Things in life are often misunderstood. This can cause confusion and unrest among the population. A recent article highlighted people on Twitter admitting things they misunderstood as children .. https://bit.ly/2lDeDut One of my favorites;
“I used to think seahorses were mythical creatures like unicorns or pegasuses (pegasi?). I…umm…was well in my 20s before I saw one in aquarium and discovered the truth.”
This is not the only individual to misunderstand something well into adulthood. People have often misheard musical lyrics. My 15-year-old loves to correct me about music lyrics. The day finally came during a car ride when I got to correct him. The song; Fix, by Chris Lane, goes “… I’ll be your slow grind, that late night, your Walter White high…”. This obviously is discussing the famous AMC show Breaking Bad. Credit my wife’s parenting skills on the fact that he did not know who or what Walter White was.
The point to this is that we all deal with things in life that we misunderstand. This happens daily in the world of insurance. Take my article from last week discussing rental car insurance. I have had people call and expect their policy to cover them driving in Europe. If you think that to be true, please read that article.
I will work through a few insurance concepts that are usually misunderstood.
When a deductible is due on a claim. When I handled claims the question about paying the deductible was always asked. The misunderstanding often occurs in two areas. How the deductible applies and when the customer pays it. If you have a $1,000 deductible it means that you are responsible for the first $1,000 in damage.
If the damage to your property is not more than $1,000 the insurance company will not issue payment. They owe you money when the damage is over your deductible. If you have a $5,000 claim the insurance company, in the simplest terms, owes you $4,000. This is typically money owed to the repair person of your choice prior to completion. The deductible is paid upon completion. $4,000 from insurance and your $1,000 deductible pay for the $5,000 claim.
Replacement Cost Value, Actual Cash Value, and Indemnification. One principle of insurance is Indemnification. This is the process of making you whole following a covered loss. You are to be made whole, not to profit from a claim. That means if you have a financial loss due to property damage you should be made whole based on the terms of that policy. On home insurance, most companies issue Actual Cash Value (ACV) on an item or material up front. ACV is replacement cost less depreciation. When the new item is purchased the remaining depreciation is paid to the customer. They have received Replacement Cost Value (RCV) and indemnified. Take the $5,000 loss mentioned above. Your carpet has a 10-year lifespan and is 5 years old when it is damaged. The total RCV is $5,000. The depreciation on a 5-year-old carpet with a 10-year lifespan is 50%. The company would owe the 50% of ACV up front less your deductible. That is $2,500 less $1,000 which equals $1,500. When the carpet is replaced the additional $2,500 would be issued to fulfill the RCV.
Like Kind and Quality. (LKQ) and Original Equipment Manufacturer (OEM). This comes up, most often, in the auto repair industry. You have shops that only want to do repairs with OEM parts. I understand that because they can make a lot of money from this process and be most efficient. If every insurance company and auto body repair facility paid for OEM parts, your insurance rates would skyrocket. LKQ parts are parts that have come from the same manufacturer as your vehicle, from the same model year or newer. They help the environment by recycling perfectly good parts and reducing waste.
Regular and Frequent Use of a vehicle. If you let your friend drive your truck to move his grandmother across town is he covered? That friend does not live with you. They do not have a key to the vehicle in their possession unless you give it to them. They do not have regular and frequent use of your vehicle. Your insurance policy, for the carriers I represent, would cover you and your friend. If your mother moves in and three months later is not listed on the policy, you would have a much different answer.
I bought a brand-new car, when do I have to call insurance? Well for the new car the coverage of your policy would extend depending on the policy you carry. For my carriers, it is 30 days. The fallout occurs if you only had liability on your previous car. That is all the new car will be provided. If you miss your carriers’ deadline for changing the vehicle there will be no coverage. If you are buying a new car and adding it to the policy, you better call and get coverage before you drive off the lot. The best answer, right away, before you drive the car off the lot.
The answer to most of these is to speak to your agent. If you are in Oregon and Washington and have not spoken to your agent since you bought the policy, give me a call. 971.303.8508.
You can also learn more about me and the agency at www.lucascole.com
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