Deciding on a Deductible

Today, most property policies contain a deductible.  A deductible simply means that a portion of every insured loss will be deducted from the amount the insurance company would otherwise pay.  Deductibles encourage you to prevent losses and reduce the cost of your insurance.

What deductible is right for you?  This is an individual decision that only you can make.  However, there are three important factors to consider when making that decision:

·         The Cost Savings

When you accept a higher deductible, your premium goes down.  Ask your agent to give you figures for cost savings with different deductible levels.

·         Cash Flow

Can you write out a check for $500 at the drop of a hat?  If that would be difficult right now, you do not want a $500 deductible.  Periodically review your deductibles to determine if they should be adjusted due to a change in your cash flow position.

·         Insurability

If you have a number of claims, even if they are small, your insurance premium may increase or you may lose your coverage.  Insurance is designed to cover the catastrophic loss and should never be used to pay the smaller losses that you could pay out of pocket.  Discuss this issue with your insurance agent when deciding on a deductible.

Choosing an appropriate deductible is an individual decision.  Although your agent will give you information and discuss the issue, only you can decide which deductible is right for your unique circumstances.

Condominium: Unit Owner's Policy

When you buy a unit-owner’s policy to cover your condominium unit, you are obtaining a variety of coverages.  The policy includes coverage for your personal property, additional living expense, and personal liability.  The unit-owner’s policy also offers the opportunity to insure any building items that are within the unit.  You must determine the amount of building coverage you need to cover these items.

The condominium association carries an insurance policy covering part of the building.  Some associations cover the unit up to the interior bare walls, others cover everything that is permanently attached to the building, even if it is inside the unit.  The challenge is to determine where the association policy stops so you can insure the building items it does not cover.  There are two steps to meeting this challenge.

1.    Determine Responsibility

The bylaws of the condominium association will tell you which building items are covered under the association insurance.  By reading these documents or by asking a director of the association, you will be able to find out which building items are your responsibility to insure.

2.    List and Value items

Make a list of the building items within the unit that are your responsibility to insure.  Place a value on each of these items and total the list.  Be certain to include such things as installation, shipping and sales tax.

You may find it a challenge to determine an accurate amount of coverage for these buildings items.  In that case, you can substitute an estimate for step number two.  Your insurance agent will be able to give you the cost per $1000 of coverage, but should not be expected to determine the amount of coverage you need

Comparative Negliglence

In many states, the damages awarded in an auto accident are based on the comparative fault of the drivers involved.  When a driver is legally parked or rear-ended in traffic, the other driver is usually found to be 100% at fault and responsible for all the damages.  In other accidents, both drivers are partially at fault and a driver’s ability to recover damages depends on the degree of fault that is determined.

Assume Fred is driving straight ahead on a main thoroughfare when Sally runs a stop sign and broadsides Fred’s car.  Fred may be assigned 10% responsibility for the accident because he could have mitigated the damages if he had been more alert and been driving defensively.  In this case, Sally and the company that insures her will pay only 90% of Fred’s damages.  Fred will be responsible for the balance.

Who determines the proper percentage of fault?  In the above case, the company that insures Sally’s car will off to pay Fred 90% of his damages.  If Fred does not accept this offer, he has the option of going to court to ask a judge to determine the comparative negligence in the case.

Fred may have on other option.  If he carries collision coverage on his vehicle, he can choose to collect under his own insurance policy for the damages.  In this case he will have to pay the deductible under his policy.  After his insurance company has paid the damages, it will look to Sally’s insurance company for reimbursement.  It will also ask for Fred’s deductible back.  If his insurance company collects 90% from Sally’s company, Fred will eventually get 90% of his deductible back.  That reimbursement process takes months, sometimes years

If You Get Sued

We live in an increasingly litigious society.  People are suing for incidents that used to be settled with a simple apology.  And, the amount they are asking in damages continues to escalate.  Getting sued for a significant amount is a real possibility in modern society; the risk has increased.

Fortunately, an individual can transfer a large portion of that risk to an insurance company where it can be pooled with other individuals who face similar risk.  The insurance that offers this transfer opportunity is liability coverage.  There is liability coverage on an auto policy, a homeowner’s policy and a policy covering a recreational vehicle.  Today, many individuals and families also purchase a Personal Umbrella liability policy, which provides excess limits.

What does it cover?

Liability insurance is designed to respond when you are legally liable for someone’s injuries or damage to their property.  For example:

·         Premises Liability:  A neighbor slips and falls on the ice on your sidewalk; you are liable for their damages

·         Motor or Recreation Vehicle Liability:  Your teenaged son loses control of your boat and collides with another; you are liable for the damages

·         Liability for Personal Activities:  Your over-active, eight-year old propels a loaded shopping cart down the grocery aisle, hitting a little old lady and sending her flying; you are liable for the damages

What is paid?

A liability policy will pay “damages” to the injured party for a covered loss due to bodily injury or property damage.  In addition, it pays for all attorney fees and defense costs, claim expenses, and the cost of investigation.  Liability coverage is designed to pay the financial costs of a covered claim

Peace of Mind Coverage

Liability insurance provides peace of mind in today’s litigious society.  Purchasing the appropriate types of liability coverage in adequate amounts allows you to transfer the risk of being sued to an insurance company.  Then you can focus on those things that give your life meaning

When Your Home is Vacant

When a home is unoccupied or vacant, there are two primary problems.  The house can become a target for vandalism and theft; in addition, a water loss will often go undetected for a longer period of time causing more extensive damage.  The insurance industry experiences more frequent and sever losses on dwellings that are vacant or unoccupied.

Impact on Coverage

Your Homeowners policy will respond differently if your home is vacant at the time of loss.  Most Homeowners policies exclude vandalism coverage after a home is vacant for longer than 60 days.  The policy also does not cover frozen pipes if you have not maintained the heat or drained the pipes.

Coverage Denial

Even worse, some insurance companies deny a claim entirely when a home is unoccupied or vacant.  The policy states, “We cover the dwelling where you reside.”  The insurance company may contend that coverage ceased the day you stopped living there on a regular basis.  Many courts have upheld such a denial of coverage when the policyholder is no longer living in the home, even if belongings were left there.

Seasonal Dwellings

Increased loss exposures also exist on seasonal dwellings, but the insurance industry looks at those homes differently.  A company is usually willing to insure the summer cottage up north as long as they know you have someone checking on the building when you are not there.  However at the time of loss with a seasonal dwelling, your insurance company may ask for documentations as to the number of days you have spent there over the past few years to determine whether the dwelling is actually used as a seasonal residence or is actually an unoccupied dwelling that is not used.  In the latter case, the company may deny coverage on the basis that you no longer reside there.

If your home is vacant or unoccupied, notify your agent promptly, disclosing all details.  Some companies may permit the situation for a short period of time; most will send out direct notice of cancellation.  Your agent can offer you a specialty policy covering a vacant dwelling; unfortunately, the terms of that policy are never as good as those of the Homeowners policy.  When discussing the occupancy of your home, you should be totally candid about the circumstances.  If an insurance company denies a claim, you may end up paying for an attorney to challenge their decision.  That can be expensive and time consuming and you may lose.  It is much better to simply have the proper coverage.

Coinsurance

Imagine your limit of insurance on your building is $500,000 at the time you have a $50,000 fire but you can only collect $25,000.  The problem?  The Coinsurance Clause in your property policy; it is one of the simplest but most misunderstood concepts in modern insurance.  Here is how it works:

·         In exchange for lower rates…

The industry has a number of actuarial reasons for adding a coinsurance clause to a policy, but there is also a benefit to the consumer.  With most policies, rates are less when the policy contains a coinsurance clause.

·         You agree to be insured for at least 80% of the replacement cost at the time of loss.

The only thing the coinsurance clause requires of a policyholder is that the property be insured to value.  Contracts vary and some require 80% of the value, others require 90% or even 100%.  (Although we are using “replacement cost” in this discussion, if your property is insured on an “actual cash value” basis and you have an 80% coinsurance clause, you will be required to insure for 80% of the actual cash value)

·         If you do not keep your promise, you become a coinsurer and share in any partial loss

At the time of loss, the claims adjuster will determine if you have kept the coinsurance promise; he will simply compare the policy limit with an estimated value of the property.  If your limit of insurance is not adequate, you will only be compensated for a portion of your loss; you will pay the balance.  You are a coinsurer.

·         There is a formula in the policy that determines your share.

The industry calls this formula “Did over Should.”  It simply means that if you only did have half of what you should have had at the time of loss, the insurance company will pay for half of the $50,000 fire and you will pay the rest.

The Bottom Line:  The minimum amount of insurance you should carry on property is the limit that will satisfy the coinsurance clause.  If you are insured for that amount at the time of loss, the coinsurance clause will not be activated.  However, if you are only insured for 80% of the value of the property and you have a total loss, you will have a different problem.  You will not be able to rebuild everything you lost.  Consider the coinsurance clause when setting your property limits, but also consider how you would respond to a total loss.  Then set property limits accordingly.

Water Back-up Endorsement

Insurance carriers provides comprehensive homeowners insurance products to meet your needs and that may help protect your customers from the potentially disastrous effects of water backup.  Water backup is one of the most common causes of loss for homeowners but also one of the most misunderstood.

That is the importance of knowing what is covered by the base homeowners policy, what is covered by the optional endorsement, and what is not covered under any circumstances.

What's covered, what's not?

Homeowners policies provides coverage for water that backs up through sewers or drains as long as it originates on premises.  As this chart shows, the optional endorsement expands the coverage to provide better protection.

Not Covered by Homeowners Policy

• Sewer line in the street backs up and causes the overflow
• Water that excapes, overflows or discharges from a sump pump, sump well or any other system designed to remove water which is drained from the foundation area

 Covered by the Optional Endorsement

• Coverage is expanded to include backup or overflow from causes originating off premises as long as the backup or overflow itself occurs on the premises
• Coverage is provided when water escapes, overflows or discharges from a sump pump or other similar system

What's never covered?

• Flooding is the most common excluded coverage.  Whether the result of a river overflowing its banks or a dam breaking, water damage caused by surface water entering the house is not covered
• Overflow originating off-premises is not covered.  This would include a sewer line breaking in the street and causing water to flow over the surface in to the house
• Sub-surface water is excluded.  For example, if a swimming pool or sprinkler system leaks underground and causes water to seep through the foundation, there is no coverage under either the base policy or the optional endorsement.

Note:  All statements made are subjecto to provisions, exclusions, conditions and limitations of the applicable insurance company and policy.  If the information in these materials conflicts with the policy language that it describes, the policy language prevails