It is with great satisfaction that we bring this newsletter to you. In this issue and in coming months, we will discuss pertinent insurance topics which may affect you. We sincerely hope that you will find this newsletter informative and please do not hesitate to contact us should you have any questions or needs.
This months topics:
- Do You Know How Your Deductible Affects Your Homeowner’s Insurance Premium?
- Natural Disaster Planning for Homeowners
- Insuring Success in Your Home-Based Business
As elementary school children, we were first introduced to the concept of ratios, or how one number relates to another number. Back then we tended to think that like almost everything else we were learning, ratios were just one more forgettable piece of information we would never use. Of course, we were wrong. Ratios are something we constantly come in to contact with, even when it comes to our homeowner’s insurance.
The ratio between the policy’s deductible and the premium is very real. When the deductible increases, the premium decreases. With a higher deductible the carrier is transferring more of the risk to you. Yet, four out of ten Americans carrying homeowner’s insurance do not understand that simple ratio and its consequences.
The Insurance Research Council (IRC) recently conducted a study that indicated only 37 percent of homeowners and 48 percent of renters, who have homeowner’s insurance, knew their policy had a deductible. These same respondents also answered incorrectly when asked how a deductible increase affects a premium. They responded that the premium either increased, stayed the same, or they did not know.
The data for the IRC’s report, Public Attitude Monitor 2005, Issue 2, came from a survey conducted by TNS NFO, a market research company. The survey was designed as a self-administered checklist mailed on January 1, 2005, to selected households in the U.S. There were more than 55,000 respondents ages 18 or older who answered six questions about homeowner’s insurance.
Many Americans may overlook the easiest way to reduce insurance costs simply because they do not understand the relationship between their policy’s deductible and the premium. The Insurance Information Institute, in their publication entitled, 12 Ways To Lower Your Homeowner’s Insurance Costs, has this to say about the relationship between the two: “Deductibles are the amount of money you have to pay toward a loss before your insurance company starts to pay a claim, according to the terms of your policy. The higher your deductible, the more money you can save on your premiums.
Nowadays, most insurance companies recommend a deductible of at least $500. If you can afford to raise your deductible to $1,000, you may save as much as 25 percent. Remember, if you live in a disaster-prone area, your insurance policy may have a separate deductible for certain kinds of damage. If you live near the coast in the East, you may have a separate windstorm deductible; if you live in a state vulnerable to hail storms, you may have a separate deductible for hail; and if you live in an earthquake-prone area, your earthquake policy has a deductible.”
The next time you review your homeowner’s coverage, be sure to talk with your agent about how increasing your deductible will impact your premium.
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Summer is here, and with it comes nature’s fury—natural disasters. Some things, like earthquakes, are always a possibility, but other things—hurricanes, floods, tornados, hail, mudslides, and wildfires—are much more likely in the warmer months. Since you can’t avoid them, what can you do to minimize their effects on your property (and your life) and speed recovery if you happen to become a victim of one of these disasters?
The three steps you should take are plan, prevent, and insure.
Plan. You should always have escape routes planned out, whether you have to leave because of a fire, flood, hurricane, or other disaster alert. In addition, every member of your household needs to know who/where to call for help and to let others know they are safe or in trouble. At least twice a year the entire household needs to review escape routes and plans, and make sure the emergency telephone numbers you plan to use still work. Post the escape route and phone number information in a prominent place such as on the refrigerator.
During the highest risk seasons you should consider putting irreplaceable (or hard to replace) items like passports, birth certificates, military papers, marriage/divorce papers, and jewelry, along with a video or photos of your stuff (and a serial number list/receipts/appraisals) in a safety deposit box. You should also have overnight bags packed for each person and your pets, and have identification and money/credit cards with you at all times.
Don’t forget to take your heirlooms and photos if you have to flee!
Flood planning. Some of you live in flood-prone areas, and may not even know it. If you’ve had a recent wildfire, you may now be susceptible to flash floods. If you are downstream from a dam, you could have a problem. If you are in a construction area (such as a highway-widening project), new water flow patterns could put you at risk. You need to assess your risk by calling your county (or similar) building authorities and conferring with your insurance agent. You need escape plans and lists of what to take if a flood looms. You also need a plan for moving your stuff to the ground or upper-levels of your house—stuff in the basement is generally not covered by flood insurance.
Hurricane planning. You probably know if you live in a hurricane-prone area, but hurricanes (or their remnants) have been known to be unpredictable. Your planning is similar to that for flood planning, but you also need to keep supplies such as plywood and nails on hand to secure your house before you evacuate. And when you’re told to leave— go!
Wildfire planning. We’ve had some pretty bad wildfire seasons across the country so far this century. Make the same plans as for floods, except you don’t need to move stuff upstairs. You might want to take large valuables (antiques, paintings, etc.) to a place away from fire danger.
Tornado planning. Everyone needs to know to pay attention to the warning sirens and where to go when they sound, in addition to having the previously mentioned emergency telephone list. Leaving as a tornado is approaching is rarely a good idea.
Earthquake planning. Earthquakes can catch you at any time and place, so in addition to the evacuation plans and phone lists, you might want to have emergency kits in your car and at the office. Make sure the kids’ school is prepared, too.
Prevention. There’s not much you can do to prevent earthquakes, hurricanes, or tornados, except live somewhere else. However, wildfires and floods (or mudslides) are another story. The American Red Cross and Federal Emergency Management Agency Web sites (www.redcross.org, www.fema.gov) are valuable information sources.
Wildfires. Being a careful user of open flames (cigarettes, camp fires, spark-generating equipment) goes a long way toward fire prevention, as does keeping your chimney flue clean and always using spark arrestors. However, wildfires can happen despite your best efforts. What can you do to keep the flames from your house? Create and maintain defensible space!!! The book, Living With Wildfires—Prevention, Preparation, and Recovery is filled with information about defensible space. In addition, your insurance agent and state agricultural college can be great sources of information.
Many insurance companies are actually inspecting for defensible space before they’ll issue or renew a policy.
Floods and Mudslides. Don’t live in a known flood plain! If you are at risk of floods, plan landscaping and water diversions to protect your property. Grass can help anchor the soil after a fire, reducing erosion and flooding.
Insurance. Sometimes, despite your best efforts, things go wrong. Having the right insurance is critical. Your renter’s or homeowner’s policy covers many things, but still may be inadequate. For example, if a valve bursts inside your home, your homeowner’s policy will probably cover the damages. If the pipe from the sewer or water system breaks outside your home you may only be covered if you have flood insurance.
If a flash flood occurs, your homeowner’s insurance is probably not going to cover your losses—you need flood insurance. Even if you have flood insurance, stuff in the basement is probably not covered—you need to move everything upstairs. Don’t forget you have to have the flood insurance for 30 days before coverage is effective!
What about earthquake insurance? If you live in an earthquake-prone area you know about this insurance. But, if you don‘t live in such an area and a boulder rolls down the hill into your house, you may find your homeowner’s doesn’t cover that—it’s considered earth movement!
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These days, many employees are becoming home-based contractors for their former employer, or even striking completely out on their own. You may be among them.
If you are, remember this: once you are on your own, you will not be covered by your employers’ insurance packages. Because you are busy thinking of all you need to do to start up a new venture—whether you’ll be using familiar job skills or new ones entirely— insurance may be the last thing on your mind.
Think again. If you forget an essential part of a computer program you are contracted to write and your client loses business because of it, the client may sue. If your new personal shopping service supplies an item that injures a client…lawsuit! In each case, an Errors and Omissions policy could have saved the day.
And then there is the possibility of fire, flood, theft…in short, all the usual risks of living, and then some. As the owner of a small business, there are three ways you might cover those risks
- Homeowner’s insurance endorsements: suitable for a small home business with minimal equipment and no business visitors or business deliveries. Beware: the Independent Insurance Agents of America (IIAA) advises against this minimal coverage. Your personal agent might, too.
- Home office policy/in-home business policy: this offers business liability and lost income replacement, as well as other usual risk coverages.
- Business owner’s policy: This provides the most comprehensive safeguards similar to those found in commercial policies, but with prices designed for the home-office market.
If you are like most new home-business owners, you may think your homeowner or renter’s coverage will be enough. That is too bad, because in many instances, your current homeowner’s policy won’t be enough. It may even exclude business use of your home entirely. Even if it does cover business use, it is likely to be for very small amounts, $2,500 on premises, and as little as $250 for losses off-site, such as a stolen laptop.
Plus there is the vital issue of business data. Suppose a scenic stream runs across the back of your property…and it floods in a hurricane and floats the books, files, and software needed to run your business, bill your clients, and collect fees. Unless those things are covered under a home office or business owner’s business policy, it is unlikely the loss will be covered at anywhere near what it will cost you to reconstruct all that information.
If someone slips and falls on the muddy walkway, trying to visit you the day after the flood for business purposes, your homeowner’s policy probably will not cover that, either.
And then there is the issue of business slipups like those mentioned above. No matter how good you are at what you do, no one is perfect. You will want to consider coverage so mistakes do not put you out of business.
Before you begin your consulting arrangement or new business, sit down and discuss with your insurance agent all the risk factors you could be facing. You may not be able to afford to cover every risk right away, so ask for your agent’s help to prioritize the risks. If, for example, customers will not be visiting your office for a while, leave that liability coverage out for now. But if you will visit customers and bring equipment along, cover this risk; you need that equipment to do business, after all, and your business will suffer it if is lost or damaged.
Remember to consider your vehicle use, too; will you use public transportation to visit clients, or your personal car? Will your personal policy work, or would commercial insurance better provide the best protection? If you are buying a van or truck especially for business needs, there is ample reason to consider commercial vehicle insurance.
Finally, consider the possibilities if you becoming ill or are injured and cannot work. By going out on your own, you have lost the safety net of the disability insurance your former employer most likely carried. If you have a working spouse, you may be able to delay obtaining disability insurance for a time, but it is one of the coverages most people feel a lot more comfortable having, working spouse or not. Once you have prioritized and decided upon your initial insurance package, remember to speak with your agent periodically and to add those coverages that you put off for cash flow reasons, or simply did not need at the time.
Getting to the Heart of the Matter
Use questions like these to determine the nature of your new work arrangement or business and to help prioritize your insurance purchases:
- What type of equipment do you have and how much did it cost? How much to replace?
- Is the equipment dangerous?
- Does your business own any property?
- Where do you conduct business–home or client offices or your own premises?
- Do you need a vehicle for business?
- Do you have or plan on having employees?
- If you make an error, can a customer sue you?
- If building damage happens, from fire to flood, will it shut down your business?
- Do clients visit your home to transact business?
- Do you take expensive equipment to client sites?
- If you are injured and can’t work, where will you derive an income?
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Information contained in this newsletter about product offerings, services, or benefits is illustrative and general in description, and is not intended to be relied on as complete information. While every attempt is made to ensure the accuracy of the information provided, we do not warranty the accuracy of the information. Therefore, information should be relied upon only when coordinated with professional tax and legal advice.