Do you work from home?

That can include having a home office for your own business or working from home for an employer. If that describes your situation, you should know that your homeowner’s insurance may not cover your business property or the liability associated with running a business.

I recently came across this helpful article, written by friend and fellow insurance professional, Kathy Anders. With over thirty years of experience, Kathy possesses the expertise to cut through the fine print and assist business owners and managers understand the true risks to their firm.

Home insurance is intended to cover your house, garage and personal belongings against unforeseen events (fire, sewer back-up, break-in, vandalism, hail damage, windstorm, just to name a few). It also insures you against the liability of being a homeowner (a guest slips and falls, your dog bites the postman, a tree in your backyard falls onto your neighbor’s house, your drive off the 5th tee hits the guy on the 11th fairway…) Insurance companies are well versed in the variety of losses that come out of insuring family homes and work hard to get the damage repaired or the medical bills covered as quickly as possible.

Most insurers have no problem adding the necessary coverage under your house policy to include your business operation. They will need to know what type of business it is, the value of your stock and office equipment, how often people will be coming to your home, what you anticipate your annual revenue to be and if you have any contractual agreements in place. The additional premium charged for this exposure can be included as a business expense and is therefore tax deductible.

You need to be aware that the insurer has the right to deny claims associated with your home business if they did not know about it, were not given the opportunity to review the additional exposure or collect any chargeable premium. Although unlikely, it has happened in the past.

Because of the huge diversity in business, many variables and risks are considered by an insurer before it agrees to cover the operation. Insurance companies decide what type of risks they want to insure and develop their underwriting guidelines around that appetite. Some want to insure oil refineries but won’t cover the Avon lady, some target crude haulers but aren’t interested in the neighborhood 7-11 store. There is a market for every type of business…some just have higher premiums than others.

To run your business as efficiently and profitably as you can requires strategic partnerships with a lawyer, an accountant as well as an insurance broker. Having these professionals in your corner can ensure your contracts are enforceable and fair, you’re not paying more business tax than you should and you can rest easy knowing that your hard work is protected by the proper insurance coverage. It’s not your job to understand all fine print in an insurance policy; that’s what you have a broker for. Your job is to provide your broker with all the necessary information needed to ensure you are given the best possible coverage at the best possible price.

Kathy Anders, CRM CAIB

As the commercial lines Managing Partner at First Foundation Insurance, Kathy’s excellent judgment and well-developed insight guide her in providing sound, cost effective coverage with a service level that is second to none.

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Don’t fall victim to a hit-and-run collision

According to an Edmonton Journal article today, city police investigated 7,471 hit-and-run collisions in 2012. Consider that sometimes it’s just not worth the trouble to file a police report, let alone an insurance claim — especially if the damages aren’t worth at least twice the amount of your deductible — that probably means the actual number of hit-and-run collisions is probably in the tens of thousands each year. Chances are therefore fairly good it’s going to happen to you one day. Do you know what to do?

Many hit-and-run collisions involve people driving with a suspended license, or driving an uninsured or stolen vehicle. These people don’t want to be caught, so they take off at the first opportunity, leaving an unsuspecting victim to pay for the damages, even if the collision wasn’t his or her fault. Here’s how to protect yourself if it happens to you:

Be prepared      Gather your own information. Make sure you have a notepad and a pencil or pen that will work in cold weather.

Get the tag      Many victims of collisions often pull over to the side of a road to exchange information, so as not to impede traffic. This is good practice; however, prior to exiting your vehicle, write down the licence plate number of the other vehicle. If you have a camera on your cellphone, use it to take a picture of the licence plate. Many victims have been tricked when the driver of the offending vehicle takes off or appears to pull over, but then speeds away.

Call 911      If they do get away, call the police and give them the licence plate number, a detailed description of the vehicle and the run-away driver, and their direction of travel.

Failing to remain at the scene of a collision and provide your name, vehicle registration and insurance information is a violation of law. (in Alberta it falls under the Traffic Safety Act). Some circumstances can lead to a criminal code charge of Failure to Stop at the Scene of an Accident which may result in a sentencing of five years in jail, or if someone dies as a result of the collision, life in prison.

Whether or not you are able to identify the hit-and-run vehicle or driver, if you decide to submit a collision damage claim to your insurance company, you will be asked to provide them with a police report and/or witness statement — it’s part of the process of proving your damages.

If there are no serious injuries, and if your vehicle is drivable, proceed directly to the nearest police station and report the collision. Otherwise, call the police and wait for them to attend the scene.

Here’s more helpful information about what to do after an auto collision.

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Young drivers – when should they have their own insurance policy?

I get asked this question a lot — and like every insurance-related question, my advice will change depending on the specific situation and the individuals involved — but in most cases, it’s better to push the youngsters out of your (proverbial) insurance nest as early as possible for a couple of reasons:

Let them learn responsibility      There are many practical reasons why your son (or daughter) should have his own insurance policy, but the best reason may be the hardest to appreciate.

Think about it this way; is he more likely to look after your vehicle, or his own? Is he more likely to follow the rules you set for him, or listen to an independent third party professional who will give him “the straight goods”?  Most parents would agree that their children are proudest of their own accomplishments, and with that pride, naturally comes responsibility. From completing their driving lessons, to passing their license exam; from buying their first vehicle, to applying for their own insurance; they will pay more attention to the important details if the key decisions are theirs to make — and if they are paying for it with their own money (even if mom and dad kick in a few bucks).

And once they see firsthand how insurance rates are determined, they will be more likely to do everything in their power to ensure the rating factors continue to work in their favour. They will see for themselves how premiums will go down with every year of claims-free and ticket-free driving experience.

Protect your own driving record      While it’s true that a chargeable (at-fault) claim will follow the responsible driver — as it should — there are exceptions.

Let’s say you add your daughter’s vehicle to your insurance policy (really, it’s her car, but you decide to register it and insure it under your name). One day, she isn’t paying attention while backing out of her parking stall at the high school, and she strikes another student’s car. Young DriversEven though the damages are minor, both to the other vehicle and to her own, you submit a claim to your insurance company for the repairs because she just can’t afford to pay for them herself (she’s saving up for college). When the policy next renews, the claim will be assigned to your daughter and to her vehicle, and her premiums will unfortunately go up.

But if sometime later she leaves the province to go to University and decides to use public transit there, the claim will stay with your policy — even if the vehicle involved in the accident were sold. The claims record will be re-assigned to one of the other vehicles on your policy and unfortunately, until you can prove another insurer is “charging” your daughter for the claim on another policy, it will continue to be charged to you. If she’s serious about college, that could be four years!

If she had her own insurance at the time of the accident and decided to sell her vehicle and cancel her policy — the claim would go with it. The claims record would essentially sit “in limbo” until she decides to drive again and applies for a new insurance policy.

Possible exceptions to the rule      For the above reasons, I usually recommend the young driver purchase his/her own insurance policy, but sometimes your insurer won’t offer all of the terrific discounts you’ve earned if the vehicle is insured on a separate policy. This is actually pretty rare — because of how premiums for mandatory coverages are capped (in Alberta anyway) most discounts won’t apply to a vehicle that is rated for an underage or newly licensed driver regardless.

As always, talk to your insurance broker about your particular situation — there may be other good and valid reasons why my advice doesn’t make sense for you and your child.

When it comes to young drivers, here’s something you will always want to do:

Report them to your insurance company as soon as they are licensed   If an underage or newly licensed driver lives at home with you and has access to your vehicles, they must immediately be shown on your policy as a driver — unless they have their own vehicle and their own insurance policy.

By not adding them — or by misrepresenting which vehicle they drive or how much — you may save a few dollars now. But at what cost later?

If your child is not added to your policy and then is discovered to be the driver involved in a crash, the insurance company might rightfully deny all or a major part of the insurance claim. If there are serious injuries or significant damages to property, you could personally be held responsible for the resulting financial cost of those injuries or damages.

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You don’t need to be a millionaire to be sued like one

When I started in the insurance industry in 1986, the standard insurance limit purchased for most types of liability insurance — automobile third party liability, personal liability under a homeowners policy, even commercial general liability (CGL) — was already fast becoming $1 million. Today, over 25 years later, the standard still appears to be $1 million. Not only has this standard not kept pace with inflation, our society has become increasingly more litigious, and people are simply living longer and are accustomed to better lifestyles. So it’s not hard to believe lawsuits are being filed for larger and larger amounts.

At our brokerage, we offer a minimum of $2 million limits as a matter of course — even though we actually recommend higher limits in many cases — and this year we asked the insurance companies we work with to automatically increase every personal (home & auto) insurance policy to $2 million, unless our customer specifically requests a different limit.

Here’s why we have made these changes.      First some background. Damages awarded in recent Canadian court decisions involving serious injury have reached unprecedented levels — each successive year we see more and more awards in the millions of dollars. For example;

  • In Marcoccia v. Gill, Robert Marcoccia was a twenty-something male who suffered a major brain injury in a car accident. The jury assessed damages at $16.9 million.
  • In Gordon v. Greig, Ryan Morrison and Derek Gordon were passengers in a pick-up truck driven by Corey Greig, who had been drinking.  Traveling at high speed, the pick-up entered a sharp turn and Greig lost control.  The pick-up left the road, rolled, and both Morrison and Gordon were thrown into the ditch and sustained serious injuries. Gordon sustained a catastrophic brain injury.  The trial judge awarded damages of $11.3 million dollars.
  • In Sandhu v. Wellington Place Apartments, as a direct result from a fall from a fifth story window, a two-year-old boy sustained a serious brain injury.  The jury awarded damages in excess of $12.9 million.
  • In Musselman v. 875667 Ontario Inc, 71 year old Gloria Musselman fell while walking up the basement stairs in a restaurant and was rendered a paraplegic. The trial judge determined that the staircase was unsafe and grossly non-compliant with the relevant building code and by-laws and awarded her a total of $3.2 million in damages.

These examples are only a small representation of the increasing number of multi-million dollar decisions each year, but do not include the majority of lawsuits that are settled out of court. Although it’s probably true that the most serious cases will end up being decided by a judge or jury, defendants (represented by their insurance companies) regularly settle lawsuits at or near the insured limit of liability in their home or automobile insurance policies.

Why are these decisions so excessive? What makes up a typical multi-million dollar injury award?       Although every situation is unique, most decisions involving serious injuries include the following components:

  • Direct damages – property damage and/or costs of medical care not covered by health plans or other insurance
  • Non-pecuniary general damages, such as for pain & suffering – capped and indexed to inflation – in 2011 the maximum award is around $330,000
  • Loss of earning capacity – often for a lifetime
  • Cost of future care – especially for plaintiffs with severe brain injuries

What does the future look like?     In many cases, it is the cost of round-the-clock supervision – as well as the increased level of care required – that makes up the lion’s share of these awards. And as our society ages, the cost of care is sure to escalate further as a result of increased demand and a dwindling supply of qualified caregivers.

What happens if a court awards more than the limit of liability from your insurance policy?     If you are sued for damages by another party and you are responsible for the accident, in whole or in part, your insurance company will only pay a settlement or judgment against you to the maximum of your third-party liability insurance limits. You would be personally responsible to pay any excess, which may deplete most of your net assets and possibly a good portion of your future earnings.

So, what do we recommend?   Although your circumstances will be different from your neighbour’s – from your financial situation and future earning potential, to your lifestyle, activities, driving habits and other risk factors – the minimum liability limit you should carry is between $2 million and $5 million. If your liability limits are currently $1 million or less, talk to your insurance broker and ask them if that makes sense for you to increase those limits to $2 million.

What if you prefer a higher limit?       In some cases, you may still not feel that $2 million is enough and would like to purchase a higher limit. There are a number of ways your broker can help you accomplish this.

For example, umbrella coverage can be placed to make up the difference. This is the most cost effective way to obtain the protection you need – in most cases a $3 million dollar umbrella (for total limits of $5 million) will cost about $15 per month. A $5 million dollar umbrella doesn’t cost much more – usually under $20 per month.

In a future post, I will talk about personal umbrella coverage.

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