Putting Coverage in Force

Ark Agency Animal Insurance Services

Putting Coverage in Force

As we approach the important topic of How To Put Coverage In Force, it is helpful to understand some basic insurance features and terms.

A Discussion About - Common Insurance Terms

Insurance terms may seem like another language to the average person.  So first, let’s explain and define some common insurance terms you may hear or see around the time you put coverage in force. Your agent may use these terms when talking with you, in written communications and confirmations, or they may appear in your premium quotation.

“Carrier,” “Insurer,” and “Insurance Provider” are three common terms used interchangeably for “Insurance Company”

 “Coverage” is another term for “Insurance.” If your agent says, “You are covered for that,” he or she means you are “insured for that.”

As an applicant for insurance, you are a “Prospect” or “Prospective Insured,” or “the Applicant.” After purchasing a policy, you become “The Insured” or “Policyholder.” The first-named Policyholder stated on the first declarations page of the policy should be the most important and responsible entity with others being listed thereafter.  It is the first named Policyholder to whom notifications will be sent, with whom contacts will be made, and who will have the right to make changes to the policy. Be sure the policyholder name or names are stated correctly on the application for insurance as that is what the policy will be based upon.

Depending upon the state you live in and sometimes the type of insurance you are buying and from whom, an ”Insurance Agent” or “Agent” can also be called an “Insurance Broker” or “Broker.” In recent years insurance laws were changed to establish more uniformity in all states and the term agent has been more officially replaced with “Insurance Producer.” A Producer is an individual, but can also be an insurance agency, a corporation, association or partnership, that must be licensed in the states where they sell, solicit and service insurance policies.

The insurance world uses several terms that mean “to put coverage in force.” The term “in force” is another way of saying coverage is activated. Your agent may ask when you would like to “bind”, “effect,” “activate” or “ make coverage effective.” All would be a way of asking what date you want to start your insurance coverage.

The agent may also talk about “Effective Dates” or say that coverage is “Effective from [one date] to[ another date].” This refers to the period of time the policy is in force, and claims may be paid on occurrences or losses taking place between the dates.  Most policies start at 12:01 AM and end 12 months later at 12:00 PM, but this can vary if a short term policy is requested.  The effective date is also known as the “Inception Date” and the last date the coverage period is known as the policy “Expiration Date” or “Ex Date.”

Someone may tell you that a specific insurance company is “on risk.” That usually means that the company has activated or bound insurance coverage and is now insuring the risk (“is on it”). The term “risk” can be confusing because it can mean several things. The Prospective Insured requesting insurance is often called the “Risk,” which is a noun.  The terms High Risk or Low Risk are adjectives to describe the level of “riskiness” of the Risk’s exposures.  An “Exposure” is the activity you want to insure, and other conditions or features of your operations the Insurer would be insuring if they sold a policy to you.

Once activated, coverage may be said to be “bound.” To show that insurance is bound, the agent or company would issue a one-page “binder” form and give it to you [the Insured] shortly after coverage is activated. The binder is temporary proof of coverage that is given to you until the policy arrives.  You can use the binder to provide proof of insurance to your mortgagee, loss payees, additional insureds and others that may require such proof.   When your binder arrives, you should review it to be sure your name and address are correct, and that the limits, coverages, exposures, and effective dates are correct.  Keep your original binder on file and do not give it to anyone else.  Only provide others with a copy of the binder, or a “Certificate of Insurance,” and only when absolutely necessary.

Another term spoken of at time of binding is “Certificate of Insurance” or “Insurance Certificate.” Sometimes business associates and landowners will ask for proof that you have coverage in force.  You may be providing a service at their premises or at an event, such as riding lessons, horse demonstrations, pony rides or carriage rides, and the landowner or event sponsor wants to make sure you are insured for the activity.  The “Insurance Certificate” is a single page form you can request from your agent to prove insurance coverage exists.  The entity requesting “proof of insurance” is called the “Certificate Holder,” and the certificate will show the Certificate Holder’s name and address in a specific “entry box” on the form. You usually give the original to the Certificate Holder, but you should keep a copy of each in your insurance file. Certificates are often asked for on the “spur of the moment,” so are often faxed and e-mailed to those needing them.

Sometimes other businesses or individuals will request to be listed as an “Additional Insured” on your policy.  Insurers will often allow this provided the relationship between the Insured and Additional Insured warrants it.  One common liability relationship fitting this category is between a Landowner and the Renter or Lessee of the Landowner’s premises.  The Landowner is listed in the Lessee’s policy and insured by the policy, but only in the event that he or she is drawn into a claim related to the Lessee’s operations as stated in the insurance policy.  City, County,  State and National Parks will usually require to be listed as an Additional Insured on a vendor’s policy when the vendor occupies or uses the public land for business purposes, such as for trail rides, pony rides, or events.

A Mortgagee is a common Additional Insured on policies insuring real estate, and their interest is primarily in the financial loss to buildings they are financing.  Banks or other Finance Companies that loan money on items, such as machinery, is another type of Additional Insured example on property policies.  They are often referred to as a ”Loss Payee.” If you buy a horse on payments, the owner will often require that you purchase a life policy on the horse and list them as Loss Payee “as interest may appear at time of loss.” Such endorsements to a policy assure that each party will be paid for their portion of their investment should an insured loss occur.

Insurance Policy Structure

A few points about insurance policy terms and structure should be explained as we move toward how to put coverage in force.  It is important to understand that an “Insurance Policy” or “Policy” is a “Contract of Insurance.” It is a specific standardized contract between the Insurer and the Insured that determines the claims that the Insurer is legally required to pay.  In exchange for payment of premium the Insurer pays for damages to or on behalf of the Insured which are caused by perils covered or insured by the policy language.  Though the language is “boilerplate” and similar across a wide variety of different types of insurance policies, the policy is generally also “integrated.”  In other words, each policy contains common policy forms along with supplementary writings of endorsements and riders to clarify unique understandings concerning the contract.

Early insurance contracts tended to be custom-written or manuscript-ed on the basis of every single type of risk which were defined narrowly, and a separate premium was calculated and charged for each.  This structure proved unsustainable in the wake of the Second Industrial Revolution during which large conglomerates might have dozens of types of risks to insure against.

In the 1940’s the insurance industry changed to the current method by which covered risks are initially defined broadly in the Insuring Agreement on a general policy form, then narrowed down by subsequent exclusion clauses.  If an Insured wants coverage for a removed risk the Insurer may be willing to add it back in for additional premium by application of an endorsement that overrides the exclusion.

Today the most heavily custom-written forms on a policy are the Declarations Pages.

 A policy usually contains:

-  Declarations Pages;

-  Definitions;

-  Standardized general Insuring Agreement or Coverage Form – describes covered perils or risks assumed, or nature of coverage.  It summarizes the major promises of the Insurance Company, as well as stating what is covered;

-  Exclusions [Endorsements] - takes coverage away from the Insuring Agreement by describing property, perils, hazards or losses arising from specific causes which are not covered by the policy.  Such modifications may be applied because of the Insurer’s rule, or due to state or federal law;

-  Conditions – provisions for rules of conduct, duties and obligations required for coverage.  If policy conditions are not met, the Insurer can deny the claim.

-  Endorsements, also called Riders or Amendments, which “ride on” the Insuring Agreement offered by the Insurance Company.  Such forms are amended to the policy to add, modify or “over-ride” basic coverage more uniquely to the Policyholder’s circumstances or needs.  Endorsement forms may be added at the inception of a policy, or later in the policy term to correct, add or subtract coverage.

The Insurer agrees to go “on risk,” thereby providing a “Contract of Insurance” for the benefit of the “Named Insured” who is stated on the “Declarations Pages.” Also known as “Dec Pages,” these are usually the first two to five pages of the insurance policy having the term “Coverage Declarations” or “Policy Declarations” clearly stated on each page.  The Declarations Pages state the type of policy and the entire content of forms making up the contract at inception.  Dec Pages also state who is insured as the “Policy Holder,” the policy period (starting date and ending date), and the limits of insurance. The insured locations are stated, as are the exposures that are insured.

Through the contract wordings, the Insurer makes a “promise” of specified actions and payments to be made on the Insured’s behalf or to their benefit, if a future loss occurs during the policy period.  Such actions or payments would be based upon the type of policy, and for specific losses of the Insured as stated in and insured under the Insurance Policy.

Because of the contractual nature of an Insurance Policy, it is very important that you, The Insured, follow the requirements for Putting Your Insurance Coverage in Force.  The last thing you want is to believe you’ve done everything right, and then to learn later coverage was not put in force on the date you needed it because you did not take care of some critical detail. While the Insurer and your agent must abide by state insurance laws, each may be slightly different in what they require.

HOW THE AGENT ASSISTS THE INSURED:

The Insurer will dictate their requirements to activate coverage, but your agent provides certain policyholder services the Insurer does not take on.

Your agent will assist you with the following:

 1. The application process;

2. Submitting your application and other underwriting information to the Insurer;

3. Communicating between you and the Insurer;

4. Answering your insurance questions; explaining your policy to you;

5. Providing you with premium quotations;

6. Giving you instructions on how to put insurance coverage in force;

7. Accepting payment from you as intermediary between you and the Insurer; and

8. Making changes to the policy that you request.

GENERAL REQUIREMENTS FOR PUTTING COVERAGE IN FORCE

Now, let’s go back to Putting Coverage in Force.

According to the “Insurance Contract,” both the Insurer and the Insured agree to do certain things should an insured loss (claim) occur.  The Insurer provides the “promise” of coverage in exchange for the Insured’s payment of a specific amount of money (premium).  The Insured’s Premium Payment is their “Consideration” in the contract.  Therefore, it is critical that the Insured makes the agreed upon consideration payment required to bind coverage by the specified time to activate the insurance. The specified time is generally no later than the day coverage is to be put into force. However, some companies require payment to be made a day or two earlier.

Most insurance policies are written for a 12 month period. At time of expiration; the company may or may not agree to offer you an insurance contract for the 12 months that will follow.  Either way, you will receive a notice in advance of the “expiration date” to advise if the company is offering renewal.  If they do, “consideration” must again be paid by you according to the company’s requirement to renew and continue coverage.  The consideration payment is usually paid to the licensed agent servicing the policy who has “binding authority” with the insurance company.  The licensed agent submits payment to the insurance company.

Many Insureds think there is a “grace period” after policy expiration; let’s say a ten to 30 day window during which coverage will remain active if they eventually pay their premium during that window.  However, most policies do not carry a “grace period” clause. So payment must be made by a specific time to keep coverage continuously in force from one renewal date to the next.

To follow is the set of common requirements for putting coverage in force.

The prospective party who wishes to be insured contacts an agent to explain the type of insurance they want and on what “exposures,” such as real estate, personal or business property, livestock, liability, etc.  The agent seeks out one or more Insurance Companies that would be willing to “look at” the inquiry to determine if they want to insure it.  The Prospective Insured must complete an application for insurance and submit it to the agent, who will submit it to the insurance company for review. It is very important for the Insured to provide accurate and complete representations in the application process.   Incomplete applications will delay getting a quote.

Next is the “underwriting” stage. An insurance company “underwriter” will review the application and make a decision on The Risk’s insurability. The underwriter will likely have additional questions to get better clarification. The applicant should respond quickly with the information so the company is not delayed in releasing a quote. If insurable, it will be rated to establish a total premium dollar amount.  Insurers are not the same in how they apply rates and rules to arrive at this figure. Coverages, limits and deductibles may not be the same either, so it is important to compare quotations from competing Insurers and this is where your agent can help.

Underwriting usually takes from one day to two weeks to complete, depending upon complexity and how quickly the applicant can provide additional information.  After underwriting is completed, the company will either decline to provide insurance, or will agree to insure and provide a quotation on the price.  The company will provide your agent with a premium quote.  The agent will in turn provide a written premium quotation to the prospective Insured along with instructions on how to make the initial “consideration” payment to activate insurance.  It is important to make this payment according to the quotation instructions.  It is also wise to send a written request to your agent to “bind” coverage by fax or e-mail and to specify the future date coverage should go into effect.  Coverage cannot usually be “back-dated.” By law the agent is required to bind coverage with the Insurer and to put the transaction in written form within three working days of the effective date.

Follow-up or financed payments must also be made on time or coverage can be canceled for non-payment of premium.

1.  Call your agent to explain your insurance coverage requirements as completely as possible.  You should be provided with an application to complete and return to the agent. If you want a “ball park” idea of what the premium might be, you may ask what the minimum premium is for that class of coverage or an initial estimate or indication of what the premium may be.  Some Insurers will do this and some will not without seeing an application. If you get such a figure, remember that the actual premium can be quite different once the underwriters see your application.

 2. Fully complete the application for insurance, being sure your representations are true and accurate.  Your policy will be based upon your representations. Submit the application to your agent or to Ark Agency for review and underwriting.

 3.  There will likely be a few additional questions before an accurate quote can be released.  Quickly provide underwriters with any additional information they request.

 4.  If an offer of insurance is made, carefully review the quotation which should explain what would be insured, limits, and what is required to put coverage in force.  Carefully choose the limits you want to purchase and add or decline any optional coverages offered according to your needs.

5.  Several payment options are usually offered, but may vary according to the size and type of policy.  Financing may be available for some balance of the premium as is the option to pay by credit card.  There is always a specific down payment that must be paid to activate your insurance.

 6.  Request to bind coverage by sending a fax, e-mail, or letter to your agent and request the date you want coverage to be made effective, the limits you have chosen and your choice of payment method.  It is good to confirm the amount of deposit you must make.

7.  Sign your quotation forms and submit along with your payment.  You must make your payment for the premium no later than the effective date you want coverage activated.  This can be done by writing a check and putting it in an envelope that will be post-marked no later than the day you want coverage activated.  Also you can make arrangements to pay the premium by bank transfer or credit card.

 WHERE TO BEGIN

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*General information is provided on this insurance topic.  Acting on our coverage recommendations does not guarantee coverage if you have a loss or claim.