Insure.com’s new national survey of car insurance rates reveals that Louisiana has the highest average rates in the nation, followed by Michigan. Maine can boast the lowest average rates.

The results came from a study that collected average auto insurance rates for more than 2,400 vehicles, based on 10 ZIP codes per state and rates from six large carriers, with averages calculated nationally and for each state. This allows you to compare auto insurance prices among the states.

Louisiana drivers socked by settlements

When asked about Louisiana’s No. 1 ranking, two insurance agents there said they were disappointed but not surprised. And they had a ready explanation: the state’s court system.

In Louisiana, only cases with claims in excess of $50,000 receive a jury trial. “You see lots of settlements at $49,000,” explains Duane Dimattia of Baton Rouge, a director of the Professional Insurance Agents of Louisiana. That sweetens the pot for seeking a claim against an at-fault driver – and insurance companies pay the tab. With the state’s judges elected rather than appointed, those settlements tend to cater to the public more than they do to legal facts, asserts Richard Clements, a past president of the Independent Insurance Agents of Greater New Orleans.

While an estimated 125,000 vehicles were crushed at Louisiana junkyards in the wake of 2005′s Hurricane Katrina, Clements says that’s not a factor in the state’s high rates. “We really can’t point our finger at Katrina on that, even though we can point to it for many other things.”

In addition to the monetary threshold for jury trials, Dimattia says, Louisiana has traditionally had higher bodily injury rates and more lawsuits per capita than most states. He blames both on the state’s aging roads.

Michigan’s medical bill problem

Like many states, Michigan requires all drivers to have car insurance. Unlike any other state, it offers unlimited medical benefits for the life of accident victims — no matter what policy they buy. Under the system, an individual’s insurance carrier covers the first $460,000 in benefits. Above that amount, a statewide pool (called the Michigan Catastrophic Claims Association) kicks in, which affects the rates of everyone in the state.

“That’s where our biggest expense is,” explains Jon Spalding of Perry, Mich., president of the National Association of Professional Insurance Agents . “If I’m sitting at a stop sign and a motorcycle rear-ends me, my auto policy pays for that motorcyclist’s medical benefits.”

In fact, because of this personal injury protection (PIP) coverage, car insurance has become the primary source of medical coverage, says Spalding.

Michigan’s unemployment rate of nearly 15 percent, the highest in the nation, also plays a role in the state’s car insurance rates. More and more residents are letting their car insurance lapse despite the mandatory coverage law. “It’s a gamble and it can be an expensive one if they get caught,” says Spalding. But “they’re absolutely willing to take that risk.”

Maine: Fewer people, fewer lawsuits

As a large rural state with just 1.3 million residents, Maine has several factors that tend to keep rates down, says Chris Condon, incoming president of the Maine Insurance Agents Association. The largest city, Portland, has just 62,000 residents. The upshot: The average number of annual miles driven is low, commuter mileage is low, and, relative to other states, the Pine Tree State’s highways are not that busy. This helps hold down car crash claims. Despite its small population, Condon notes that there are at least 30 insurance carriers in the state, so there’s plenty of competition for customers’ business.

But Condon says Maine’s insurance advantage goes beyond just numbers. “It’s a real proud culture,” he explains. In most disputes, Mainers tend to seek fair treatment rather than big money.

“People are less likely to sue than they might be elsewhere,” Condon says, “I think that impacts those rates over time.”

About the rankings: Insure.com’s state rankings reveal the relative cost of insurance among states. Insure.com commissioned a survey from Quadrant Information Services. Average insurance rates were calculated for more than 2,400 vehicles for model year 2010. Rates were based on a 40-year-old single male driver who commutes 12 miles to work. The sample policy had limits of 100/300/50 ($100,000 for injury liability for one person, $300,000 for all injuries and $50,000 for property damage in an accident) and a $500 deductible on collision and comprehensive coverage. The policy included uninsured motorist coverage.

Your insurance score is an additional factor used to develop your premium. Other factors, such as motor vehicle record, annual miles driven, type of car you own, and application information are also used to develop your premium.

Insurance scoring is just one item insurance companies use to ensure that you get the right rate based on your personal and unique circumstances. Not all companies use insurance scoring.

What does my credit have to do with how I drive?

An insurance score, considered with other factors, has been shown to provide a clearer picture of yourpotential insurance risk. Studies show that people who are responsible with their money also tend to be more responsible behind the wheel. Insurance scoring alone cannot determine your level of risk, but it does provide additional information that some companies use to determine the right price for your insurance policy.

Is an insurance score different from a credit score?

YES. An insurance score is not the same as a credit score. Banks and mortgage lenders use credit scores to predict the likelihood that you will repay a loan or some other form of credit debt. Insurance companies use insurance scores to help predict the probability that you may have a loss and file an insurance claim.

Does every company use insurance scoring?

NO. Not all companies in New Jersey use insurance scoring. If a company decides it wants to use insurance scoring, it must get permission from the New Jersey Department of Banking and Insurance. In addition, companies that do use insurance scoring must notify you of the practice. The use of insurance scoring and other factors vary among companies, so consider shopping around for the company, policy and price that are best for you.

Is there specific information that is used in calculating my insurance score?

YES. Insurance scores are based on information such as your payment history, collections, bankruptcies, outstanding debt, types of credit, and the length of credit history. If you pay your credit card bills, loans payments and mortgage on time, it will improve your insurance score. On the other hand, if you make late payments and collections have started, it may have a negative impact on your insurance score and the cost of your insurance policy.

Does my income affect my insurance score?

NO. Your income is not used in determining your insurance score. Use of personal information including your race, religion, gender, marital status and where you live, is not considered.

Will insurance companies keep my credit information private and confidential?

YES. Most insurance companies do not directly participate in the process of developing your insurance score. Insurers generally hire vendors to look at information provided by major credit bureaus, such as payment history and other related data, and use it to develop an insurance score for you. The vendor then gives your score, not your credit report, to your insurance company.

Is my insurance score always the same?

NO. Your insurance score may vary by company. It may be different because every company uses different information and its own formula to calculate your score. That is why it is important for you to shop around before buying an insurance policy.

Will my insurance score alone determine the amount I pay for insurance?

NO. Your insurance score is an additional factor used to underwrite an insurance policy. Other factors, such as motor vehicle records, annual miles driven, type of car you own, and application information are considered along with your insurance score to develop your premium for automobile insurance.

If there is a mistake on my credit report that affects my insurance score, can I correct it?

YES. You should regularly check your credit report. Under the New Jersey Fair Credit Reporting Act, New Jersey residents can get one copy annually, free of charge, from each of the major credit reporting bureaus.

Credit reports can be ordered from:

• Equifax: 800-685-1111
  www.equifax.com
• Experian: 888-397-3742
  www.experian.com
• Trans Union: 800-888-4213
  www.transunion.com

If a credit report has an error, and it is corrected by the credit reporting agency, you can ask your insurance company to recalculate your insurance score.

Your insurer will notify you if your policy or premium was in any way affected by your credit information. You can check your credit report at any time to make sure it is accurate.

If something happens in my life that affects my credit, will companies take that into account?

YES. Different companies handle life events differently. Some of the life events companies may consider include catastrophic illness or injury; death of a spouse, child or parent; temporary loss of employment; divorce, and identity theft.

Remember, insurance scores may vary by company because they may use different information and formulas to calculate your score. So, changes to your credit report may also change your insurance score.

That is why it is important for you to shop around when buying an insurance policy.

Is there anything I can do to improve my insurance score?

YES. Consumers with the best insurance scores generally pay bills on time, keep credit balances low and apply for credit only as needed. You may be able to improve your insurance score over time if you wisely use the credit given to you.

Answer:

This is what the “ISO standard” policy says:

COVERAGE C – Personal Property

We cover personal property owned or used by an “insured” while it is anywhere in the world. At your request, we will cover personal property owned by:

1. Others while the property is on the part of the “residence premises” occupied by an “insured”;
2. A guest or a “residence employee,” while the property is in any residence occupied by an “insured.”

Our limit of liability for personal property usually located at an “insured’s” residence, other than the “residence premises,” is 10% of the limit of liability for Coverage C, or $1000, whichever is greater.

Personal property in a newly acquired principal residence is not subject to this limitation for the 30 days from the time you begin to move the property there.

The Homeowners Policy provides extremely broad coverage for personal property. It covers personal property owned or USED by an insured ANYWHERE in the world. The amount of coverage, however, is limited to 10% of the contents limit for personal property “usually located” at an insured’s “residence.”

While often misinterpreted as limiting all off-premises personal property coverage to 10% of the contents limit, the actual wording only applies the 10% limit to personal property that is “usually located at an insured’s residence, other than the residence premises.” That is, for the restriction to apply, the insured must have more than one residence. In addition, the personal property must be “usually located” there. For example, if the insured has a second home, the contents coverage on the Homeowner’s Policy covering his or her main residence only extends 10% of the contents limit to personal property usually kept at the second home. For personal property the insured takes back and forth, the 10% limit would not apply.

The 10% limit would also not apply to personal property that is usually kept at a residence that is not an insured’s residence. Personal property in storage at a friend’s or family member’s house would not be subject to the 10% limit.
Personal property of college students is subject to the 10% limit, according to most insurance experts. In most cases, the 10% limit under the parents’ Homeowners Policy is usually sufficient, but coverage can be increased, as described below (or, the student can purchase a renters policy).

To increase coverage for personal property usually located at an insured’s other residence, either those with second homes, or those with college kids, an endorsement commonly called the Increased Limit on Personal Property in Other Residences endorsement is available.

Personal property stored in a mini-warehouse is NOT subject to the 10% limit under the insured’s contents coverage. The 10% limit only applies to “property usually located at an insured’s residence, other than the residence premises.” A mini-warehouse is clearly not a residence, thus the 10% limit does not apply to property stored there.

While Coverage C basically applies to personal property worldwide, there are certain restrictions of coverage, in addition to the 10% limit discussed above. For example, under “Special Limits of Liability,” contents coverage is limited to $2,500 on business property on the residence premises and $250 on business property off the premises. There are several “business property” endorsements available, including the Increased Limits on Business Property endorsement which can provide higher limits. An insured with any substantial amounts of business property, whether on premises or off, should be written in a policy more specifically designed to the business exposures.

The contents theft coverage contains several limitations relevant to personal property in storage (or otherwise off-premises). For example, there is no off-premises theft coverage for watercraft, related equipment, campers, and trailers. Insureds who use a mini-warehouse to store watercraft and equipment, or trailers and campers, have no theft coverage for such property. In addition, there is no theft coverage for property a child has at college if the child has not been at their college residence within 45 days prior to the theft.

Aside from property issues, insureds who store personal property off premises, especially in a mini-warehouse, could have certain liability exposures. For example, if the insured stored a propane gas grill, or containers of gasoline, paints, cleaning solvents, etc., or imprudently stacked heavy objects, and injury or damage to third parties resulted, a lawsuit would likely ensue.

The basic insuring agreement under the liability section of the homeowners policy provides coverage for bodily injury or property damage for which an insured is legally liable, unless excluded. Many storage-related liability claims would likely be framed as arising out of a premises the insured either owned or exercised some measure of control over, such as a rented mini-warehouse unit. The policy excludes claims “arising out of a premises that is not an insured location.” However, included within the definition of “insured location” is “any part of a premises occasionally rented to an insured for other than business use.” Therefore, an insured’s legal liability for bodily injury or property damage arising out of the non-business rental of a mini-warehouse is probably covered. However, it is always a good idea to check with your agent or insurance representative…in the event of long-term rentals, it is probably safer to declare the facility as an insured location on your policy.

One additional factor usually present in the renting of a mini-warehouse unit is the signing of a rental contract by the insured. Such contracts are usually written in favor of the lessor, and lessees can unwittingly incur substantial contractual liability exposures. Here is a sample from an actual mini-warehouse lease:

“Lessee agrees to indemnify and hold Lessor harmless from any and all expenses, damages, claims, or causes of action arising directly or indirectly from any activities under this lease, even though caused in whole or in part by the negligence of the Lessor.”

Fortunately, the homeowners policy provides extremely broad contractual coverage so that most routine, non-business rentals of a mini-warehouse unit by an insured would be covered. However, again, check with your insurance agent in advance to confirm this.

While the Homeowners Policy provides broad coverage for insureds in most storage-related situations, there are certain specific exposures that are not covered. This article addresses some of them. Be sure to consult your independent insurance agent if you have questions about your unique exposures.

Copyright 2000 by the Independent Insurance Agents & Brokers of America, Inc. Reprinted with permission.

If the insured doesn’t die during the period of coverage, the insurance company keeps the premium and that is the end of the deal, at least for that year. Term life is usually available (that is, the coverage can continue) only up to a certain age, such as 65 or 70. So it correctly can’t be called “permanent” life insurance.

Some life insurance agents like to describe term insurance, in comparison with whole life (which, as the name suggests, usually covers a person for the whole of his or her lifetime) as “renting” versus “buying” life insurance. The analogy is fairly accurate, because term insurance isn’t a permanent or life-long contract (whereas ownership of a home is permanent, and even longer than life-long, if you include heirs), and also because whole life insurance gradually builds up an amount of “equity” (in the form of cash surrender value) which is very much like the home equity that builds up as a mortgage is gradually paid off. Whole life is sometimes called “cash value” life to distinguish it from term insurance.

In the simplest form of term life insurance, one-year renewable term, premiums for any given year are based on (a) the probability that the insured will die within that year plus (b) an allowance, or “loading,” for expenses and profit.

For example, here are the probabilities of death for a male at certain ages (taken from the 1980 Commissioners’ Standard Ordinary or “CSO” Mortality Table):

Ignoring the profit and expense elements, the premium (called a “net premium”) for $1 million of coverage at age 35 would be $2,110 for one year, but if the policy were renewed at age 95 it would be $329,960 for one year. In either case, if the insured did not die, the insurance company would keep the premium and it would be higher for the next year, and so on. Who would want to pay a premium of $329,960 and survive? On the other hand, who would want to insure someone on such a basis? Only very sick or at-risk people would renew at such advanced ages, plus there is a great risk of suicide or gross self-neglect.

(Please note: The 1980 CSO Table referred to above is very important for certain purposes – primarily “reserving” – that are beyond the scope of this article, but it is not generally used for setting premium rates because the mortality assumptions are too conservative, i.e., overstated, for that purpose. Nevertheless, this Table is so well known that it can be conveniently used to illustrate how a net premium could be calculated. In fact, it is referred to and “incorporated by reference” into most policies as part of the formula for calculating extended term and reduced paid-up insurance.)

Whole life insurance premiums are a “levelled” version of the term premiums; that is, they remain the same from the year of policy issuance to age 100, but they’re much higher than term rates in the early years and much lower than term rates in the later years. Because much more is paid in during the early years than what is required to pay claims (and expenses), and because the insurer receives income on the invested part of the premiums, the policy builds up a cash value that can be withdrawn, borrowed against, or used to buy extended term or reduced paid-up insurance.

For example, cash values of a $1 million policy issued at age 40 might be:

At age 100, the cash value ordinarily equals the face amount, and that amount is paid to the policy owner as an “endowment” (hence the saying that “Whole life is an endowment at age 100″). (True “endowment” policies, which pay the face amount at a certain age or earlier death, will be discussed in a future article.)

Cash value life insurance is made more attractive by the federal tax law, which allows the cash value to build up without current income taxation. In other words, the excess portions of the premiums in early years are invested and grow with interest, but that interest is not taxed unless and until the cash value is withdrawn, and then only to the extent that the cash value exceeds the premiums paid, minus policy dividends.

Dividends in this context are (as opposed to dividends on stock) a partial return of the policyholder’s premium, determined annually in the insurance company’s discretion, based upon favorable mortality experience, better-than-expected investment results, and lower-than-expected expenses. Policies that pay or may pay dividends are called “participating.”

Term life insurance can be surprisingly, even amazingly, cheap, especially at young ages and for individuals in excellent health. For example, according to one of several online “instant quote” and insurance marketing companies, the cheapest $1 million term policies currently available (as of March 2003) for a “preferred” 21-year-old male have an annual premium of only about $300 (that’s per year, not per month). At age 50, for a new policy, it is surprisingly only about $1,000 per year.

But at age 70, if available, it can cost upwards of $60,000 per year. If that last number is a shock, you should be aware that it’s the guaranteed premium at age 70 on a policy that was issued with premium guarantees at age 50, and the “underwriting benefits” (that is, the benefits of weeding out of sick or other high-risk individuals) have mostly disappeared over 20 years. If the male at age 70 successfully went through underwriting, and if new coverage were available at that age, the premium would almost certainly be much lower.

As pointed out above, who would pay a $60,000 premium for “only” $1 million of coverage unless he or she felt in particular danger of dying during the upcoming year, especially if he or she could get a much better deal by going through underwriting of a new policy?

Copyright 2003 by Peter Lencsis. Used with permission.

Arguably, but only arguably, replacement cost coverage is another exception. In any event, property and casualty insurance rarely if ever results in a gain or profit to the insured, so there is usually no income tax consequence when a claim or loss is paid, when an insured is provided a defense in a lawsuit, and so forth.

Life insurance, on the other hand, is an exception to the principle that insurance is a contract of indemnity. Who can place a precise value, such as “actual cash value” for example, on a human life? By necessity, the amount of life insurance payable on the death of the insured is a somewhat arbitrary measurement of the financial loss to his or her survivors. It may not even represent any financial loss, for example if an insured non-working spouse dies and the surviving spouse is the beneficiary, or if a wealthy person names a charity as the beneficiary of a policy on his or her life.

On the other hand, whole life insurance and other forms of cash-value life insurance have a substantial savings or investment element that can’t be ignored entirely if the tax laws are to operate fairly. So life insurance is subject to special rules regarding federal income taxation, and a separate set of rules regarding the federal estate and gift tax. The following is a summary of the most basic principles in each area. (References are to the Internal Revenue Code sections.)

Federal Income Tax

1. The death proceeds of life insurance (face amount of the policy) are generally not taxable income to the beneficiary or beneficiaries. (Section 101(a)(1)). It doesn’t matter how long the policy has been in force, or how the amount of premiums relates to the amount of proceeds. So if the insured is 30 years old and has paid premiums for only a few years, or if the insured is 70 and has paid premiums for many years, the result is the same.

Although the proceeds may become part of the taxable estate for estate tax purposes, they are not considered income to the beneficiary, much in the same way as a gift is not considered income to the recipient (but may be subject to gift tax). The general rationale is that death proceeds, especially modest amounts, should simply not be taxed as income, and that large amounts are potentially subject to the estate tax.

Once the proceeds are received and invested, however, the interest or investment income is taxable. This applies even if the funds are left with the insurance company under a “settlement option,” such as an arrangement under which the beneficiary receives annual interest payments, or payment over a period of years (with interest built it), or payments under a life income option. (In the latter two cases, only part of each payment would be taxable. That is a whole subject in itself.) Also, the death proceeds can be taxable if the policy was “transferred for value,” meaning sold to another person for a valuable consideration, before the insured’s death. (This also is a subject in itself.)

2. The annual increases in the cash surrender value (CSV) of a life insurance policy are not taxable income as long as the policy is not surrendered. In technical terms, there is no “constructive receipt” of income, even though the policy owner has the right to withdraw the cash value at any time. For example, under a $100,000 policy issued at age 35, the cash value might increase by approximately $1,000 per year for the first 15 years or so, starting at the end of the second year.
Part of this increase is, of course, due to the premiums being paid, but part is also due to the insurance company’s investment earnings credited to the cash value. A major advantage of cash-value life insurance is the fact that this investment income is not currently taxed to the policyowner (tax-deferred), so long as the cash value remains untouched.

There are exceptions to this rule, which are quite complicated (see, if you dare, Section 7702, the definition of “life insurance,” and Section 7702A, which has to do with “modified endowment contracts” (MEC’s)). In a nutshell, if a policy fails to meet the statutory definition of life insurance or is an MEC, part of the death proceeds may be taxable or the build-up of the cash value may be taxable, or both. One easy-to-remember (but practically useless) rule is that any endowment before age 95 is treated less favorably than other kinds of cash-life insurance. (Virtually no endowments have been sold in the United States since the law was changed in 1984.)

3. The CSV of a life insurance policy actually received (i.e., taken in cash) during the insured’s lifetime is taxable under a “cost recovery” rule. (Section 72(e)). The excess of the CSV over the policy’s net cost (premiums minus dividends received in cash or applied to reduce the premium) is taxable as ordinary income (not capital gain) in the year in which the policy is surrendered. For example, if the premium has been $1,500 per year for 20 years ($30,000), the dividends have totaled $16,000 (paid in cash or used to reduce premiums), and the CSV is $29,000, the amount of income would be $29,000 minus $14,000, or $15,000. If dividends are accumulated with interest or used to purchase additions, they form part of the CSV and are therefore not deducted in the calculation.

In the case of variable life insurance, at least part of the increase in the cash surrender value is likely to be attributable to gains that might be taxed as long-term capital gains if they were not “inside” the life insurance policy. Nevertheless, upon surrender of a variable life policy, the gain (as calculated above) is treated as ordinary income rather than capital gain. An offsetting advantage is the fact that the policyowner can move funds from one sub-account to another and, in effect, “lock in” gains which are not taxable until the policy is surrendered.

4. Policy dividends are generally considered a tax-free partial refund of premium. (Section 72(e)(5)). Actuarially speaking, a life insurance policy dividend potentially consists of three elements: (1) lower-than-expected mortality experience (death claims), (2) greater-than-expected investment earnings, and (3) lower-than-expected expenses (home office, field expense, etc.). The premium contains a “loading” for these combined elements, part of which is returned if the company’s directors determine in their discretion, in retrospect, that it is not needed.

So in receiving a policy dividend, unlike a dividend on stock, the insured/policyowner is really just getting part of his or her own money back. However, if dividends are left to accumulate with interest, interest credited annually on the accumulated dividends is taxable as ordinary income. If dividends are “plowed back” into the policy by purchasing paid-up additions, in effect they earn investment income on a tax-deferred basis as part of the total CSV, which includes the CSV of the additions.

5. Unfortunately (for taxpayers), under current U.S. tax law, premiums paid for individual life insurance are generally not tax-deductible at all, regardless of income level or anything else, whereas they are given some favorable tax treatment in other countries (especially Europe and Japan). The rationale in other countries is based on the fact that endowments (see above) and other high cash-value policies are very popular there as retirement savings vehicles, and are therefore encouraged by the government.

6. The good news for U.S. employers is that the premiums for group term life insurance provided by an employer to employees are fully deductible as a business expense, with no specific limits on the amount of coverage that can be paid for as an employee benefit. (There are anti-discrimination requirements regarding “key employees,” however.) Also, the part of the premium attributable to a given employee (the value of the insurance, so to speak) is not taxable to the employee up to $50,000 of coverage. (Section 79 (a)).

The value of coverage in excess of $50,000 for any given employee is taxable income to that employee based on IRS Tables, regardless of the actual cost to the employer. For example, at ages 45-49 for either sex, the value is 15 cents per month per $1,000 of coverage. So a person aged 45 and covered for $150,000 (forget the first $50,000) would be subject to income tax on the value of $100,000 of coverage, which is $15.00 per month, or $180.00 per year.

7. Many policies issued in recent years contain Accelerated Death Benefit options which, despite their name, are not really death benefits. They allow the policyowner to receive all or a substantial portion of what would be the death benefit from the insurance company if the insured is certified to be terminally ill, or is certified to be chronically ill and uses the money for long-term care expenses.

The option for terminally ill insureds was initially developed in response to the creation of the viatical settlement industry, which allows approximately the same result but involves the purchase of policies from terminally ill persons by non-insurance firms on a case-by-case basis at a negotiated price. (The policyowner has a right to do this, and the company does not have to agree or consent.)

A terminally ill person is one who is expected to die within 24 months. A chronically ill person is one in need of long-term care services (defined with reference to certain Activities of Daily Living or ADL’s). In general, Accelerated Death Benefits and amounts received in viatical settlements are treated as non-taxable death proceeds. (Section 101(g)).

Federal Estate and Gift Tax

The death proceeds of life insurance are included in the “gross estate” of the insured (i.e., subject to taxation in the “taxable estate”) if: (a) the proceeds are payable to the insured’s estate; (b) the insured possessed one or more “incidents of ownership” (as defined in IRS regulations) at the time of death; (c) the insured made a gift of the policy within 3 years before the date of death; or (d) the insured transferred ownership of the policy for less than adequate consideration (and one of several other conditions is satisfied).

Under current law, depending on the size of the taxable estate, the federal estate tax starts at 18% and rapidly goes up to 49% as of 2003. There is an exempt amount which goes from $1,000,000 in 2003 in stages up to $3,500,000 in 2009. Then the tax disappears entirely for one year, 2010; then it comes back into effect in 2011, basically as it was in 2002. (This can never realistically happen, so the law must be viewed as temporary.)

Because of the unlimited marital deduction (the deduction of a sum of money from the gross estate), life insurance proceeds payable to a surviving spouse are entirely free from estate tax, as well as income tax.

Copyright 2003 by Peter Lencsis. Used with permission.

From an insurance standpoint, it is more expensive if your child has a vehicle driven primarily by them. Consider not getting your child his/her own auto and letting him/her drive a family car. If you insist on providing him/her with an auto, consider buying an inexpensive, but reliable, used car. Anticipate at least one or more fender benders. In general, you are better off not buying collision insurance and reporting these minor claims…an increased claims frequency can result in higher premiums or nonrenewal.

Unless it is impossible, do not insure your child’s auto under a separate policy. It is almost always advantageous, from a pricing and coverage standpoint, to have your child’s auto on your policy. In addition, since statistics show conclusively that teenagers have a higher claims frequency and severity, make sure you have a personal umbrella policy with at least a $1 million limit. The cost can be as low as $150, but could be as high as $300 or more. Still, it’s a bargain to protect yourself and your assets from catastrophic loss.

Have your child complete a driver’s education program. That can reduce your premium by 10% or more.

If applicable, ask for a “good student” discount. If your child’s grade point average is a “B” or better, you could get a discount of 10-20% or more.

MOST IMPORTANT, practice sound loss control. When dealing with teenage drivers, preventing accidents is more important than relying on insurance to fix things. Insurance can replace your vehicles and pay for broken bones, but it can’t replace the most important thing in life…your child. So, consider the following:

Talk seriously to your child about the dangers of driving, including driving under the influence, horseplay, etc. Use statistics from web sites such as www.iii.org to impress upon them how dangerous driving can be.

Consider prohibiting your teen from transporting more than one passenger…some state graduated licensing laws may require this too. Reckless behavior is directly proportional to the number of teens in a vehicle. By limiting the number of passengers, you reduce the chance that peer pressure and dares might result in your child taking foolhardy chances.

Consider having your child sign a “contract” similar to the one at http://www.parentingteendrivers.com ? if anything, it will get his/her attention.

Driving is a privilege, not a right. If your child violates your rules or the rules of the road, take that privilege away from them until they can demonstrate that they understand the seriousness of this responsibility and the possible consequences of their actions.

Copyright 2002 by William C. Wilson, Jr. Reprinted with permission.

Answer:

The homeowner’s policy covers any personal property “owned OR USED by” an insured if it is damaged or lost due to a covered peril. The student was certainly using the property and theft is a covered peril. The term “insured” includes a resident relative, and courts have determined consistently that a dependent child away at school is still a resident of the named insured’s household. And, under the theft peril, the policy says, “Property of a student who is an ‘insured’ is covered while at a residence away from home if the student has been there at any time during the 45 days immediately before the loss.” In this case, the student was there at the time of loss, so this theft restriction does not apply.

There is, however, one limitation that does apply. For personal property “usually located at” an insured’s “residence” other than the residence premises, only 10% of the policy’s contents coverage is available for losses. In this case, 10% of the contents limit is more than adequate for the loss of the computer. Of course, there is a deductible to contend with, typically $250.

In addition, policy conditions require that theft losses be reported to the police. Although “police” is not defined, it is presumable that notice to the campus police would suffice. That being done, this appears to be a clearly covered claim, the only mystery being why the agent would say that it isn’t covered.

Copyright 2000 by the Florida Association of Insurance Agents, Inc. Reprinted with permission.

Answer:

This being the case, the employee faces a huge gap in coverage. The solution is easy though: simply add an endorsement commonly referred to as the Extended Non-Owned Coverage for Named Individuals to the policy for about $20 per six months and the exclusion disappears with regard to liability and medical payment claims. Make sure to add each person in the family by name to the endorsement if there is a chance they will ever drive the employer-owned auto.

However, a coverage problem does arise with regard to damage TO the company car. The same “furnished or available for your regular use” exclusion pops up under physical damage and the bad news is there is NO endorsement to fix the gap. So, if you take the car to the store at night to pick up milk and wreck the car, your auto policy does not pay for the damage…coverage lies solely with the business auto policy, which opens up a can of worms if the business auto insurance carrier seeks a subrogation claim against the employee. Subrogation is where an insurance company assumes their insured’s legal rights to pursue recovery from a negligent party. In this case, if the employer has a legal right to require the employee to pay for the damage, the business’ insurance company can pay for the damage to the auto, then pursue recovery against the employee.

So, there you go. This situation is very common today. Whenever an employee is furnished an auto for his regular use (or even has one available for his regular use), the endorsement fixes the problem…except for physical damage to the auto.

BUT…what if your PAP carrier won’t add the Extended Non-Owned endorsement to your personal auto policy? If your company won’t (or can’t) add the endorsement (or a similar one if they are a non-ISO company), you have a huge coverage gap. If this is the case, the best option (and maybe only option) is to buy a “Named Non-Owner policy” to fill the gap. In general, that policy provides options to include liability, medical payments, and uninsured motorist coverage, but not no-fault or physical damage coverage. It, in effect, accomplishes about the same thing as the Extended Non-Owned endorsement does, but a price that’s much more expensive.

Whereas the “Extended Non-Owned” is going to cost perhaps $50 in most cases, the “Named Non-Owner” is going to run into the hundreds of dollars most likely…typically about 50% of the “owned” premium. With the Named Non-Owner policy, you must be careful in that every person to be insured must be named. That means, for example, that you’ll have to name dad, mom, and each kid to be covered. It’s not enough to name just one parent. For such a Named Non-Owner policy you may be looking at a specialty auto insurance market or the residual market in many cases.
So there you have it. First try the Extended Non-Owned route and, if you hit a brick wall, fall back to the Named Non-Owner route. Either way, fix that gap in coverage!

P.S. Confused? NOW you know why the advice of a good, professional insurance agent can be invaluable!

Copyright 2000 by the Florida Association of Insurance Agents, Inc. Reprinted with permission.

With regard to first-party claims, while it is perhaps arguable, the ISO Personal Auto Policy contract language appears to cover only the actual cash value of the damage or the actual cost to repair the damage. It does not appear to contractually cover any reduction in market value even if the insured was able to prove such.

Third-party claims for “diminution of value,” on the other hand, have generally been found by the courts to be covered by auto insurance. The Liability Coverage section of the Personal Auto Policy pays for any property damage for which the insured is legally responsible. Such legal liability may be established by case law or it may be statutory.

According to our research, most courts have recognized diminution of value as being legally compensable to the extent that the plaintiff can demonstrate such reduction in market value. Also, most case law seems to have held that, in first-party claims, the contract governs.

For example, several Texas court cases have found that legal liability for third-party damages includes diminution of value. In Ludt v. McCollum, 762 S.W.2d 575 (Tex. 1988); Terminix International, Inc. v. Lucci, 670 S.W.2d 657 (Tex. App. 1984):

In Northwestern Nat. Ins. Co. v. Cope, 48 S.W.2d 717 (Tex. Civ. App. 1969), the court stated:

In summary, there appears to be nothing in the ISO standard Personal Auto Policy (PAP) that requires the carrier to compensate the insured for diminution of value in physical damage claims…in fact, the contract seems to support the position that such consequential loss is not covered.

In contrast, there is ample case law to demonstrate that such diminution of value is legally recoverable from a third party and, thus, covered under the liability section of the auto policy.

Note: Some insurance companies may be using a relatively new endorsement called the Coverage for Damage to Your Auto Exclusion Endorsement, which is not yet approved in all states (in fact, some states have specifically disapproved this form). The endorsement clarifies that diminution of value claims are NOT covered by the PAP. If your policy has such an endorsement, then you can be assured that diminution claims are not covered by your policy.

Copyright 2000 by the Independent Insurance Agents & Brokers of America, Inc. Reprinted with permission.

This exclusion presents “gray” areas as to coverage for certain activities such as newspaper deliveries, rural mail carriers (for subrogation claims under the Federal Tort Claims Act), home products sales reps (e.g., Avon, Amway, etc.), and so forth. For example, a continuing controversy is whether or not the exclusion applies to “pizza delivery.” One court, in interpreting the more restrictive “transporting persons or property for a fee” exclusion, ruled that the exclusion did not apply to an employee using his own auto in the course of employment, largely because the delivery charge did not directly benefit the insured (United Services Automobile Association v. Couch, Tennessee Court of Appeals, 1982).

At least two other state courts (and Supreme Courts at that) have also found coverage under the PAP for pizza delivery: (1) USF&G v. Lightning Rod Mutual Ins. Co., Ohio Supreme Court, 1997, and (2) Pizza, Inc. v. AutomRPMotive Cas. Ins., Louisiana Supreme Court, 1992. [Note: The Ohio and Louisiana court cases can be accessed at www.lexisone.com. This service is free, but you'll need to get an ID and password.]

In recognition of the likelihood that the unendorsed policy covers such use, at least one company has addressed this issue by introducing a mandatory “Food Delivery Exclusion” endorsement that can be removed, on a case-by-case basis, for a premium surcharge. When in doubt, clarify the company’s claims position in advance.

Copyright 2000 by the Independent Insurance Agents & Brokers of America, Inc. Reprinted with permission.