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California CA, Insurance FAQ
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What is auto insurance?
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Auto insurance protects
you against financial loss if you have an accident. It is a contract between you
and the insurance company. You agree to pay the premium and the insurance company
agrees to pay your losses as defined in your policy.
Auto insurance provides property, liability and medical coverage:
- Property coverage pays for damage
to or theft of your car.
- Liability coverage pays for
your legal responsibility to others for bodily injury or property damage.
- Medical coverage pays for the
cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses.
An auto insurance policy is comprised of six different kinds of coverage. Most states
require you to buy some, but not all, of these coverages. If you're financing a
car, your lender may also have requirements.
Most auto policies are for six months to a year. Your insurance company should notify
you by mail when it's time to renew the policy and to pay your premium.
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What is in a basic auto policy in California?
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Your auto policy may include six coverages. Each coverage is priced separately.
1. Bodily Injury Liability
This coverage applies to injuries you, the designated driver or policyholder cause
to someone else. You and family members listed on the policy are also covered when
driving someone else's car with their permission.
It's very important to have enough liability insurance, because if you are involved
in a serious accident, you may be sued for a large sum of money. Definitely consider
buying more than the state-required minimum to protect assets such as your home
and savings.
2. Medical Payments or Personal Injury Protection (PIP)
This coverage pays for the treatment of injuries to the driver and passengers of
the policyholder's car. At its broadest, PIP can cover medical payments, lost wages
and the cost of replacing services normally performed by someone injured in an auto
accident. It may also cover funeral costs.
3. Property Damage Liability
This coverage pays for damage you (or someone driving the car with your permission)
may cause to someone else's property. Usually, this means damage to someone else's
car, but it also includes damage to lamp posts, telephone poles, fences, buildings
or other structures your car hit.
4. Collision
This coverage pays for damage to your car resulting from a collision with another
car, object or as a result of flipping over. It also covers damage caused by potholes.
Collision coverage is generally sold with a deductible of $250 to $1,000-the higher
your deductible, the lower your premium. Even if you are at fault for the accident,
your collision coverage will reimburse you for the costs of repairing your car,
minus the deductible. If you're not at fault, your insurance company may try to
recover the amount they paid you from the other driver's insurance company. If they
are successful, you'll also be reimbursed for the deductible.
5. Comprehensive
This coverage reimburses you for loss due to theft or damage caused by something
other than a collision with another car or object, such as fire, falling objects,
missiles, explosion, earthquake, windstorm, hail, flood, vandalism, riot, or contact
with animals such as birds or deer.
Comprehensive insurance is usually sold with a $100 to $300 deductible, though you
may want to opt for a higher deductible as a way of lowering your premium.
Comprehensive insurance will also reimburse you if your windshield is cracked or
shattered. Some companies offer glass coverage with or without a deductible.
States do not require that you purchase collision or comprehensive coverage, but
if you have a car loan, your lender may insist you carry it until your loan is paid
off.
6. Uninsured and Underinsured Motorist Coverage
This coverage will reimburse you, a member of your family, or a designated driver
if one of you is hit by an uninsured or hit-and-run driver.
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Can I drive legally without insurance in California?
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NO! Almost every state requires you to have auto liability insurance.
All states also have financial responsibility laws. This means that even in a state
that does not require liability insurance, you need to have sufficient assets to
pay claims if you cause an accident. If you don't have enough assets, you must purchase
at least the state minimum amount of insurance. But insurance exists to protect
your assets. Trying to see how little you can get by with can be very shortsighted
and dangerous.
If you've financed your car, your lender may require comprehensive
and collision insurance as part of the loan agreement.
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What if I lease a car in California?
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If you lease a car,
you still need to buy your own auto insurance policy. The auto dealer or bank that
is financing the car will require you to buy collision and comprehensive coverage.
You'll need to buy these coverages in addition to the others that may be mandatory
in your state, such as auto liability insurance.
If you've financed your car, your lender may require comprehensive
and collision insurance as part of the loan agreement.
- Collision covers the
damage to the car from an accident with another automobile or object.
- Comprehensive covers
a loss that is caused by something other than a collision with another car or object,
such as a fire or theft or collision with a deer.
The leasing company may also require "gap" insurance. This refers to the
fact that if you have an accident and your leased car is damaged beyond repair or
"totaled," there's likely to be a difference between the amount that you
still owe the auto dealer and the check you'll get from your insurance company.
That's because the insurance company's check is based on the car's actual cash value
which takes into account depreciation. The difference between the two amounts is
known as the "GAP."
On a leased car, the cost of gap insurance is generally rolled into the lease payments.
You don't actually buy a gap policy. Generally, the auto dealer buys a master policy
from an insurance company to cover all the cars it leases and charges you for a
"gap waiver." This means that if your leased car is totaled, you won't
have to pay the dealer the gap amount. Check with the auto dealer when leasing your
car.
If you have an auto loan rather than a lease, you may want to buy gap insurance
to protect yourself from having to come up with the gap amount if your car is totaled
before you've finished paying for it. Ask your insurance agent about gap insurance
or search the Internet. Gap insurance may not be available in some states.
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Do I need insurance to rent a car in California?
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When renting a car, you need insurance. If you have adequate insurance on your own
car, including collision and comprehensive, this may be enough.
Before you rent a car:
1. Contact your insurance company.
Find out how much coverage you have on your own car. In most cases, the coverage
and deductibles you have on your personal auto policy would apply to a rental car,
providing it's used for pleasure and not business. If you don't have comprehensive
and collision coverage on your own car, you will not be covered if your rental car
is stolen or if it is damaged in an accident.
2. Call your credit card company.
Find out what insurance your card provides. Levels of coverage vary.
If you don't have auto insurance, you will need to buy coverage at the car rental
counter. The following coverages are available to you at the rental car counter:
1. Collision Damage Waiver (CDW).
Sometimes called a Loss Damage Waiver (LDW), this coverage relieves you of financial
responsibility if your rental car is damaged or stolen. The CDW may be void, however,
if you cause an accident by speeding, driving on unpaved roads or driving while
intoxicated. This coverage generally costs between $9 and $19 a day. If you have
comprehensive and collision on your own car, you may not need to purchase this coverage.
2. Liability Insurance.
This provides excess liability coverage of up to $1 million for the time you rent
a car. Rental companies are required by law to provide the minimum level of liability
insurance required by your state. Generally, this does not offer enough protection
in a serious accident. If you have adequate liability coverage on your car or an
umbrella policy on your home/auto, you may consider forgoing this additional insurance.
It generally costs about $7 to $9 a day. If you don't own a car, and rent cars often,
consider purchasing a non-owner liability policy. This costs approximately $200
- $300 per year. Frequent car renters sometimes find this more cost-effective than
constantly paying for the extra liability coverage.
3. Personal Accident Insurance.
This provides coverage to you and your passengers for medical/ambulance bills. This
type of insurance, usually costs about $3 per day, but may be unnecessary if you
are covered by health insurance or have adequate medical coverage under your auto
policy.
4. Personal Effects Coverage.
This provides coverage for the theft of personal items in your car. However, if
you have homeowners or renters insurance, you may be covered for items stolen from
the car, minus your deductible. You need to have receipts or other proof of ownership.
This type of insurance usually costs about $1.25 per day. Some rental car companies
combine personal accident and personal effects coverage together as one type of
insurance, while others sell it individually.
The cost of insurance at the rental car counter will vary depending on the rental
car company, state, and location of the dealer and the type of car you rent.
Some rental car companies may check your credit and driving history and may deny
coverage. Check with the rental car company to find out its policy.
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What's the difference between cancellation and non-renewal?
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There is a big difference between when an insurance company cancels a policy and
when it chooses not to renew it. Insurance companies cannot cancel a policy that
has been in force for more than 60 days except:
- If you fail to pay the premium.
- You have committed fraud or made serious misrepresentations on your application.
- § Your driver's license has been revoked or suspended.
Non-renewal is a different matter. Either you or your insurance company can decide
not to renew the policy when it expires. Depending on the state you live in, your
insurance company must give you a certain number of days notice and explain the
reason for non-renewal before it drops your policy. If you think the reason is unfair
or want a further explanation, call the insurance company's consumer affairs division.
If you don't get an explanation, call your state insurance department.
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What is homeowners insurance in California?
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Homeowners insurance provides financial protection against disasters. A standard
policy insures the home itself and the things you keep in it.
Homeowners insurance is a package policy. This means that it covers both damage
to your property and your liability or legal responsibility for any injuries and
property damage you or members of your family cause to other people. This includes
damage caused by household pets.
Damage caused by most disasters is covered but there are exceptions. The most significant
are damage caused by floods, earthquakes and poor maintenance. You must buy two
separate policies for flood and earthquake coverage. Maintenance-related problems
are the homeowners' responsibility.
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What is in a standard homeowners insurance policy in California?
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A standard homeowners insurance policy includes four essential types of coverage.
They include:
1. Coverage for the structure of your home.
This part of your policy pays to repair or rebuild your home if it is damaged or
destroyed by fire, hurricane, hail, lightning or other disaster listed in your policy.
It will not pay for damage caused by a flood, earthquake or routine wear and tear.
When purchasing coverage for the structure of your home, it is important to buy
enough to rebuild your home.
Most standard policies also cover structures that are detached from your home such
as a garage, tool shed or gazebo. Generally, these structures are covered for about
10% of the amount of insurance you have on the structure of your home. If you need
more coverage, talk to your insurance agent about purchasing more insurance.
2. Coverage for your personal belongings.
Your furniture, clothes, sports equipment and other personal items are covered if
they are stolen or destroyed by fire, hurricane or other insured disaster. Most
companies provide coverage for 50% to 70% of the amount of insurance you have on
the structure of your home. So if you have $100,000 worth of insurance on the structure
of your home, you would have between $50,000 to $70,000 worth of coverage for your
belongings. The best way to determine if this is enough coverage is to conduct a
home inventory.
This part of your policy includes off-premises coverage. This means that your belongings
are covered anywhere in the world, unless you have decided against off-premises
coverage. Some companies limit the amount to 10% of the amount of insurance you
have for your possessions. You have up to $500 of coverage for unauthorized use
of your credit cards.
Expensive items like jewelry, furs and silverware are covered, but there are usually
dollar limits if they are stolen. Generally, you are covered for between $1,000
to $2,000 for all of your jewelry and furs. To insure these items to their full
value, purchase a special personal property endorsement or floater and insure the
item for it's appraised value. Coverage includes “accidental disappearance,
” meaning coverage if you simply lose that item. And there is no deductible.
Trees, plants and shrubs are also covered under standard homeowners insurance. Generally
you are covered for 5% of the insurance on the house –- up to about $500 per
item. Perils covered are theft, fire, lightning, explosion, vandalism, riot and
even falling aircraft. They are not covered for damage by wind or disease.
3. Liability protection.
This covers you against lawsuits for bodily injury or property damage that you or
family members cause to other people. It also pays for damage caused by your pets.
So, if your son, daughter or dog accidentally ruins your neighbor’s expensive
rug, you are covered. However, if they destroy your rug, you are not covered.
The liability portion of your policy pays for both the cost of defending you in
court and any court awards -- up to the limit of your policy. You are also covered
not just in your home, but anywhere in the world.
Liability limits generally start at about $100,000. However, experts recommend that
you purchase at least $300,000 worth of protection. Some people feel more comfortable
with even more coverage. You can purchase an umbrella or excess liability policy
which provides broader coverage, including claims against you for libel and slander,
as well as higher liability limits. Generally, umbrella policies cost between $200
to $350 for $1 million of additional liability protection.
Your policy also provides no-fault medical coverage. In the event a friend or neighbor
is injured in your home, he or she can simply submit medical bills to your insurance
company. This way, expenses are paid without their filing a liability claim against
you. You can generally get $1,000 to $5,000 worth of this coverage. It does not,
however, pay the medical bills for your family or your pet.
4. Additional living expenses in the event you are temporarily
unable to live in your home because of a fire or other insured disaster.
This pays the additional costs of living away from home if you can't live there
due to damage from a fire, storm or other insured disaster. It covers hotel bills,
restaurant meals and other living expenses incurred while your home is being rebuilt.
Coverage for additional living expenses differs from company to company. Many policies
provide coverage for about 20% of the insurance on your house. You can increase
this coverage, however, for an additional premium. Some companies sell a policy
that provides an unlimited amount of loss-of-use coverage -- for a limited amount
of time.
If you rent out part of your house, this coverage will also reimburse you for the
rent that you would have collected from your tenant if your home had not been destroyed.
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Are there different types of homeowners policies?
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Yes. A person who owns his or her home would have a different policy from someone
who rents. Policies also differ on the amount of insurance coverage provided.
The different types of homeowners policies are fairly standard throughout the country.
However, individual states and companies may offer policies that are slightly different
or go by other names such as “standard” or “deluxe”. The
one exception is the state of Texas, where policies vary somewhat from policies
in other states. The Texas Insurance Department
( http://www.tdi.state.tx.us )
has detailed information on its various homeowners policies. You should consult
with a professional insurance consultant to determine which coverages best suit
your needs
If you own your home
If you own the home you live in, you have several policies to choose from. The most
popular policy is the HO-3, which provides the broadest coverage. Owners of multi-family
homes generally purchase an HO-3 with an endorsement to cover the risks associated
with having renters live in their homes.
- HO-1: Limited coverage policy
This “bare bones” policy covers you against the first 10 disasters.
It's no longer available in most states.
- HO-2: Basic policy
It provides protection against all 16 disasters. There is a version of HO-2 designed
for mobile homes.
- HO-3: The most popular policy
This “special” policy protects your home from all perils except those
specifically excluded.
- HO-8: Older home
Designed for older homes, this policy usually reimburses you for damage on an actual
cash value basis which means replacement cost less depreciation. Full replacement
cost policies may not be available for some older homes.
If you rent your home
- HO4-Renter
Created specifically for those who rent the home they live in, this policy protects
your possessions and any parts of the apartment that you own, such as new kitchen
cabinets you install, against all 16 disasters.
If you own a co-op or a condo
H0-6: condo/co-op A policy for those who own a condo or
co-op, it provides coverage for your belongings and the structural parts of the
building that you own. It protects you against all 16 disasters.
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Can I own a home without homeowners insurance in California?
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Unlike driving a car, you can legally own a home without homeowners insurance. But,
if you have bought your home and financed the purchase with a mortgage, your lender
will most likely require you to get homeowners insurance coverage. That’s
because lenders need to protect their investment in your home in case your house
burns down or is badly damaged by a storm, tornado or other disaster. If you live
in an area likely to flood, the bank will also require you to purchase flood insurance.
Some financial institutions may also require earthquake coverage if you live in
a region vulnerable to earthquakes. If you buy a co-op or condominium, your board
will probably require you to buy homeowners insurance.
After your mortgage is paid off, no one will force you to buy homeowners insurance.
But it doesn’t make sense to cancel your policy and risk losing what you’ve
invested in your home.
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How and why it is important to take a home inventory!
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Would you be able
to remember all the possessions you’ve accumulated over the years if they
were destroyed by a fire? Having an up-to-date home inventory will help you get
your insurance claim settled faster, verify losses for your income tax return and
help you purchase the correct amount of insurance.
Start by making a list of your possessions, describing each item and noting where
you bought it and its make and model. Clip to your list any sales receipts, purchase
contracts, and appraisals you have. For clothing, count the items you own by category
-- pants, coats, shoes, for example –- making notes about those that are especially
valuable. For major appliance and electronic equipment, record their serial numbers
usually found on the back or bottom.
- Don't be put off!
If you are just setting up a household, starting an inventory list can be relatively
simple. If you’ve been living in the same house for many years, however, the
task of creating a list can be daunting. Still, it’s better to have an incomplete
inventory than nothing at all. Start with recent purchases and then try to remember
what you can about older possessions.
- Higher Value Items!
Valuable items like jewelry, art work and collectibles may have increased in value
since you received them. Check with your agent to make sure that you have adequate
insurance for these items. They may need to be insured separately.
- Take Pictures!
Besides the list, you can take pictures of rooms and important individual items.
On the back of the photos, note what is shown and where you bought it or the make.
Don’t forget things that are in closets or drawers.
- Use a Video Recorder!
Walk through your house or apartment videotaping and describing the contents. Or
do the same thing using a tape recorder.
- Using your computer!
Use your PC to make your inventory list. Personal finance software packages often
include a homeowners room-by-room inventory program.
Keep Your list, video and photos safe!
Regardless of how you do it (written list, floppy disk, photos, videotape or audio
tape), keep your inventory along with receipts in your safe deposit box or at a
friend's or relative's home. That way you’ll be sure to have something to
give your insurance representative if your home is damaged. When you make a significant
purchase, add the information to your inventory while the details are fresh in your
mind.
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What does a business owners policy cover?
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Insurance companies selling business insurance offer policies that combine protection
from all major property and liability risks in one package. (They also sell coverages
separately.) One package purchased by small and mid-sized businesses is the businessowners
policy (BOP). Package policies are created for businesses that generally face the
same kind and degree of risk. Larger companies might purchase a commercial package
policy or customize their policies to meet the special risks they face.
BOPs include:
1. Property insurance for buildings and contents owned by the
company -- there are two different forms, standard and special, which provides more
comprehensive coverage.
2. Business interruption insurance, which covers the loss of
income resulting from a fire or other catastrophe that disrupts the operation of
the business. It can also include the extra expense of operating out of a temporary
location.
3. Liability protection, which covers your company's legal responsibility
for the harm it may cause to others. This harm is a result of things that you and
your employees do or fail to do in your business operations that may cause bodily
injury or property damage due to defective products, faulty installations and errors
in services provided.
BOPs do NOT cover professional liability, auto insurance, worker’s compensation
or health and disability insurance. You'll need separate insurance policies to cover
professional services, vehicles and your employees.
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Do I need professional liability insurance in California?
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Professionals that operate their own businesses need professional liability insurance
in addition to an in-home business or businessowners policy. This protects them
against financial losses from lawsuits filed against them by their clients.
Professionals are expected to have extensive technical knowledge or training in
their particular area of expertise. They are also expected to perform the services
for which they were hired, according to the standards of conduct in their profession.
If they fail to use the degree of skill expected of them, they can be held responsible
in a court of law for any harm they cause to another person or business. When liability
is limited to acts of negligence, professional liability insurance may be called
"errors and omissions" liability.
Professional liability insurance is a specialty coverage. Professional liability
coverage is not provided under homeowners endorsements, in-home business policies
or businessowners policies (BOPs).
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Do I need a commercial auto insurance policy in California?
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As a businessowner, you need the same kinds of insurance coverages for the car you
use in your business as you do for a car used for personal travel -- liability,
collision and comprehensive, medical payments (known as personal injury protection
in some states) and coverage for uninsured motorists. In fact, many business people
use the same vehicle for both business and pleasure. If the vehicle is owned by
the business, make sure the name of the business appears on the policy as the "principal
insured" rather than your name. This will avoid possible confusion in the event
that you need to file a claim or a claim is filed against you.
Whether you need to buy a business auto insurance policy will depend on the kind
of driving you do. A good insurance agent will ask you many details about how you
use vehicles in your business, who will be driving them and whether employees, if
you have them, are likely to be driving their own cars for your business.
While the major coverages are the same, a business auto policy differs from a personal
auto policy in many technical respects. Ask your insurance agent to explain all
the differences and options.
If you have a personal umbrella liability policy, there's generally an exclusion
for business-related liability. Make sure you have sufficient auto liability coverage.
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Do I need business interruption insurance in California?
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Business interruption insurance can be as vital to your survival as a business as
fire insurance. Most people would never consider opening a business without buying
insurance to cover damage due to fire and windstorms. But too many small businessowners
fail to think about how they would manage if a fire or other disaster damaged their
business premises so that they were temporarily unusable. Business interruption
coverage is not sold separately. It is added to a property insurance policy or included
in a package policy.
A business that has to close down completely while the premises are being repaired
may lose out to competitors. A quick resumption of business after a disaster is
essential.
1. Business interruption insurance compensates you for lost income
if your company has to vacate the premises due to disaster-related damage that is
covered under your property insurance policy, such as a fire. Business interruption
insurance covers the profits you would have earned, based on your financial records,
had the disaster not occurred. The policy also covers operating expenses, like electricity,
that continue even though business activities have come to a temporary halt.
2. Make sure the policy limits are sufficient to cover your company
for more than a few days. After a major disaster, it can take more time than many
people anticipate to get the business back on track. There is generally a 48-hour
waiting period before business interruption coverage kicks in.
3. The price of the policy is related to the risk of a fire or
other disaster damaging your premises. All other things being equal, the price would
probably be higher for a restaurant than a real estate agency, for example, because
of the greater risk of fire. Also, a real estate agency can more easily operate
out of another location.
Extra Expense Insurance
Extra expense insurance reimburses your company for a reasonable sum of money that
it spends, over and above normal operating expenses, to avoid having to shut down
during the restoration period. Usually, extra expenses will be paid if they help
to decrease business interruption costs. In some instances, extra expense insurance
alone may provide sufficient coverage, without the purchase of business interruption
insurance.
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How do I insure my home business in California?
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There is a big difference between when an insurance company cancels a policy and
when it chooses not to renew it. Insurance companies cannot cancel a policy that
has been in force for more than 60 days except:
- If you fail to pay the premium.
- You have committed fraud or made serious misrepresentations on your application.
- § Your driver's license has been revoked or suspended.
Non-renewal is a different matter. Either you or your insurance company can decide
not to renew the policy when it expires. Depending on the state you live in, your
insurance company must give you a certain number of days notice and explain the
reason for non-renewal before it drops your policy. If you think the reason is unfair
or want a further explanation, call the insurance company's consumer affairs division.
If you don't get an explanation, call your state insurance department.
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