help consumers obtain their free credit report is www.annualcreditreport.com.

This website will allow you to monitor all three (3) credit bureaus: Equifax, TransUnion, and Experian. The information in each file can be different so it is important to check all three bureaus on a regular basis.

The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies to provide you with a free copy of your credit report, at your request, once every 12 months. A fun and cost effective way to do this is to order a report from Equifax in January, TransUnion in May, and Experian in September. The actual order is not important. The important part is that you are ordering a free report from a different credit bureau every four (4) months. That way it is totally free, and a proactive approach for the entire year rather than checking once a year. Periodically checking your credit report will be more beneficial in the long run.

In conclusion, work to try to increase your credit score so that you can decrease your insurance premiums.

Auto Insurance Basics

People know that they are required to carry auto insurance, but few really know what they are paying for each month. When is the last time that you took a look at your auto policy? What type of coverage have you purchased? What are you required to carry and what is extra? Here are some hints:

If you own a car you are required to carry Liability Insurance. Liability pays when you are responsible for bodily injury and property damage to others. There are many different levels of liability insurance that you can buy. The lower your limits, the lower your premium. But you are also less protected in the event that you are sued because of an accident, thus exposing your assets. You can spend a little more money for higher liability coverage which better protects you and your assets in the event of something catastrophic.

To protect your own vehicle against physical damage then you can purchase Comprehensive and Collision coverage. Comprehensive coverage pays for losses caused by a peril other than collision such as fire, theft, vandalism, or a cracked windshield. This coverage is subject to a deductible. Collision coverage pays to repair your vehicle in the event that you collide with another vehicle or object, subject to your deductible.

A deductible is the portion of the loss that you are responsible for paying prior to the insurance company paying out on a claim. The higher the deductible you choose, the lower your premium and vice versa. It is important to choose deductibles that you could reasonably afford to pay out of pocket in the event of a claim.

There are a few extra and important coverages that can be added to an auto policy. Towing or Roadside Assistance coverage is helpful in the event that your car breaks down and needs to be towed to a repair facility. Rental Reimbursement is also a valuable coverage since it pays for you to rent a car when your vehicle is being repaired as a result of a covered loss.

Take a few minutes to review your own auto policy to figure out what coverage you have. If you don’t understand something, call your agent and ask the question. Insurance educator John Eubank, CPCU, ARM, put it best:

"Lack of coverage is remembered long after the price is forgotten.”

What is Liability Insurance, and why is it so important?

Liability insurance provides protection from claims that arise when you are responsible for causing bodily injury to someone else or damaging someone else’s property. Basically, this insurance pays when you are “liable” for injury or damages. Liability is an essential part of both a property policy (home, condo or renter’s insurance), as well as an auto insurance policy.

Ok, now that you have the dictionary definition, what does it REALLY mean, and how does it pertain to you and your life? Here are some “real life” examples to ponder:

• Say you were hosting a party at your home and someone fell down the steps and broke their leg. The injured party would most likely present a claim against you to be compensated for their medical bills and “pain and suffering”.
• What if you owned a condo or were renting an apartment and accidentally started a fire which caused damage to the adjoining units? The neighboring units could present a claim against your policy to have their damages paid.
• Driving down the road one night, you hit a patch of black ice and slide into the car in front of you. The car that was struck could go after you for not only the damage that was done to their vehicle, but also for any injury sustained.

It is important to carry liability limits on your policies which are high enough to protect your assets. In the event of a catastrophic liability claim (i.e. you struck and killed a pedestrian while driving your car), you can be sued. In the event of a lawsuit, the courts will first exhaust the limits on your insurance policies, but for any damages over and above those limits (or if you don’t have any liability insurance in place) they will go after you personally.

People mistakenly think they do not need renter’s insurance or condo insurance. Even if you feel that your personal property is not worth much, it is worth purchasing this insurance for the liability protection alone. A very basic renter’s or condo insurance policy costs around $200-$300 per year.

People underestimate the importance of liability and think “It will never happen to me.” Hopefully “it” won’t ever happen to you. But, in the event that it does, it’s worth spending a few extra dollars to make sure that you, your family and your financial future are appropriately protected.