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When my editor asked me to write a “most important” blog about personal lines insurance, I was a bit overwhelmed. Lists, which I use for darned near everything, are incredibly handy. But a generalized insurance list? Where would I start? Should I write about auto insurance, homeowner insurance or umbrella insurance? And how in the world will I choose THE five most important questions you should ask when purchasing new personal lines insurance coverage?

Being a list user, I began to write down potential questions for this project. As I reached the end of page three I began to think, “this really is a futile task.” There are just so many valuable questions you can and should ask your insurance company and/or agent.

Perhaps the editor will allow me to change the title to “The 50 Most Important Questions To Ask Your Insurance Provider.” Not likely. So I’ve chosen five from my longer list. These are my choices for the first questions you should consider asking any prospective agent or company.

1. Do I qualify for Personal Umbrella Insurance?
   I believe every consumer should invest several hundred dollars to purchase a personal umbrella liability policy. I say this because the greatest insurance-related financial risk you face is not your vehicle being in an accident or even your home being damaged or destroyed. That big risk is liability exposure and most insurance buyers are woefully underinsured. Here are a few case studies.

A. You cause a car accident in which numerous people are seriously injured
B. You forget to shovel your walk and as a result your neighbor slips and breaks her back
C. Your ex-spouse sues you for defamation as a result of your nasty Facebook rants

If you are found to be negligent, then you will be liable for these situations and you will need to compensate the victims. For examples a. and b. above, it is very likely the liability limits provided in your Auto and Homeowner policies will be inadequate to cover all losses and resulting legal costs of these claims. Remember, even if you are not 100% negligent, you can still be sued for these and for many other reasons.

A personal umbrella policy provides additional protection above and beyond your auto and homeowner’s policies. Assuming your umbrella policy includes personal injury coverage, you’ll also have coverage for libel, slander, defamation, etc. However, as relates to c. above, be aware that many insurers are now excluding “electronic aggression” so be sure to ask your company or agent exactly what their umbrella polices cover and what is excluded.

2. How does your company use credit in setting my rates?
   The majority of insurance companies use a credit component in rating personal lines policies. This credit component is often called an insurance score or insurance bureau score (IBS). What is IBS and how is it different from my credit score?
   
   A credit score is designed to predict the likelihood of a credit delinquency. This is used to determine if you are eligible for a new credit card or what interest rate you’ll pay on a new car loan or home mortgage.
   
   IBS is a statistical model designed to predict the likelihood of future insurance claims. IBS uses information from your credit report including bankruptcies; numbers of late payments, total outstanding debts, the number of applications for credit (loans; credit cards, etc.), the number of your active credit accounts, etc.
   
   A poor IBS causes your insurance rates to be higher and a good IBS will make your insurance rates lower.
   
   However, it is important to note that various insurers weight IBS differently in rating, so if your premium seems unreasonable, getting quotes from several companies makes sense.
   
   
3. How will submitting a claim impact my renewal insurance premium?
   In the “old days” a not-at-fault auto accident or non-negligent claim generally didn’t affect your premium while most at-fault losses caused rates to rise.
   
   Today insurers are using extremely complex rating algorithms to determine rates for individual customers. As a result, almost all auto accidents, comprehensive losses and home claims can adversely affect your renewal premium – sometimes significantly.
   
   Take time to discuss various auto and homeowner loss scenarios so you understand exactly how a claim will affect your rates. As much as you don’t like hearing it, it might actually cost you less to simply pay for certain small non-liability losses yourself.
   
   
4. What reasons will your company use to cancel or non-renew policies?
   Accidents and claims will most definitely affect your insurance premiums and some losses will cause your policy to be non-renewed. However, there are reasons other than claims that may cause an insurer to cancel or non-renew your policies. Be sure to understand what those are before you sign up for a new policy.
   
   
5. How much insurance coverage do you suggest I purchase and why?
   A good insurance agent or company sales representative is worth his/her weight in gold, especially for individuals who don’t understand insurance coverages and limits. The very best agents take time to explain exactly why they are suggesting certain limits, deductibles and property valuations. These agents also explain the implications for choosing lower limits. Definitely don’t accept non-specific comments like, “everyone needs this amount of insurance” or “this is better than what you currently have.” Statements of this type have no value to your personal situation or financial needs and this is not how the best insurance agents provide risk management advice.
   
   

Insurance companies spend billions of dollars advertising to lure you to their company. As a result, it might be easy to think the only thing that matters is saving money on your insurance policies. However, the smartest insurance buyers are those who understand their options and who make informed decisions about the insurance company, policy limits, deductibles and coverages to be purchased.  So ask questions of your insurer and agent. It’s your financial security that’s at risk if you don’t.

Jonathan Farris is a retired insurance executive and president of InsuranceRescue Services, LLC, a property & casualty insurance consulting firm based in Madison, Wisconsin. Mr. Farris can be reached at jon@insurancerescue.com.