November 22, 2017

Home Insurance and Water Damage

Image of the outside of a beautiful home.

Water is essential for many things in life, yet it is one of the most frequent causes of damage in homes. Consider how many rooms in your home are connected to an inside water source or are susceptible to water coming in from outdoors, and you will quickly realize how vital water damage prevention should be.  When water goes where it shouldn’t, even a small leak can become a major problem. Some damage from water is covered by your homeowners policy, some is not. Either way, most damage from water is preventable.

Quick action helps in water emergencies.

It has happened. There is water everywhere — in your walls, under your carpets and soaking into your belongings. Whether caused by a burst pipe, a broken water heater or a flood, there are things you can do immediately to salvage belongings and limit damage or loss.

  1. Stop the water. If the water is coming from inside your home, such as a burst pipe or water heater malfunction, shut off the main water valve immediately. (Make sure everyone in your home knows where the shutoff valve is located.)
  2. Turn off the utilities* – if the situation calls for it. In a serious water event, turning off the power or natural gas might be necessary to ensure your and others personal safety.
    *In the case of a minor water situation there may not be a need to shut off the utilities, and doing so may leave your home without power until the utilities can be turned back on again.
  3. Prevent electrocution. Do not use any electrical appliances if the carpet or flooring surfaces are wet. Use a wet vacuum to remove water, but check the manufacturer’s instructions before starting.
  4. Use fans to circulate air and encourage drying. This is especially important in the first 24-48 hours after an indoor flood.
  5. Get water out quickly (and safely). Fast action on your part can prevent further damage, help you save more of your belongings and minimize the time and expense of repairs. Clean up as much water as possible by mopping or blotting with towels.
  6. Get property to a dry location. As much as possible, move belongings to a dry area. Put furniture on blocks or slide a square of aluminum foil under furniture legs to prevent the wood stain from bleeding into carpeting.
  7. Remove area rugs from the floor. The dyes in carpets can stain flooring, carpeting or wood floors.
  8. Do not lift tacked down carpet without professional help. It could cause carpet to shrink.
  9. Launder any clothes or other washables that have been soaked as soon as possible.
  10. Wipe excess water from furniture. Open drawers and cabinet doors for faster drying. Spread out books to speed drying and prevent further damage.
  11. Watch for debris and pests. If water is flowing in your house there may be dislodged materials such as nails, or pests such as snakes or vermin.
  12. Report claims as soon as possible. The sooner you report damage, the sooner we can help you get your home and life back to normal.
  13. Keep track of the time spent cleaning and save receipts for the costs of any rental equipment or payments to professional services. Take photos of any damaged items you may have to discard before an insurance adjuster sees them, and make an inventory list of any damaged goods.

What is Term Life Insurance?

Image of a family on their front porch with dog.

Term insurance provides protection for a specific period of time. It pays a benefit only if you die during the term. Level term products are the most popular plans purchased today. The level term can be from 5 years to 30 years. The premium and death benefit are designed to stay level during the term of the contract. The premiums can be either guaranteed or not guaranteed. When purchasing a level term life insurance policy, be sure you are aware of the guaranteed premium period. Once you have been approved and placed the policy in force with the first payment, the insurance company is obligated to keep the policy in force as long as you keep paying the premiums. You are not obligated to pay, but once you stop paying, the policy will lapse after usually a 30 day grace period. Some term insurance policies can be renewed when you reach the end of a specific period which can be from one to 30 years. The premium rates increase at each renewal date. Most policies require that evidence of insurability be furnished at renewal for you to qualify for the lowest available rates.

Advantages and Disadvantages of Term Insurance

Advantages

  • Initially, premiums are generally lower than those for permanent insurance, allowing you to buy higher levels of coverage at a younger age when the need for protection often is greatest.
  • It’s good for covering specific needs that will disappear in time, such as mortgages or car loans.
  • The new 20 and 30 year products can provide coverage as long as most people might need life insurance.

 Disadvantages

  • Premiums increase as you grow older, after the term selected expires, providing it renews past that term.
  • Coverage may terminate at the end of the term or may become too expensive to continue.
  • Generally, the policy doesn’t offer cash value or paid-up insurance.

Questions to Consider When Considering a Term Policy

  • How long can I keep this policy? If you want the option to renew the policy for a specific number of years or until a certain age, what are the terms of renewal of the contract.
  • When will my premiums increase? Annually? Or after a longer period of time, such as five or 10, 15, 20, 30 or even 40 years?
  • Can I convert to a permanent policy? Some policies allow you to convert the policy to permanent insurance without a medical exam, regardless of your physical condition at the time of the conversion. These policies are known as “convertible term.”

Why Is My Home Insured For More Than It’s Worth?

Image of the outside of a beautiful home.

My home is worth $275,000. Why does my insurance company want me to insure it for $375,000?

This is probably the most frequently asked question among our Homeowners Policy clients today. We will usually respond with…“and be glad that it is, let me show you why.”

Comparing market or real estate value of a home and replacement cost of a home is like comparing apples and oranges. Market value is the price for which you could sell your home. Market value takes into consideration land value, neighborhood, comparable sales, and more. Replacement or reconstruction cost is the amount of money it would take to rebuild your home, with like kind and quality, at today’s costs. Replacement cost reflects the cost for building materials, code compliance, demolition, construction labor, and more.

In the current economy, many people are under the assumption that construction costs have reduced as much as property values. This is simply not the case. The fact of the matter is, today, you can buy an existing home for much less money than it would cost to build that very same home. Although you may hear from a friend that they got someone to do some work for “super cheap,” this is the exception to the rule. Contractors’ overhead hasn’t reduced much, and cost for building materials hasn’t decreased dramatically either. Contractors are just like everyone else, they need to put food on the table, and I don’t know many non-profit construction companies out there.

The amount of coverage you need should be based on the true reconstruction costs of your home, regardless of current market value.

 

Homeowners Insurance Basics

Image of the outside of a beautiful home.

Homeowners insurance is a package policy. This means that it covers both damage to property and liability or legal responsibility for any injuries and property damage policyholders or their families cause to other people. This includes damage caused by household pets.

Damage caused by most disasters is covered but there are exceptions. Standard homeowners policies do not cover flooding, earthquakes or poor maintenance. Flood coverage is provided by the federal government’s National Flood Insurance Program, although it is purchased from an insurance agent. Earthquake coverage is available either in the form of an endorsement or as a separate policy. Most maintenance related problems are the homeowners’ responsibility.

A standard homeowners insurance policy includes four essential types of coverage. They include:

1. Coverage for the structure of the home

This part of a policy pays to repair or rebuild a home if it is damaged or destroyed by fire, hurricane, hail, lightning or other disaster listed in the policy. It will not pay for damage caused by a flood, earthquake or routine wear and tear. Most standard policies also cover structures that are not attached to a house such as a garage, tool shed or gazebo.

2. Coverage for personal belongings

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 percent of the amount of insurance on the structure of a home. This part of the policy includes off-premises coverage. This means that belongings are covered anywhere in the world, unless the policyholder has decided against off-premises coverage. Expensive items like jewelry, furs and silverware are covered, but there are usually dollar limits if they are stolen. To insure these items to their full value, individuals can purchase a special personal property endorsement or floater and insure the item for its appraised value.

Trees, plants and scrubs are also covered under standard homeowners insurance—generally 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

Liability covers against lawsuits for bodily injury or property damage that policyholders or family members cause to other people. It also pays for damage caused by pets. The liability portion of the policy pays for both the cost of defending the policyholder in court and any court awards—up to the limit of the policy. Coverage is not just in the home but extends to anywhere in the world. Liability limits generally start at about $100,000. An umbrella or excess liability policy, which provides broader coverage, including claims for libel and slander, as well as higher liability limits, can be added to the policy.

4. Additional living expenses

This pays the additional costs of living away from home if a house is inhabitable due to damage from a fire, storm or other insured disaster. It covers hotel bills, restaurant meals and other living expenses incurred while the home is being rebuilt. Coverage for additional living expenses differs from company to company.

Types of Homeowners Insurance Policies

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.

People who own the home they live in have several policies to choose from. The most popular policy is the HO-3. It provides coverage for the structure of the home and personal belongings as well as personal liability coverage. It also provides the broadest coverage, protecting against 16 disasters or perils listed below.

  • Fire or lightning
  • Windstorm or hail
  • Explosion
  • Riot or civil commotion
  • Damage caused by aircraft
  • Damage caused by vehicles
  • Smoke
  • Vandalism or malicious mischief
  • Theft
  • Volcanic eruption
  • Falling object
  • Weight of ice, snow or sleet
  • Accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning, or automatic fire-protective sprinkler system, or from a household appliance
  • Sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system, an air conditioning or automatic fire-protective system
  • Freezing of a plumbing, heating, air conditioning or automatic, fire-protective sprinkler system, or of a household appliance
  • Sudden and accidental damage from artificially generated electrical current (does not include loss to a tube, transistor or similar electronic
    component)

Owners of multifamily homes generally purchase an HO-3 with an endorsement to cover the risks associated with having renters live in their houses. Other types of policies for home owners are the HO-2, which provides more limited coverage, the HO-1, a bare bones policy that is not widely available, and the HO-8, designed for older homes. There is also a version of the HO-2 designed for mobile homes.

The HO-4 policy was created specifically for those who rent the home they live in. It covers a policyholder’s belongings against all 16 perils. It also provides personal liability coverage for damage the policyholder or dependents may cause to third parties. The HO-6 policy was designed for owners of condominium and cooperative units. It provides coverage for belongings and the structural parts of the condominium or co-op that the policyholder owns. It protects against all 16 perils and provides personal liability coverage. Both cover additional living expenses.

Levels of Coverage

There are three coverage options:

1. Actual Cash Value

This policy pays to replace the home or possessions minus a deduction for depreciation.

2. Replacement Cost

This policy pays the cost of rebuilding or repairing the home or replacing possessions without a deduction for depreciation.

3. Guaranteed/Extended Replacement Cost

This policy offers the highest level of protection. A guaranteed replacement cost policy pays whatever it costs to rebuild the home as it was before the fire or other disaster—even if it exceeds the policy limit. This gives protection against sudden increases in construction costs due to a shortage of building materials after a widespread disaster or other unexpected situations. It generally won’t cover the cost of upgrading the house to comply with current building codes. However, an endorsement (or an addition to) the policy called Ordinance or Law can help pay for these additional costs.

Some insurance companies offer an extended, rather than a guaranteed, replacement cost policy. An extended policy pays a certain percentage over the limit to rebuild the home. Generally, it is 20 to 25 percent more than the limit of the policy. For example, if homeowners take out a policy for $100,000, they can get up to an extra $20,000 or $25,000 of coverage. Guaranteed and extended replacement cost policies are more expensive; but they offer the best financial protection against disasters for a home. These coverages, however, may not be available in all states or from all companies. Replacement cost coverage is available for the structure of the home, but only actual cash value coverage is available for possessions.

 

Check Out New Routes for Saving on Car Insurance

View of looking over the dashboard to the open road.

Published: 25 November 2011 09:47 PM  The Dallas Morning News

The ideal way to save money is to exert effort once and automatically reap savings over and over again, every month. That’s why examining your car insurance makes a lot of sense.

Auto insurance prices vary widely. On average, car insurance cost Americans $789 per vehicle annually in 2008, the most recent year of data provided by the National Association of Insurance Commissioners.

But your costs could be far higher or lower because of the state you live in. For example, Florida, New Jersey and New York were among states where the average was more than $1,000 annually. North Dakota’s average expenditure was the lowest at $503. Texas fell in between with an $854 average.

“In an age when people are cutting out cable television, it pays to look at car insurance,” said Des Toups, managing editor of CarInsurance.com.

Here are ways to save on car insurance:

Compare

If you think all auto insurance rates within a state are about the same, you’re wrong. Premiums can be different for the exact same policies, depending on what factors an insurer chooses to emphasize in its rate formula.

“It’s a calculated bet,” Toups said. “The insurer asks, ‘What’s the least amount of risk we can take to make the most amount of money?’ That’s why the numbers are so different.”

For the youngest drivers, comparison-shopping could save about $1,100 a year, according to a study by CarInsurance.com. You might think you get better service from higher-priced insurers, but there seems to be no correlation, according to a study by the Consumer Federation of America.

“Many people stick with the same insurance carrier year after year without ever shopping for a better deal,” Consumer Reports says in its guide to car insurance. “Blind loyalty to one insurer can cost you dearly.”

You can request quotes by phone or online.

Also, check your state insurance department website for comparative information on insurers in your state.

You can check on the financial health of an insurer at such rating agency websites as moodys.com and standardandpoors.com.

Bundling

Choosing an auto insurer is important, too, because you might want to get your home insurance through the same carrier. Auto rates vary more and probably are more expensive, so let that be the insurance that, well, drives your decision.

Like bundling your pay TV, phone and Internet access with one company, you can get discounts for bundling your insurance with a single insurer, said Jim Fults, associate vice president of auto and personal insurance at Fireman’s Fund Insurance. At Fireman’s, he said, customers can save $400 to $600 a year by bundling auto and home insurance.

If you have multiple vehicles with the same company, your most expensive driver will be assigned, by default, to the most expensive car. So if your teenager will drive the Honda far more than the Lexus, make sure the teen is listed as primary driver of the cheaper vehicle, Toups said.

Deductibles

A deductible is the part of the bill you pay out-of-pocket before insurance kicks in. The higher the deductible you’re willing to accept, the lower your premiums will be. Changing from a $200 deductible to $1,000 could save you 40 percent, says the Insurance Information Institute.

Fults suggests examining several deductibles to see how they affect premiums.

“I think people would be really surprised, when they looked at changing a deductible of just $500 or $1,000, by what that does to the price [of premiums],” he said. “For some vehicles, it might move it considerably. In other cases, it might not.”

Personal finance experts typically advise choosing the highest deductible you can financially stomach if it will give you big price breaks on premiums.

Big brother devices

There are some new high-tech devices that insurers are starting to offer. For example, some devices will block the use of cellphones in a moving car, often used for teenage drivers, Fults said.

Insurers are also starting to introduce optional “telematic” devices, which, once installed on a vehicle, collect data about your driving habits for the insurance company. You get a discount for agreeing to use one, and your rates are based on your driving habits.

People who drive less and drive slower might have lower rates than people who drive a lot at high speeds, for example.

Such devices are available from several insurers and are allowed in most states.

Insurance companies say the devices are used only for discounts, not for raising premiums, Toups said.

“From the insurer’s point of view, these things are meant to reward and isolate those low-risk drivers,” he said. “You’re signing up for the prospect of a discount.”

Credit

You wouldn’t think your proficiency at paying bills would have anything to do with whether you’ll crash your car, but auto insurers insist there’s a link.

Drivers with problems on their credit reports are more likely to file claims, they say, and are charged higher insurance rates in states that allow tying rates to credit.

“Credit has become, in the last 10 years, a very widely used and fairly significant part of the calculation of what your final price will be for auto insurance and home insurance,” Fults said. “It was introduced in the 1990s and has slowly been incorporated into every carrier now.”

Carriers aren’t so much looking at your three-digit credit score as they’re looking at the stability and good standing of your relationships with creditors, Fults said.

Still, there’s a correlation with scores.

A CarInsurance.com study showed that drivers with credit scores over 750 save an average of $783 a year compared with a drivers in the same age bracket with average scores.

Check your credit report once a year for free from each of the three major credit bureaus at AnnualCreditReport.com.

Discounts

Make sure you’re getting all the discounts you’re entitled to — for driving low miles every year, for example. A teen driver, who can raise rates 50 percent, can get a discount for good grades, typically at least a B average, Toups said.

Taking time annually to review your coverages with your insurer will make sure you’re getting those discounts, Fults said. You’ll not only incorporate your life changes into your auto insurance, but you’ll also learn about the insurer’s new products and pricing, which change often.

Drop collision

It might be worth dropping collision coverage on older cars that aren’t worth much.

Consumer advocate Clark Howard said the time to consider dropping collision is when cars get to be about 8 years old. His rule of thumb: If your annual, not monthly, premium for collision and comprehensive is more than 10 percent of your car’s value, remove collision coverage and just pay the liability premium.

Gregory Karp,

Chicago Tribune

DID YOU KNOW: Insurance resources

Similar to a credit report, you also have an insurance claims report. It can affect whether an insurer agrees to issue a policy and what rates you pay. To see what insurers know about your claims history, get a CLUE. It’s your free annual auto and personal property claims reports by the Comprehensive Loss Underwriting Exchange. Get it once a year online at http://personalreports.lexisnexis.com.

Other resources:

Find more tips and advice, information about companies and online quotes, etc.: www.insureuonline.org, III.org, Insure.com.

Find your vehicle’s private-party sale value at such websites as KBB.com and NADAGuides.com. Texans can check companies, compare rates and file complaints with the Texas Department of Insurance: www.tdi.texas.gov.

Eight Auto Insurance Myths

View of looking over the dashboard to the open road.

When purchasing car insurance, it’s important to understand the factors that affect your car insurance premium rates and coverage. But how do you differentiate between truth and fiction? A good place to start is by dispelling some common myths about auto insurance:

Myth 1 – Color determines the price of auto insurance

It doesn’t matter if your car is red, green or purple. What does matter is the type of car you select. Before you buy a new or used car, check into insurance costs. Auto insurance premiums are based on make, model, body type, engine size, the age of the vehicle and the age, driving record and credit history of the driver. Premiums are also based, in part, on the car’s sticker price, the cost to repair it, its overall safety record, and the likelihood of theft. Many insurers offer discounts for features that reduce the risk of injuries or theft. These include daytime running lights and anti-theft devices.

For years there has been a notion that color plays a significant part in calculating insurance premium costs, many people believing that red cars cost more to insure because they are linked to aggressive driving or speeding. The fact is, insurers have no interest in the color of a car, but they are interested in knowing if you have had any previous car accidents, the number of miles you drive annually and where you live.

Myth 2 – It costs more to insure your car when you get older

Quite the opposite—many drivers over 55 years of age can, in fact, qualify for a reduction in auto insurance rates, typically for three years, if they have successfully completed an accident prevention course. Insurance companies will usually provide up to a 10 percent discount on car insurance, but check with your provider before you sign on. Mature driving courses are available through local and state agencies as well as through the AAA and AARP. You can also check with your insurance agent to find out which defensive driving courses are approved by your insurer. If you are retired or are not employed full time, you may also be eligible for a discount of up to 5 percent off your car insurance. Age requirements for this type of discount vary by state and insurance carrier.

Myth 3 – Your credit has no effect on your insurance rate

Your credit-based insurance score does matter. An insurance score is a measure of how well you manage your financial affairs, not your financial assets. Many insurance companies take your insurance score into consideration when you want to purchase, change or renew your auto insurance coverage. Because the majority of people have good credit, and insurance scores are derived from a person’s credit history, most people pay less for insurance when insurance scores are entered into the pricing equation.

Myth 4 – Your insurance will cover you if your car is stolen, vandalized or damaged by falling tree limbs, hail, flood or fire

Comprehensive and collision coverage are optional coverage’s. Lenders frequently require drivers to buy comprehensive and collision coverage as a condition of a car loan agreement. Those driving older cars sometimes drop these coverage’s as a way of saving money. If a car is worth less than $1,000 or less than 10 times the insurance premium, purchasing the optional coverage’s may not be cost effective. But bear in mind that you need to purchase both collision and comprehensive coverage in order to fully protect your vehicle from all types of damage.

Myth 5 – You only need the minimum amount of auto liability insurance required by law

Almost every state requires you to buy a minimum amount of auto liability coverage. Chances are that you will need more liability insurance than the state requires because accidents often cost more than the minimum limits. In today’s litigious society, buying only the minimum amount of liability means you are likely to pay more out-of-pocket for losses incurred after an accident—and those costs may be steep. The insurance industry and consumer groups generally recommend a minimum of $100,000 of bodily injury protection per person and $300,000 per accident.

Myth 6 – If other people drive your car, their auto insurance will cover them in the event of an accident

In most states, the auto insurance policy covering the vehicle is considered the primary insurance, which means that the owner’s insurance company must pay for damages caused by an accident. Policies and laws differ by state, and you should be familiar with these differences when allowing another person to drive your car.

Myth 7 – Soldiers pay more for insurance than civilians

If you are in the military—regardless of which branch—you actually qualify for a discount on auto insurance. In some situations you might be able to have your commanding officer make a phone call on your behalf, but for most auto insurance companies, you will need to supply documentation that lists your name, rank and the time that you will be enlisted in the service. This allows insurance companies to determine how long you will be eligible to receive a military discount. Many auto insurance companies provide discounts for former members of the military as well as their families.

Myth 8 – Personal auto insurance covers both personal and business use of your car

If you are self-employed and use your vehicle for business purposes, personal auto insurance may not protect you. While auto insurance geared for businesses can be more costly than a personal policy, one of the best ways to keep your auto rates down is by having a good driving record. If there are others, such as employees, using your car make sure they also have good driving records. Check the records of your employee drivers at least twice a year to ensure they maintain a clean driving record.

What is covered by a basic auto policy?

View of looking over the dashboard to the open road.

Your auto policy may include six (6) coverages. Each coverage is priced separately.

1. Bodily Injury Liability

This coverage applies to injuries that 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 may 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.

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.

Underinsured motorist coverage comes into play when an at-fault driver has insufficient insurance to pay for your total loss. This coverage will also protect you if you are hit as a pedestrian.