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What is an Auto Insurance Binder

Written by Todd Clay. Posted in Definitions Last Updated: 12/31/2017

An auto insurance binder is simply a letter promising you temporary car insurance, issued to you by an auto insurance company. A Binder letter is provided to you once you make an initial payment with your auto insurance application and serves as your de facto insurance coverage until an official auto insurance policy has been issued to you by your auto insurance company. When you apply for auto insurance, the policy must be underwritten, which means your application must be fully reviewed and the risk assessed for insuring you. Since this underwriting period can take up to 60 days, the Auto Insurance Binder is an important element of initial coverage. (110 words)

How to Get an Auto Insurance Binder

An Auto Insurance Binder letter is issued to the consumer once the application for coverage has been submitted and the estimated first month’s policy has been paid in full. It is becoming more common that an auto insurance company can issue a policy immediately, in which case a Binder isn’t necessary; however, if the policy is more complicated (eg: written for more than one auto, different types of autos or a fleet), the insurance company can take up to 60 days to issue a policy. In this case, the Auto Insurance Binder is very important because it guarantees coverage before the final policy is issued.

Auto Insurance Binder

Auto insurance binder serves as your de facto insurance coverage until you get the official auto insurance policy

Dangerous Distracted Driving

Written by Michele Wilmonen. Posted in Definitions Last Updated: 10/01/2011

Distracted driving leads to hundreds of thousands of car accidents each year and will also lead to higher insurance premiums for you.

Distracted Driving from Talking on a Cell Phone

Distracted driving is dangerous to you and everyone around you.

You only took your eyes off the road for a few seconds to see who texted you. Next thing you know, you are in a ditch on the side of the road.  What happened?

Taking your eyes or mind off of your driving is dangerous not only for you, but for everyone around you. Your car can’t control itself and when you stop controlling it to pay attention to something else you end up in an accident. Distracted driving accidents like this leads to thousands of fatalities a year. 

What is Distracted Driving?

Distracted driving is anytime your eyes, hands or mind wander away from concentrating on your driving. The current distracted driving culprit that is under heavy fire is cell phone use. Talking on your cell phone takes away two of the three things you need to driver safely (hands and mind) and if you are texting it takes away all three (hands, mind and eyes). However, cell phone use is not the only source of distracted driving; you can also be distracted by the following:

  • Falling asleep at the wheel
  • Daydreaming
  • Being emotional stressed out
  • Changing music
  • Talking to passengers
  • Grooming (putting on make-up, fixing your hair, flossing your teeth, etc.)
  • Eating or drinking
  • Reading (maps, directions, books, love letter, etc.)

Why is Distracted Driving Dangerous?

No matter how much you say you can drive and be distracted, the statistics point to the opposite. The flat out reality is that distracted driving causes accidents.

Just in 2009, there were 448,000 people injured in car accidents caused by distracted driving. In addition, there were 5,474 fatalities as well from distracted driving accidents (DISTRACTION.GOV).

Are you against drunk driving, but still feel that distracted driving is not all that bad? A study done by the University of Utah concluded that using a cell phone of any kind while driving will make you react as slow as a driver that has a BAC (blood alcohol limit) of .08. This is the threshold of being legally too drunk to drive, in all states.

Distracted Driving and Your Auto Insurance

Like we have been talking about, distracted driving causes accidents and in most cases they are “at-fault” accidents. At-fault accidents add surcharge points to the record of the distracted driver which leads to an increase in their insurance premium. Get enough of these points and your current insurance company will place you in high risk insurance (with extremely high premiums) or they will cancel your policy because you have become too big of a risk to cover.

Once you have found yourself cancelled for this reason, most other insurance companies will laugh you off of the phone when you call them to try and get new insurance. You will be left with no other option other than “forced placed” insurance.

This field of insurance is where the government “forces” insurance companies to insure drivers that they don’t want to. Accordingly you will be charge so much for this insurance that taking public transit starts to look better and better each month.

As a former underwriter for this field of insurance, it was nothing to see insurance premiums run around $5,000 for 6 months. The highest premium seen was $13,000 for just 6 months of coverage (that’s the price of a new car just for 1 year of insurance coverage).

You may think that I am going overboard here, but in reality whatever you are doing that causes your distracted driving marks you as a dangerous driver and is a habit. A habit is something you do over and over again and can take up to 21 days to stop. So do yourself a favor and start working on ending whatever is causing your distracted driving before you seriously hurt someone and you end up with insanely high auto insurance premiums.

Redlining: A Thin Line between Profits and Discrimination

Written by Todd Clay. Posted in Definitions Last Updated: 08/31/2011

Profitability not discrimination is the driving force behind increased premium rates in certain geographical areas.

Hand Drawing A Red Insurance Line

Drawing red lines on maps around minority neighborhoods that they would not insure is a dark part of insurance history.

Insurance redlining is the act of increasing insurance premiums based on the information that the client lives in a particular neighborhood. Insurance companies contend that they have to charge higher premiums for certain areas because the chance of a claim being filed for theft or other damage while a vehicle is in that area is higher.

Because most of these neighborhoods with the higher rates are home to a higher percentage of minorities, the insurance companies have to walk that thin line between making money and practicing discrimination.

Illegal form of discrimination

Redlining is a form of illegal discrimination that was used in the past by insurance companies and is still alleged to go on today. The word “redlining” came from red lines that were drawn on a map around neighborhoods (predominately minority populated) that were not eligible for home loans.

This “redlining” practice carried into the field of insurance on the back of the home loan decisions. Insurance companies would also outline neighborhoods on their maps that they refused to insure. These refusals were based primarily on the fact that that the neighborhoods were populated by minorities.

Insurance companies would even ask a person’s race on an application and would deny the application solely on the answer that was given.

Accusation of Redlining Today

Even though the government has passed laws that prohibit redlining, people charge that insurance companies are still participating in the act. While the insurance companies are no longer denying insurance solely based on race or location in a minority neighborhood, the accusations are targeted at the premiums being charged.

Insurance companies charge more for certain neighborhoods that statistically have a higher chance of an incident happening that would result in a reportable claim. Because these neighborhoods that are charged higher premiums are predominately minority neighborhoods, people claim the act of redlining is at work.

The Insurance Company’s Side

Insurance companies are not purposely trying to engage in illegal discrimination. However, insurance companies are in the business to make a profit and not to be a charity.

This means that their business focus has to be on bringing in more insurance premium than they pay out in claims each year. To do this they charge people more who have a higher risk of having a claim to offset the amount of the claim they are most likely going to see filed.

Unfortunately, just like drivers there are certain neighborhoods that have a higher risk of having a car stolen or being hit. If you live in one of these neighborhoods your insurance premium will be higher because of the higher chance of filing a claim.

If an insurance company does not charge enough premium according to the risk they are taking on when they insure someone, they will go out of business. Leaving everyone that has paid them premium without an insurance company to pay any claims that they may have in the future.

Risk Management in Commercial Auto Insurance

Written by W. Lane Startin. Posted in Definitions Last Updated: 08/22/2011

What risk management in auto insurance is, how it works pertaining to auto insurance, and basics of commercial auto insurance every risk manager should know.

The risk manager acts like an agent for the company rather than the insurance carrier.

Not all insurance jobs involve working as an agent or in a company home office. Larger companies may need insurance experts to help them navigate the ins and outs of insurance they face every day. Auto insurance being no exception.

These professionals are known as risk managers. One of their duties is to make sure the company is getting the most of its insurance premium as well as minimizing its exposure to adverse claim conditions.

Risk Management Defined

Risk management is a career path that can involve pretty much everything the financial sector has to offer; insurance is just a small part of it, and auto insurance just a small part of that.

Risk mangers can be generalists, working in a full range of financial fields such as financial law, accounting, compliance, contracts and other areas, or as specialists dealing strictly in areas such as insurance. It depends on the company and its needs.

Of course, risk management as it applies to auto insurance necessarily deals with commercial and fleet auto insurance. A risk manager dealing in auto insurance needs to be familiar with commercial auto insurance and how to best utilize it not only to prevent adverse insurance conditions such as claim denial, but also how to get the most out of the company’s insurance expenditures.

Knowing the Basics of Risk Management

A risk manager in essence can act as an insurance agent of sorts for his or her company rather than for an insurance carrier. Because of this, it is important for him or her to know the basics of commercial auto insurance and apply it to everyday company policy, even if the company’s “fleet” consists of only one vehicle.

Because commercial insurance requires a company to keep a current list of both vehicles and drivers on file with the insurance carrier at all times, it is of paramount importance for the risk manager to keep on top of both changing inventory and personnel and report it to the insurance company in a timely manner. This is inclusive of trailers and any equipment covered on inland marine policies. The risk manager should keep a file of VINs, serial numbers and drivers licenses as well.

The risk manager should know the insurance company rules regarding drivers, especially age restrictions. Most commercial policies require drivers to be between the ages of 25 and 74 with no exceptions. Drivers should also be properly licensed for the vehicles they drive.

Truck Insurance Considerations

If the company employs large trucks over 26,000 GVW, a different set of rules come into play, especially if their trucks travel out of state. The risk manager will want to ensure that all vehicles have valid and proper interstate trip permits and that all drivers have appropriate CDL licenses.

He or she will also want to make sure that these vehicles are covered appropriately with coverages such as bobtail coverage, or coverage for big rigs which are not pulling trailers, which is often excluded in standard truck policies.

What is Insurable Interest for Cars?

Written by W. Lane Startin. Posted in Definitions, Research Last Updated: 08/19/2011

The definition of insurable interest, examples of insurable interest in auto insurance, and how it’s applied by different insurance companies.

Nope. No insurable interest here.

Without something to insure, insurance is pointless. That should be a no-brainer. So what exactly does one insure? It’s not as dense a question as it seems.

You can’t insure just anything and expect to recover a claim from it. This is why no auto insurance company will cover the junker rusting away in your front yard which doesn’t even run.

The insured must also have a tangible interest in the entity insured. This is why you can insure your own car and place your spouse and children on the policy as drivers, but not the guy across the street just because you want to.

In order to properly indemnify the insured in a claim situation, an insurance company must make sure it is insuring something of value such as a car, a house or a life, the loss of which would cause financial hardship. This is the concept of insurable interest.

You must also own the item in question to have insurable interest. For example. If a storm knocks over a tree which damages both your car and your neighbor’s, you would have insurable interest in your vehicle but not your neighbor’s.

Examples of Insurable Interest

In auto insurance, the most obvious example of insurable interest is the auto itself on a full coverage policy. As your auto has intrinsic value, it can be insured for up to that value as determined by the insurance company. This is usually determined by its “blue book” value at the time of loss. Ask your insurance agent to see if specific losses are covered by “replacement cost” or “actual cash value” criteria.

Insurable interest can also be represented by liability. Say you’re in an automobile accident and found at fault. The insurable interest in this case is the damage to the other vehicle up to its value and the liability costs incurred for any bodily injury up to the pre-determined limit in your policy. Bodily injury coverages incurred in your vehicle such as medical payments and PIP work in a similar manner.

Insurable interest also applies to aftermarket auto accessories on inland marine policies. If your car stereo is stolen, the stereo has insurable interest and you can be indemnified for it per the terms of your policy.

Insurable Interest by Company

Unlike many other concepts in insurance, insurable interest is pretty much universal across companies. Differences in underwriting requirements, however, may make it look different as one company may take one vehicle while another won’t. Even so, the concept remains the same. Remember, insurable interest is a key concept in auto insurance. No claim can go forward without it.

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