Earth Day: How Insurance Coverages Respond to Greening of America

April 22, 2010

Green energy, sustainable food, recycling, hybrid vehicles – environmental awareness is impacting the lives of Americans everyday. Many consumers are choosing to make both small and large changes to reduce their carbon footprint.

Today, the 40th anniversary of Earth Day, the National Association of Insurance Commissioners (NAIC) is suggesting that consumers consider how the changes they are making might affect their insurance needs and coverages, especially their auto and homeowners policies.

AUTO INSURANCE

Driving Less, Saving More

Many insurance companies use the number of miles driven as a factor when figuring auto insurance premiums. So, those who are considering ways to shrink their carbon footprint by driving less might also find they can lower their auto insurance premium.

Here are a few insurance implications to some of the more often used means to achieve “green” driving.

Buying a Hybrid Vehicle

The standard auto insurance policy is the same for a hybrid as it is for a standard vehicle.

Trading up a used car for a new car is generally going to increase premium, however, part of that increase might be offset by a discount many insurance companies now offer for hybrid car ownership.

Renting a Hybrid Car on Vacation

Those with an auto insurance policy might find it will extend to the rental car, so they should check their policy before buying more coverage at the rental counter.

Coverage for a hybrid should be the same as for a standard vehicle, but it never hurts to check. Renters should ask the car rental agent if the accident coverage they offer is specifically for the hybrid, and then call their auto insurance agent or company and make sure their own policy doesn’t have limitations for hybrids.

Pay-As-You-Drive or Pay-As-You-Go Auto Insurance

A newer option for car owners in select states is pay-as-you-drive auto insurance. These polices provide discounts based on mileage. These types of programs are not available from all companies, or in all states. These programs are not limited to hybrid car owners.

The insurance company uses a data logging device (DLD), which is plugged into an onboard diagnostic port in a car called an OBDII. This captures the number of miles driven, the time of day they are driven, or some combination of those factors and then uses these to calculate the premium.

Park and Ride

Those living in a large urban area or who travel great distances from home to work may be considering “park and ride” – where residents drive their car to a local lot and leave it parked during the day, taking public transportation for the majority of the commute. This could have a positive effect on premium since an auto insurance premium is based partially on the number of miles driven. If the number of miles driven is cut dramatically in a year, some insurance companies may be willing to re-rate at the lower mileage.

Commuters should make sure their auto policy is going to cover their car for any damage that happens while it’s parked in the lot and make sure their homeowners or renter’s policy covers belongings left in the car if it was broken into while they’re at work.

Car Shares

City dwellers who have given up a car all together may be considering a car share plan for those times when they really need their own wheels to get around. Car shares like City Car Share in California or ZipCar offer their members the flexibility of picking up a car for a couple hours or a full day.

Insurance coverage is generally included in the cost of using one of these car shares. In most cases, this will include at least the state minimum liability and property damage for the car. But members should be prepared to pay a fee if they’re in an accident and the car is damaged. The details of this coverage may change from state to state.

Drivers who don’t own a car, but drive occasionally may be considering a non-owners liability insurance policy. This type of policy covers the named policyholder when driving, whether it is a friend’s car or a car share. Typical policies will cover some or all of these: liability (financial responsibility when the driver hurts someone else), Uninsured/Underinsured Motorist Protection, Personal Injury Protection (PIP) and Medical Payments coverage. Non-owners liability insurance generally does not cover damage to the car.

HOMEOWNERS INSURANCE

Homeowners who are striving to make their homes meet the U.S. Green Building Council (USGBC) or LEED certification should be checking their insurance policy in the planning process to make sure they’re covered. A standard homeowners policy might not cover the costs of replacing upgrades. They should confirm that their homeowner’s policy specifically provides replacement to that same environmental level so that they won’t have to pay out-of-pocket costs to reach those same standards.

Green Homeowners Insurance

A green homeowners policy covers either the actual cash value or replacement costs of rebuilding a certified green home or upgrading a standard home to a green standard.

Some policies will cover home repairs using green materials, but will have a cap on covered costs. Others may exclude coverage of items such as the fees charged by inspectors for having a home certified or re-certified as green. In the event of a total loss, the coverage may also pay for environmentally sensitive demolition and debris removal.

The terms and discounts offered on green policies differ from company to company. Green policies are not available in all states.

Solar Panels and Wind Turbines

Some insurance companies are now extending homeowners coverage to these green renovations, but not all companies offer the coverage. In some cases, the addition of solar panels or a wind turbine can significantly affect the cost of an insurance policy.

Also those who have solar panels or a wind turbine and are considering selling their excess energy may have specific insurance obligations before setting up the transfer.

Source: National Association of Insurance Commissioners

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