Insurance Myths Uncovered

After 28 years in the Insurance Industry, we have come across many different Insurance Myths.  When speaking with our clients, we find that there are a lot of misconceptions with respect to what their policy covers, what impacts their premiums, and Insurance policies in general.

Although there are probably too many to count, we thought it would be helpful to demystify some of the most common Insurance Myths that we have come across!

Automobile Insurance Myths

Myth: The color my car will impact my rate.
Fact: The color of your vehicle does NOT impact your insurance rate, no matter what your friends have told you!  The type of vehicle, however, will impact your rate if you carry physical damage coverage (such as Collision or Comprehensive coverage).

Myth: Comprehensive coverage includes Collision coverage and PLPD (or Liability) includes fire, theft and hit and run coverage.
Fact: Comprehensive coverage includes fire, theft and vandalism coverage.  Collision coverage covers collision and upset only (including hit & runs). PLPD provides coverage for third party bodily injury and property damage and no physical coverage to your vehicle.  For a more detailed description on the different coverage available on an automobile policy, please visit our Blog Post titled “Automobile Insurance – most than just a pink card”.

Myth: One person can be listed as the primary driver on more than one vehicle, even if there are additional drivers in the household.
Fact: If there is more than one driver in the household, each driver is required to be listed on a vehicle as the primary driver.  For example, if you have three drivers and three vehicles, each driver must be listed as a primary driver on a different vehicle. All drivers are permitted to use all three vehicles, but are only rated on one.  In the event there are more drivers than there are vehicles, one or more of the drivers can be rated as an occasional driver.  In the event there are more vehicles than there are drivers, one driver can be rated as the primary driver on more than one vehicle.

Myth: Automobile Insurance policies provide Replacement Cost coverage
Fact: Claims are settled on an Actual Cash Value basis, taking into account depreciation.  In the event you purchased a vehicle brand new and have the SEF 43 Waiver of Depreciation Endorsement on your policy, your claim would be settled without factoring in depreciation.  Please visit our Blog Post titled “Automobile Insurance – Common S.E.F.’s” for more information on this and other endorsements that are available to you.

Myth: The amount paid out on a claim will impact your Insurance premium.
Fact: The AMOUNT of the claim does not have any impact on your Insurance Premium. It is the TYPE of claim that may or may not impact your premium. For example, if you have a Comprehensive claim (such as theft or vandalism to your vehicle), your rate will not be impacted.  That being said, if you have a frequent amount of these types of claims, the Insurance Company may choose not to offer this coverage on renewal, or may offer it with an increased deductible.  If you have a Collision claim that is deemed to be not at-fault, there would again be no impact on your rate.  If the Collision claim is deemed to be at-fault, then your policy would be rated accordingly on renewal.

Myth: The number of demerits on a conviction have an impact on your Insurance Premium.
Fact: The number of demerits you have do NOT impact your premium. However, the number of convictions and the TYPE of convictions that you have DO impact your premium.  For insurance purposes, convictions stay on your record for three years from the conviction date (not from the occurrence date).

Myth: Mechanical breakdown is covered under an automobile insurance policy.
Fact: There is no coverage for mechanical breakdown, or for wear and tear (ie tires) on your vehicle.  Maintenance and replacement of parts on your vehicle are a cost to owning your vehicle.

Property Insurance Myths

Myth: Vehicles (including motorcycles and ATV’s) are covered under your home policy when parked in your garage.
Fact: Vehicles are NOT covered under a property insurance policy under any circumstances. In order to be covered in the event of a loss (i.e. house fire), the vehicle would need to be insured under an automobile policy and have Comprehensive coverage.

Myth: You can have a not at-fault claim.
Fact: With property claims, all claims impact your policy.  In the event you have a claims free discount, there is potential of losing the discount on renewal, even if it is your first claim. There is an endorsement that you can add to your property insurance policy (if the requirements are met) that will “protect” your claims free rating in the event of a first claim.

Myth: Mechanical breakdown due to age is covered under a property insurance policy.
Fact: A property insurance policy is intended to cover accidental and unforeseen events.  There is no coverage for mechanical breakdown of appliances or systems (i.e. your hot water tank, furnace, etc).  The upkeep, maintenance costs, and replacement of these items are a cost of owning your home.

Myth: Flood coverage is included in water damage coverage.
Fact: There is no flood coverage under a Homeowner’s, Rented Dwelling, Tenant, Condominium, or Seasonal Dwelling policy.  Coverage is available for other types of damage caused by overland water and sewer back-up (some of which must be purchased separately).

Myth: A change in occupancy or use is unimportant.
Fact: A change in occupancy or use is EXTREMELY important.  Any “material change in risk” must be reported to your Broker, as it may impact the risk to the Insurer and the type of coverage that is available. For example, if you own your home and reside in it as your principal residence, and then move out and have it sitting vacant, the Insurer must be notified. Vacant dwellings are at higher risk for break and enters and arson losses, and there is additional information that the Insurer requires in order to ensure the appropriate precautions and procedures are being met.

Myth: The dwelling only needs to be insured for the amount of the mortgage.
Fact: If the dwelling is insured only for the amount of the mortgage, then in the event of a total loss, the mortgage company would be paid out and you would be left with no house and no money.  The dwelling should be insured for the Replacement Cost of the building.  As a broker, we have special software which calculates this value based on the specifics of your home. As well, ensuring your home is based on Replacement Cost provides you with Guaranteed Replacement Cost coverage, so in the event the cost to rebuild/replace is more than what the house was insured for, the Insurer will still cover it.

Myth: Tenant or Condo Insurance is unnecessary.
Fact: Tenant and Condo Insurance is extremely important and cover much more than just your personal property.  For a condo, even though the condo corporation provides coverage, there are many restrictions or assessments which may be applied to you as the unit owner.  Please see our Blog Post titled “Tenant Insurance – It’s more than just Property Coverage” for more information on what is covered under a Tenant policy.

Myth: Scheduled items are covered to full replacement value.
Fact: Scheduled items are covered up to the limit shown on the policy.  This value is based on the most recent appraisal of the item, and appraisals need to be updated regularly (the schedule of which depends on the type of item).  Please watch for our Blog Post titled “Special Limits on your Property Insurance Policy” next month for a list of items that are limited on your policy and can be scheduled separately.

Hopefully this post has helped to clarify some of the common Insurance Myths that exist. If you have any questions regarding the above information, or if you have any other myths that you would like demystified, please contact us and as always we would be more than happy to answer your questions!

Thank you,

The Costen & Associates Team