INSURANCE BOOT CAMP
YOU DON’T KNOW WHAT YOU DON’T KNOW!
How to Protect Your Owner-Occupied Home with the Right Insurance Coverage to Protect Your Assets & Financial Future
As a prudent part of your protection and to protect your investment in your home, there are certain kinds of insurance that you will want to buy. Often, the requirements set by the mortgage company are all that people purchase. Yet, that can be like buying a car without brakes: You may be headed for a crash!
The following is a compilation of the most frequently purchased kinds of homeowner’s insurance coverages along with a few tips along the way on how to improve the coverage for not all that much additional cost. And, with the exception of Flood and Earthquake Insurance – which nearly always are separate contracts, most of the coverage you need (or want) is purchased as a part of the homeowner’s contract, not requiring a separate policy.
“Hazard Insurance”, as required by lending institutions, is essentially an insurance contract that covers the physical structure for most types of damage. Always purchase, when possible, the Special Form contracts. Special Form covers all damage to your home except for what is specifically excluded or limited as found in the policy’s contract. Coverage exclusions include (but are not limited to) damage caused by an Earthquake, a Flood, occasionally Theft of Building items, Wear & Tear, Vacancy, Mold and other Bio Agents, animals (including rodents, birds, etc.), War, Illegal, and Intentional acts.
In general, the Hazard Insurance is written to incorporate enough insurance to either replace the structure following a devastating fire or to pay off the Lender’s note. We recommend that you add to your policy some extra protection, over and above the policy limits, called Extended Replacement Cost.
Extended Replacement Cost provides a hedge against not having enough insurance to replace your home in the event of a total loss. As insurance is not all the same, this additional coverage may not be available from some companies, or it may be limited to anywhere from 115% - 200% of the limit of insurance assigned to Coverage A dwelling, depending upon the state in which you live.
Hazard policies provide – as an additional amount of coverage – protection for Other Structures (also called Appurtenant Structures). While a description of this coverage can get sticky when trying to determine if this is part of the main home or separate from it, it is easy to visualize this as a detached garage or as a granny unit in the back yard. This coverage is automatic, generally an additional coverage limit equaling 10% of the dwelling value.
You may need more coverage; make sure to tell your insurance professional all about your property and how it is used. If you participate in the ADU craze, know that those structures will in nearly all cases require a separate policy for the ADU if it is detached. If it is attached to your home, your home is now a duplex and the insurance needs some additional adjustments.
Contents coverage provides protection for loss or damage to your personal belongings. The kinds of insurable damage that are covered are generally spelled out, what we call named causes of loss; these include Fire, water, and Theft damage among other causes. The Special Form upgrade is also available to be added.
The named cause of loss is adequate for your regular claims; but if you have a gnarly claim, you will wish you had a Special Form contents coverage policy. We believe it is worth the additional cost, yet generally speaking, most folks want to keep their costs limited and so the vast majority of homeowners policies are not upgraded.
While homeowners’ forms generally also provide for Replacement Cost of damaged personal property, some types of property’s claims value are limited to Actual Cash Value (rugs, for instance). Always refer to your contract or call your agent.
Other types of personal property are limited as to the maximum allowable limit of coverage – items such as Jewelry, Money, Gold, breakables, Computers, etc.). Please see the attached Protection Alert brief for a larger discussion. It is also important to note that with the latest power-toy craze of e-bikes and the stylish golf carts, these are not covered under homeowner’s policies unless they are very lower powered vehicles; even then, it depends upon the insurance contract provided by the insurance company. Always ask your agent about e-bikes and golf carts.
Tip: If you see your neighbor’s children driving these power units, invite the neighbors over for coffee or tea; chat with them about the world and how much you worry about whether or not your neighbor’s insurance is up to the task. It is good for your neighborhood relations management; if your neighbor’s children run their e-bikes into your car, causing damage, do you want to ask your neighbor’s insurance company to pay for repairs or do you want to ask your neighbor to write you a check?
This policy coverage provides for your economic loss following a fire; this protection is called Loss of Use (also called additional living expenses). This coverage is intended to provide you with funds to pay for temporary or longer-term housing while your home is being repaired. It also covers the additional costs of living beyond basic shelter; for instance, in the first few weeks following a devastating fire, you’ll be eating out and not preparing your own meals.
The amount of coverage for this varies, from insurer to insurer. It is often an additional limit of 25% of the dwelling (Coverage A) limit, and some companies provide more coverage or just state “Actual Loss”. An important aspect of this coverage is that generally it will run out after a 12-month period from the date of the fire. Some companies will provide up to 24 months; it’s always good to ask your agent about this as it is not unusual for a total loss rebuilding project to take more than one year.
This part of the homeowner’s policy provides for your Personal Liability coverage, to protect and defend you against Bodily Injury or Property Damage to Others claims and lawsuits from another person, resulting from your ownership of the property or from your personal activities and for which you are held liable.
We strongly recommend a minimum of $500,000 personal liability protection. Often, more aggressive agents will offer $300,000 in coverage; they think it will make the difference in your buying their insurance, as it will appear less expensive. The additional cost to upgrade to $500,000 is about the same as a fast-food meal. Knowing that, why wouldn’t you buy the extra protection?
Often, the personal liability protection will include Personal Injury coverage, but always ask to make it a part of the policy – just to be certain. Personal injury protects you in the event you are sued for slander or a bevy of other alleged infringements that do not involve actual bodily injury. In today’s suit-happy society, you need as much protection as possible.
Another thought about personal liability protection is that people love their pets, generally speaking. Most insurance companies will have a coverage exclusion if you have a breed of a dog (or a mixed breed) that is designated to be a potentially vicious breed. Most companies and cities include pit bulls and other mastiffs in this category, and there are other breeds that may be excluded, depending upon a particular insurance company’s contract or upon a municipality’s designation. So, be certain that you choose either an acceptable breed of dog or use an insurance company that doesn’t have any animal exclusions.
Tip: If you already have a dog (that you are never going to give up) but it is unacceptable to your insurance company, there are special liability insurance programs popping up all the time which will accept generally prohibited breeds of dogs. There is a solution, so never drop your dog off at the local shelter; simply get an additional policy.
Medical Payments to Others. Severe bodily injury claims will be covered under the Personal Liability section of your policy. Medical Payments is intended to offer small payments for injuries (your guest twisted her ankle on your step) so as to avoid larger claims. Thus, you will see small coverage limits applied to this coverage section. Always contact your agent if someone is hurt on your property; the company will adjust the claim accordingly!
Homeowners’ policies have deductibles, and they are a good thing as they keep costs in check. We recommend minimally a $1,000 deductible – preferably $1,500 or $2,500 – as the best price points for most homeowners’ policies.
Whenever you purchase a homeowner’s insurance policy, you need to be aware that certain types of property are restricted in each and every homeowner’s insurance policy sold in America. We also have written about this in our newsletters & blogs!
Here are a few interesting tips you need to know about some of the limitations to the coverage in a Homeowner’s policy.
· You may wish to enhance your policies by adjusting the sub-limits in your policies for the following items: Jewelry & Furs, Bullion (gold, silver, pewter), Money(including coins and coin collections), Stamp collections, Guns, Securities, and in some cases, Computers, Tools, Oriental Rugs, and Business Property (your employer’s or your own).
· Each of these items noted have coverage limitations, ranging from $1,500 - $3,000 (possibly a little more – it varies by company), above which the insurance company will not reimburse you for your theft loss unless you have adjusted your policy to address these limits. This can be done either by increasing this sub-limit or by specifically itemizing certain property on your policy and paying an additional premium for it. Often, the combination approach (increasing the sub-limit and itemizing certain pieces) is the best means of properly protecting your valuables.
· Do you operate an additional business, an In-Home Business, from a spare bedroom? You say “No”? According to federal income tax statistics, nearly 10% of all tax-paying Americans have an In-home business operation.
If you are part of that 10%, we can provide Liability & Property coverage for your in-home business; it is done as a rider to your homeowner’s policy or occasionally by a separate policy. You are a part of that 10% if you happen to regularly sell anything out of your home or garage
If you are operating a business that is operated out of your detached garage, the garage and the business property within it are generally excluded from your policy unless the coverage is altered. That applies even if you use the detached garage for storage. Your policy needs to be amended.
In most cases, an In-Home Business Policy is less expensive than a standard Business Insurance policy, and it fills in some of the gaps of your Homeowner’s insurance policy. What gaps? Your Homeowner’s Policy will not protect a business for property or liability loss that is being operated from home – nor will it protect you unless the policy has been endorsed for the business exposure.
Here are some additional limitations and exclusions to your policy:
· Earthquake, Flood, and Landslide insurance are additional items, not covered under a homeowner’s policy. Protection for these disasters may be purchased with the policy or separately from specialty insurers.
· Water & Sewer Backup Damage Coverage may be provided for loss caused by water which backs up through, or overflows from, a sewer, drain, sump pump, or any system on the premises designated to remove subsurface water from the foundation area. This coverage does not apply if the loss is flood induced.
· Homeowner’s policies typically do not extend liability protection to the use of mopeds, motorized scooters, go-karts, motorized toy cars (Barbie cars), motorboats, or jet skis. This includes rentals. Please call us if you own any of these items. *** Add to this list the afore-mentioned e-bikes and golf carts that are driving around town. These motorized toys are excluded for damage or theft to the object as well as liability from using it.
· Workers Compensation coverage may not be available beyond incidental domestic cleaning services; please be certain to check with your insurance agents!
· Loss Assessments by your HOA: This protection is not unique to condos & town homes, although it is usually thought of as such. This coverage provides protection when your HOA causes an assessment to the members of the HOA resulting from inadequate insurance obtained by the association – liability or property assessments.
· DRONES: These can be problematic in insurance policies; check with your agent to see if your policy covers the non-business use of drones. Most certainly, the business use is not coverage as your homeowner’s policy is not a business policy.
The excluded & limited items in a policy are not just limited to this list, but these are many of the more common types of property limited or excluded. Please call us to discuss your policy if you believe you need some “special attention” to your needs.
The cost to update your policy, to properly insure these limited coverage items, is not expensive compared to the sizable losses you are self-insuring by not properly covering them under your policies.
If you want to replace these valuable personal items in the event of a theft or other covered loss, and if you want liability insurance to provide additional protection for in-home business activities, you must investigate these additional coverages.
Call us today to review these and other items that may be pertinent to your individual insurance plans.
Umbrella (aka: Excess) Liability Insurance
An Umbrella Liability policy provides you with protection in addition to what we call your primary limits of coverage: It is a policy of additional insurance, generally written in increments of $1,000,000, in addition to your auto, home and rental insurance policies. The idea here is that rather than a claimant trying to put his hands in your pockets, you want him instead to go after the insurance company’s pocket!
What Does an Umbrella Liability Policy Cover?
This total coverage limit provides you with protection for severe claims for which you may become liable due to bodily injury or property damages to others and which are first covered under your primary limits (your first “layer”) of coverage. Basically, the Umbrella Policy kicks in when a claim exceeds this first layer of protection; it creates an additional layer of protection for claims that exceed those initial policy limits, including the cost of defense that ends when your initial policy’s limits are fully spent.
It is important to ensure that you do not have a gap in your layers of coverage. You must be sure that the limits of the primary policy (the first layer) end where the Umbrella Policy’s layer begins, without a gap in the middle. You want to have your auto, home, and rental insurance liability limits be high enough to flow directly into the umbrella’s layer of coverage.
We like to use the cake analogy as respects the proper way to create your umbrella policy protection; a minimum of two layers in this cake are involved, as by definition the umbrella is at least a 2nd layer of coverage.
Your primary policies are your first layer: the policies for your home, cars, boats, RVs, and any other motorized vehicle or unit. You must have – in the vast majority of cases – at least $300,000 in personal liability insurance in order to simply build a large enough first layer to reach to the second layer without a coverage gap. The second layer must rest securely upon the icing between the layers; otherwise, you will have a coverage gap you will have to fill, if there is a claim, which can get expensive.
Tip: Make sure all entities (you and your spouse, trust, or LLC) are listed on your primary and umbrella policies. Not all insurers will automatically extend coverage to your personal LLCs. You must request this additional protection.
It is vital to remember that the Umbrella (Excess) Policy) is basically an extension of your home, rental, and auto policies. Generally, Umbrella Policies will not cover actions outside of what the primary policies will cover. Other policy options may be available when such a protection requirement arises.
What Do You Need to Do to Get an Excess Liability Policy?
You generally need primary limits on your auto policies of at least $250,000 per person/$500,000 per occurrence Bodily Injury, $100,000 Property Damage, and $300,000 on your home and rentals before you look to an Umbrella Policy. Then, ask your insurance agent to quote the coverage for you: It is just that simple!
What Does an Umbrella (Excess) Liability Policy Cost?
You have 1 Residence and 2 Cars: The costs are quite volatile in today’s marketplace, so we hesitate to offer a quote. However, this is not an expensive policy and can save your bacon if you are involved in a bad claim which you caused. Costs can be kept down if you package your Home, Auto, and Umbrella insurance with one company. While not always possible, it is the place to start.
Seldom will two Umbrella policies be the same. Therefore, this discussion of Umbrella insurance is necessarily brief and is not to be interpreted as the final word about Umbrella liability protection; please refer to your policy for complete coverage explanations and always ask questions of your insurance agent to ensure proper protection.