Frequently Asked Questions About Insurance

We at Cypress Insurance would like to take the guesswork out of buying insurance. So we have come up with a list of frequently asked questions about insurance in order to serve you better.

What kind of insurance do I need?

That depends. If you own a car, for example, you need auto insurance because it's required by law. Besides protecting a valuable possession that would be expensive to replace, auto insurance includes liability insurance for the damage you cause should an accident be your fault. If you own a home or rent an apartment, you need homeowners or renters insurance to protect your personal property and protect yourself from liability should someone be hurt in an accident on your property.

Your home and its contents are probably your most important possessions, which would be difficult and expensive to replace if you didn't have insurance. The kind of insurance you need depends on your personal circumstances. If you own a business, even a home-based business, business insurance is something you should consider.

If you own an RV, boat, or motorcycle, insurance for these possessions is also recommended and may even be required. Of course, most everyone needs life and health insurance. And many people make plans for retirement and can benefit from special financial products that enable them to reach those goals as well. In short, the kind of insurance you need depends on what you want to protect. There are all kinds of insurance to cover many different needs.

How much insurance do I need?

Again, that depends on your individual circumstances. Part of the answer relates to what you can afford to lose or replace with other funds or out-of-pocket expenses. In some cases, how much you need may depend on what you can afford to pay out-of-pocket should you be sued.

For example, even though a state may require a minimum amount of liability coverage on your auto insurance, that minimum amount may not be enough in a personal injury lawsuit. Because there are many factors that go into an insurance policy, your insurance agent is the best source of information for determining how much insurance you need.

How large of a deductible should I select?

A deductible is the portion of out-of-pocket expense you must pay before your insurance policy takes over. Thus, the answer to this question depends on how much you can afford. If your budget and personal financial situation allows, you might opt for a higher deductible, which usually translates into lower premiums. Your insurance agent can explain deductible options and how they affect what you pay for insurance.

What factors determine the insurance premiums I pay?

How insurance companies determine premiums is a complicated process that involves many factors - risk, loss and claims experience, types of insurance, actuarial data, etc. While insurance companies try to be competitive with other companies, each insurance company makes decisions based on experience, statistical information, and business objectives.

Insurance companies maintain staffs of trained experts, called underwriters, whose primary job is to evaluate the amount of risk the company will assume by issuing an insurance policy for a particular piece of property or a person's life or health. If one particular company has experienced a higher rate of loss on a particular policy, its premiums will likely be higher than another company whose loss rate is lower.

How do I pick a company?

Picking an insurance company is much like choosing any other business. In short, you "do your homework" and shop around. As you already know, not every insurance company offers the same kind of insurance. Some specialize in auto and homeowners insurance, others in life and health, while some companies offer almost everything.

If you want to buy insurance directly from only one particular company, you can find company listings in the Yellow Pages. The person you talk with will handle all the details. Keep in mind that when buying all your insurance directly from only one company, your policy, payment, and premium options will likely be somewhat limited.

If, however, you prefer many and varied options and a more or less customized approach to handling your insurance needs, one particular company becomes less important, while your insurance agent becomes more important. The kind of agent who can place business with different insurance companies is called an independent agent.

How do I know if the premiums I pay are not too high?

To say that premiums "are not too high" is a relative term. Keep in mind that premiums or price are not the only factors to consider when buying insurance. Similar coverage from several companies will, in all likelihood, vary because of the factors noted above. When comparing insurance policies and premiums, rarely, if ever, will you be able to make a true "apples to apples" comparison because of the many variables that go into making a particular policy.

For these reasons, shopping for insurance based on price alone (especially when shopping on the Internet) can be very risky. While one company's premiums may be lower, the policy may not contain all the features and coverages you want or need. Once again, the assistance and advice offered by a licensed insurance agent can be quite valuable.

Do I really need an insurance agent?

Some very simple forms of insurance that can be ordered through the mail or over the Internet do not require an agent per se, but eventually you will have to talk to somebody to verify your order.

For all practical purposes, there is nothing to be gained by bypassing an insurance agent. Your agent is not just an order taker, but a licensed professional and an experienced advisor. Most people simply do not themselves know enough about the insurance process, the options available, the various considerations and issues involved, and the details which go into making an informed insurance buying decision.

How do I pick an agent?

Depending on the kind of insurance you want to purchase, you may not have a choice in the agent you work with. If, for example, you buy insurance directly from a company, your agent will likely be the person you talk to when you call the company's agency branch office.

If you want more control over picking an agent, you will have to "do your homework." Ask friends, associates, and trusted business acquaintances about their insurance agent. If they have favorable comments and experiences, chances are good that you'd be happy with them as well. A good referral is always a good starting point when looking for an insurance agent.

Should I pick different companies and agencies for each kind of insurance?

The answer to this question is related to several of the questions above. If you decide that you want to work with only one company directly, your choices may be more limited and you probably won't be able to choose your agent.

If, on the other hand, you decide to work with an independent agent who represents a variety of companies, you will likely have more options

How can I be assured that my claims will be handled quickly and efficiently?

Obviously, the true measure and value of an insurance policy is in the timely and efficient handling of claims. Since buying insurance is buying something you hope you never really need, the only way you will find out if claims are handled efficiently is when you experience a loss. Every insurance company believes and says that they offer timely and efficient claims service.

However, one very effective way to find out is to ask someone you know who has experienced a loss and filed a claim. Also, with a little bit of time and effort, you could research claims statistics and customer satisfaction. Various public (e.g., state insurance commission) and private (e.g., consumer-related organizations) agencies keep statistics on such matters.