Difference between “actual cash value” and “replacement cost”

There are many ways your insurance company can go about calculating the amount you will get paid in the unfortunate circumstance that you have an insurance claim.  The two most common ways are referred to as ‘actual cash value’ and ‘replacement cost’.   The price you pay in premium is dramatically different between the two coverages and so is the amount the insurer will pay out when a claim does occur.

Actual Cash Value

Actual cash value refers to an insurance policy that covers your property and some possessions for and agreed upon fair market price at the time they are lost or stolen.  Since the items are damaged in the claim are used, “market value” means that depreciation will be factored in when your insurance company pays you for your claim.

Replacement Cost

Replacement cost refers to the amount it costs to replace what is destroyed.  This policy will pay out a substantially larger amount than an actual cash value policy. This is because a replacement cost policy will pay to tear down a piece of property, haul off the damaged material and repair or rebuild the property to its original state.  If the construction costs are higher now the policy will pay for the difference.

When a catastrophe happens, many business owners are happy they secured a replacement cost policy.  For some business owners, the difference between the two policies can be the difference between keeping the business open and being for to close the doors for good.  I strongly recommend you consider purchasing a replacement cost policy.  At the very least you should have an honest conversation with your insurance professional about what risks your business faces and how much risk you are comfortable taking on.

Now a replacement cost policy does come at a substantial cost.  The premium is substantially more for a replacement cost policy compared to an actual cash value policy.  For new businesses just getting on their feet, an actual cash value policy is the only option because of their financial situation.  This can also be the case for seasonal or cash strapped businesses.  If this is the case, do not just settle for a lesser policy.  Talk with your insurance professional about the difficulties you are facing to properly in sure your business.  Many times they can find find a different policy or a different payment method to benefit you unique needs.

 

5 facts about insurance

5 little known facts about insurance, every small business owner should know.

General Liability covers my employees if they are injured at work

This is false. General Liability Insurance covers your businesses liability to third parties injured by the actions of your business. This goes for both property damage and bodily injuries.  One thing a general liability policy does not cover is the injuries that occur to your employees.  For these injuries you need a separate workers compensation insurance policy.  Workers comp will cover your employees for medical care and some lost wages when they are hurt on the job and not able to work.

The only thing that determines your rate for insurance is your loss ratio.  

There are many things that go in to how a carrier determines what you pay in premium for coverage.  First is your classification code.  It is pretty easy to understand that an accounting firm is taking on a lot less risk compared to a roofing company.  The level of risk is going to be represented in the amount those businesses pay for premium.

Your personal auto insurance will cover your car when you are using it for business purposes.  

You may need Hired and Non-owned Auto Insurance.This statement is not true.  If you are using your car for business purposes, it is not completely covered under your personal insurance policy.  The personal insurance policy will pay to cover the damages to your car, but it will not cover your liability to third parties. That liability falls on the shoulders of the business.  For that reason, you will need to secure either a commercial auto policy or a hired and non owned auto policy.

You must pay your insurance premium in full up-front.

This is not true.  Most commercial policies require 25% or more of the premium in order to get coverage in place than you pay 9 monthly payments over the last 9 months of the policy period.  There are also options the insurance industry has developed to help cash strapped companies. This is the Pay as You Go option.  Pay as you go can get coverage in place for only a few hundred dollars and then you pay premium each month based upon the monthly payroll.  This is an excellent option for seasonal or cash straped businesses.

There is no need for Business Insurance if you work out of your home.

This is absolutely not correct.  The liability needs you face are different if you work from home, but there are still risks you need to cover.  If you drive to clients houses you need some form of commercial auto.  If you have specialized equipment you may need inland marine coverage and if you offer professional advice you more than likely need professional liability.  These are just a few coverages you may need for a home office and an experienced insurance professional can help you make sure your business is protected with just a short conversation.  It is important to be thorough and honest during these conversations.

Drone Technology

How Drone Technology impacts the Insurance Industry.

Drone Insurance

Many new technologies impact many different industries on a daily basis.  As long as there has been commerce taking place, there have been new and better technologies that have come along to shake up things for most industries. No matter if it was Benjamin Franklin discovering electricity in the 1700’s, Alexander Graham Bell inventing the telephone in the 1800’s, the Wright brothers inventing the airplane in the 1900’s or Mark Zuckerberg inventing Facebook new technology has been developed longer than the United States of America has been a country.  Companies that adapt to technological change are the companies that succeed in the long term. Today, many technologies are changing our lives at a dramatic pace.  None more apparent than drone technology.

Drone technology is advancing at a very rapid pace. As the technology advances the capability of the drone is growing and the price to enter the market place is dropping dramatically.  Because of this people are buying up drones at an enormous pace. What far too many of these drone owners do not realize at this time is the type and amount of risk they are taking by operating a drone.  This applies whether the drone is being used for commercial or personal use and whether the person is on their own property or on the property of a third party. Here are a few ways that drones will impact the insurance industry now and in the future.

Drone Technology

What industries are using drones to do business?

Construction Industry –    In the Construction Industry  business owners can use drones to analyze a property in ways that were not imaginable just a decade ago. They also can aide construction companies in the repair of facilities after an accident or natural disaster.

Insurance Industry –  The Insurance Industry is using the technology to examine properties after a natural disaster to get a jump start on which properties need the most examination and at what part of the property.  In the future drone technology may be able to aide in the prevention of fraudulent insurance claims by taking pictures of insurable assets periodically throughout the policy period.

Real Estate –  Real Estate agencies are able to get an in-depth look a the properties they are working with in new ways. They can use this technology to give their clients an even better idea of the property they are purchasing or selling.

TV Media –  Drones will give the television industry the ability to get to even more places when covering live footage or it can allow a camera to get to a new place that was not possible before.  Laws and legislation over the next few years will determine how much this technology will be allowed in the media.

Search and Rescue –  Search and Rescue groups can use drones in some scenarios instead of helicopters. This will put the operator of the helicopter in danger less often and will allow the search and rescue teams to get to new places that a helicopter cannot access.

 

Beneficial impacts of the drone industry on insurance. 

Drones can speed up the processing time for claims.  With the use of drones the time to process a claim may move from a few weeks to a few days to eventually a few hours.  Because of this quick turn around in processing, companies in the insurance industry will be able to hire less employees or it can free up more employees to service customers in different ways. This will increase the level of service they are able to provide and lower the price they are forced to charge customers for coverage.

Fraud Prevention is another beneficial part of the use of drone technology on the insurance industry.  The main way drones can aide in preventing fraud is by allowing insurance carriers to more easily monitor what a property looks like throughout the period of the policy.  If they can fly a drone out to observe your property once a month or even once a quarter it is more likely to be able to prevent people from filing fraudulent claims after a natural disaster like a hurricane or a tornado.  This is a prime time for property owners to claim damage to their property was caused by the natural disaster when in reality the damage occurred much sooner and was not a covered loss.

 

Challenges drones present for the Insurance Industry

Start-ups will pop up that challenge the current business model.  A few businesses have already poppped up to serve drone users in ways the traditional insurance industry is not able or prepared to.

Verfily and Dart Drones are two such companies that have already formed to fill a void in the drone market.  Verifly is a that offers drone users the opportunity to buy insurance coverage for a small amount of time when they will be using the technology.  When the drone is not in use they do not have to pay for coverage of the product.  This is especially beneficial to businesses who want to use the technology, but may use the drone only a few times a month or even only a few times a year.  Dart Drones is a business that sprung up because there currently is no industry standardized license for operating a drone. This business offers classes and certifications on the proper use of a drone.  This will allow a business owner to show his insurance company the people using the drones are trained professionals and it is a way for the employee to show they are prepared to operate the drone for the needs of the business.

UAV

Like many things in life, every problem presents an opportunity.  This is very much the case in the drone industry.  Successful insurance industries in the future will be the companies that can harness technologies like drones for their benefit and use the technology to gain a new share of the market they did not have previously.  The companies who are the quickest to adopt this technology and offer coverage for it users will position themselves to be the leaders in this potentially high growth portion of the insurance sector.

 

Work Comp Premium

How Your Workers Compensation Premium Is Calculated

 

No matter the size of your company, one of the most basic costs of doing business is insuring your employees against injury on the job.  This makes your workers compensation premium one of the most precious fixed costs any business owner can make.

How Workers’ Comp Premiums are calculated:

Workers compensation premium is calculated according to how employees are classified (with regards to the specific type of work they perform) and the rate assigned to each employee classification. The premium rate itself is expressed as dollars and cents per $100 dollars of payroll for each class code. In most states, the NCCI determines the classification rate and experience modification factor (MOD).

National Council on Compensation Insurance (NCCI) Classification Codes are one factor that determines workers compensation premium.

Factors that Go into Setting Workers Compensation Premium:

  • Size of the employer’s payroll
  • Employee job classifications
  • Company’s claims experience

Premiums for work comp insurance are calculated by the formula below…

Payroll (per $100) X Classification Rate X Experience Modifier = Premium

How Your Payroll Affects Your Workers’ Comp Rate

The basis for an employer’s workers’ compensation premium is your payroll. For each $100 dollars of your payroll, there is a specific rate, which is determined by the classification codes of your employees. If you can keep detailed records for what employees are doing on multiple jobs or in different aspects of their job, you may be able to break out that portion of payroll and potentially save on premium.

Another huge thing to keep in mind is sub-contracted labor and 1099 employees. Many business owners make the mistake or think that if they have employees in this manner it does not affect their premium. If you are paying an employee as a 1099 instead of a W2 and they do not have their own work comp coverage then you are responsible for paying premium on those payroll dollars. There is not a week that goes by that I do not field this question or see this situation and I always have to educate business owners on it. The same thing applies to sub contracted labor. If you are not collecting certificates of insurance and verifying, they actually have coverage then you are responsible for the premium as well. Our goal is to help you understand everything possible that could end up costing you money at audit time. We do not want you to have a huge audit balance just as much as you do, so we do our best to let you know everything on the front side of getting a policy in place.

How Your Employer Classification Affects Your Insurance Rate

Businesses are separated into groups according to the type of work they do. The classification system identifies which type of work presents more risk to the employees performing these tasks.

How Your Experience Modification Factor Affects Your Premium

Your experience modifier – typically referred to as your Ex Mod – is a numeric representation of your company’s claim experience. Ex Mods are based on how your business compares to others in your industry with similarly classified employees. An average Ex Mod starts at 1.00. Employers with fewer and less severe accidents than average have a MOD of less than 1.00. This will generally take a few years of consecutive coverage to be effected one way or the other.

Flood Insurance

Flood Insurance

Anywhere it rains, it can flood.  Most of us, when we hear the word “flood” think of overflowing rivers. But for most homeowners, a flood following a heavy rainfall is more along the lines of water spilling in through a window well or coming in through a lower-floor door.  This can cause very much a grey area when it comes to flood insurance.

Flooding is the #1 natural hazard in the US. Even an inch of water can cause thousands of dollars in damage.

The situations that cause flooding—heavy rain, groundwater, or new development —can happen anywhere. In fact, one in five flood insurance claims comes from someone in a low- or medium-risk area. This is why, for many homeowners, flood insurance is an essential layer of protection. Adding flood insurance to your home-insurance package means you’re covered if a water main ruptures or a swimming pool collapses, and your home floods – situations not usually covered by standard policies.

That’s right, most basic homeowner policies don’t protect against flood damage. Neither do most business-owner policies. Only flood insurance can cover damage caused by a water accumulating in your subdivision or a drain burst.

FEMA

FEMA, the Federal Emergency Management Agency, recommends flood insurance to everyone. “There are still millions of Americans at significant risk of a flood damaging or destroying their homes. To protect against flooding and its consequences, all at-risk homeowners need to buy and maintain a flood-insurance policy.”

As you can imagine, there are rules and restrictions. For example, damage caused by moisture, mildew or mold may not be covered. Damage to your basement’s contents may not be covered. Especially susceptible things like fire arms or currency may not be covered. The good news is, those coverages are available. The cost of premiums vary based on the amount of coverage you need, what’s covered and your property’s risk. Check with us to find out more.

If you decide to purchase flood insurance, a federal flood policy would cover rebuilding costs up to $250,000. You can also get a NFIP (National Flood Insurance Program) policy to cover up to $100,000 in possessions. If your home would cost more than $250,000 to rebuild, you need private flood insurance called excess coverage.

Consider purchasing flood coverage sooner rather than later. Keep in mind there’s often a 30-day wait after purchase for a policy to take effect. So call me today about flood insurance. It’s rainy day protection that could help save your most valuable investment: your home or business.