How Insurance Works

Most people are confused about insurance. And rightfully so. Even many people in the insurance industry are confused about some of the forces behind one of the largest industries that produces nothing. Yes, when you think about it insurance produces no actual product or service. Banks at least provide money for businesses and people to conduct business.

Taxes collected by local, state and federal agencies fund services such as roads, police, schools. fire protection, etc. Insurance companies collect money at each step of your life. Medical. Auto. Home. Life. Business. Yet you get nothing back unless you have a claim and then the true objective of insurance it to make you whole – return you to the state you started – as opposed to advance you. If you are in a car wreck – the insurance fixes your care. They don’t just buy you a newer one. And they will only fix your car if it is wrecked. Not just because you need a new car because it is old and wore out.

At some point, we shopped around for insurance – found it confusing and it appeared to be about the same in price and service so we figured insurance is insurance is insurance. It does not matter what company we get it from, it is basically the same. You have reached the conclusion that insurance is insurance is insurance. That is far from the truth. So you finally settle on a company or an agent that you like or that sounds good to you.

Several things can change affecting your insurance and your coverage – and some of them you may not even realize. Insurance companies work on the premise of spreading the risk among lots of players. The basis is that a lot of people each put a little money in a pool or pot that is then available for the expenses of the few that need it for an emergency. (Well, that was the the original idea anyway.) What happens behind the scenes, is that as companies notice higher then expected claims in one category, they adjust up the amount they want people to pay for that coverage. The Premiums.

One part of calculating insurance premiums that you have no control over is the insurance companies business model. Companies make behind the scenes changes that can dramatically alter your coverage. Company managers, in an attempt to increase a certain class of coverage (i.e. investment property, commercial property, etc) may sudden drop their premiums. This, of course, brings in more business. You may be one of the them that changes companies to enjoy the low prices. Overtime, the company is bringing in insufficient cash flow to cover claims and expenses. The company suddenly realizes this and starts raising prices. Your premiums might go up 4-5-6% every year (or even 6 months) several times in a row.

There are basically two types of agents: Independent Agents that represent numerous companies while Exclusive agents work for only one company. Examples of Exclusive agents would be State Farm, Farmers, Allstate, etc. Independent Agents have the option to write coverage or policies with any company that they have an agreement with. Not all agents represent all the companies and each agent will have their favorite company.

Your insurance agent is not always your friend, even is they are your friend. Agents are paid a commission on premiums. Different policies or policies types will pay different amounts. Different companies also pay different percentages. Because agents are primarily paid on commissions – the higher the price, the more money they make. Not that all agents are dishonest or will always place they income wants over what is best for you – you still should always place close attention to the details.

There is nothing wrong with getting regular insurance checkups and doing some comparison shopping. And it does not hurt to shop other agents. Unless you are in the insurance business you will never be an expert. t is possible that even if you are associated with insurance, that you will only know and understand a small part of the industry. Being an informed shopper is the only way to get them maximum value for your insurance money.

And one final point – Price is not always the most important part of the decision. You need the right coverage for your situation.

Commercial Truck Insurance – The Basics

Commercial Truck Insurance

So you are thinking about buying your own truck. If you though buying car insurance was confusing – get your head ache pills ready, you will need them after talking to a Truck Insurance agent.

The following is only a layman’s brief overview of the different Commercial Truck Insurance coverages that are used in the trucking and transportation industry.

Insurance is also one of the biggest fixed expenses for a trucking company – be it one truck or 1,000. And just like auto or home insurance should be reviewed to make sure it is still applicable – truck insurance is much more fickle because of changes in equipment, freight, drivers, radius, vehicle location, loss history, years in business, areas of operation and many other factors.

Truck Company Operations, 2nd Edition, by John Mittendorf

A few of the types of trucking-related insurance coverages:

  • Physical Damage is coverage for the truck and trailer. Factors on premium include the value of your equipment. It can be a percentage of the value. You are not required by law to carry this coverage but if you finance your vehicle the lien-holder will require it. It is important to insure your rig for the actual value. Do not over or under insurance the unit as the insurance company will pay on the actual value not more, but they may pay less if you did not purchase enough coverage.
  • Primary Liability insurance is required by federal and state regulations. Every truck owner or operator must carry liability insurance on every rig, even if leasing units. Liability insurance provides protection when a third party is injured in an accident. Owner-operators prior to leasing onto a company should make certain who will pay for their insurance – the company or from driver. Some companies pay for the coverage while others require the truck owner to reimburse them for the expenses.
  • General Liability/Umbrella insurance helps protect the business for property damage or bodily injury that might occur which does not involve a truck. Examples of this include slip and fall exposure at your place of business, advertising related exposures, and/or contractual exposures.
  • Bobtail or Non-Trucking Liability insurance pays for an accident when the driver/truck is not under dispatch. The coverage is sometimes referred to as deadhead coverage. Many trucking companies require truck owners to provide this basic insurance prior to signing the truck on to lease. The coverage minimums can be different from trucking company to trucking company and can also be affected by where the rig is based.
  • Non-Owned Trailer Liability protects the trailer you are pulling for someone else.
  • Non-Owned Trailer Physical Damage coverage insures the trailer you are pulling for someone else in the event of loss. $20,000 is somewhat standard for trailers.
  • Cargo Insurance covers damage/loss to freight in transit. Once you pull away from the dock, you are responsible for the fright you are hauling. Having proper insurance is the best way to protect yourself regardless of if you are driving for a company or own the truck. This insurance will have many conditions and may include exclusions such as unattended vehicle, maximum limitations on some commodities including garments, liquor, electronics and many others. It is very important to read the policy closely so you know what you are covered for and what you are not.
  • Terminal and/or Warehouse Coverage is used to protect freight that is on the dock at selected locations for short time frames. Although this is more a Terminal or Warehouse Operator issue, if your company unloads freight at locations other then at the consignee’s dock, you may need to review your needs to this coverage. protects freight located at specified terminals in the event of loss. Usually there are time limitations related to this coverage. Terminal coverage is often used for storage only short specific time frames, while Warehouse coverage provide for longer time storage. Policies may or may not include theft, fire, sprinkler damage or other losses depending on the value or the goods and the time frame of storage

After you have an idea of the insurance you think you might need, talk to several truck insurance brokers. This will provide you not only multiple prices/coverage options, but will also serve to educate you better on your insurance needs. While the internet can be a good source of information, nothing beats the knowledge of a trained and licensed local insurance professional. Coverages may very from state to state and several factors could affect your price.

You can talk to a call center where you have no idea how much experience the person has or a local agent you can meet face to face. It may cost a bit more with a local agent over calling some 24/7 call center, but with a local agent you can develop a relationship with. A local agent will be more likely to take the time to learn about you and recommend the best coverage options.


Disclaimer: This information is not intended to provide legal advice or recommendations. Insurance coverage requirements vary greatly between state to state and can be affected by many factors including type of cargo hauled and areas or regions of operation. Only a properly licensed and trained insurance agent can assist you in selecting the proper insurance with the proper coverages.