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:
- Three Questions to Determine Whether Your Home Is Properly Insured
- Tips for Buying Homeowner’s Insurance
- Don’t Wait Until It’s Too Late to Dust Off Your Homeowner’s Policy
- Toxic Mold – A Puzzling Problem for the Insurance Industry
Homeowners are always being advised to update their property insurance annually because any home alteration or lifestyle change, such as marriage or divorce, can affect the amount of coverage needed. While it is important to complete that yearly review, it is equally important to know what questions you should ask your agent to ensure you have the right coverage for your circumstances.
According to the Insurance Information Institute (I.I.I.), there are three key questions you should always ask:
1. Do I have enough insurance to rebuild my home? – Buying just enough insurance to meet your mortgage lender’s requirements could mean that you are inadequately covered should you need to rebuild your home at current prices. To have real protection, you need to consider the following types of coverage:
- Replacement Cost Policy – A replacement cost policy pays for the repair or replacement of damaged property with materials of similar kind and quality.
- Extended Replacement Cost Policy – This extends your coverage another 20 percent or more above your stated policy limits. This additional insurance can be extremely important if your home is one of many damaged in a disaster, because a widespread disaster can result in increased costs for building materials and labor.
- Inflation Guard – This coverage automatically adjusts the policy limits for rebuilding costs as construction costs rise.
- Ordinance or Law coverage – If your home is badly damaged and requires rebuilding under new building codes, ordinance or law coverage will pay a specific amount toward any additional costs involved in meeting the new code requirements.
- Water Backup – This coverage insures your property for damage from sewer or drain backup.
- Flood Insurance – Standard home insurance policies do not include coverage for flooding. Flood insurance is available through the federal government’s National Flood Insurance Program (www.floodsmart.gov), but can be purchased from the same agent who provides your homeowner’s insurance. Make sure to purchase flood insurance for the structure of your house, as well as for the contents.
2. Do I have enough insurance to replace my possessions? – Most insurers provide coverage for personal possessions equal to 50 percent to 70 percent of the amount of insurance on the dwelling. The best way to determine if this is enough coverage is to conduct a home inventory. A home inventory is a list of everything you own and the estimated cost to replace these items if they were stolen or destroyed. You can insure your possessions in one of two ways:
- Cash Value Policy – This coverage pays the cost to replace your belongings minus depreciation.
- Replacement Cost Policy – This coverage pays the full cost of replacing your belongings at current prices.
3. Do I have enough insurance to protect my assets? – Homeowner’s insurance provides you with basic liability coverage. This protects you against lawsuits for bodily injury or property damage that you, your family, or your pets may cause to other people. Liability insurance pays for the cost of your legal defense and for any damages a court rules you must pay, up to the stated limits of your policy.
Most homeowner’s insurance policies provide a minimum of $100,000 worth of liability insurance. If the standard liability coverage isn’t sufficient, you may need an excess liability policy, which provides additional coverage over and above what is covered by your homeowner’s insurance policy.
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Considering that for most people a home is their largest asset, they understand the importance of protecting their investment with homeowner’s insurance. What they may not know, however, is that insurers offer numerous discounts based on various factors ranging from the type of building material used to your home’s proximity to a fire station. Keep in mind that while multiple opportunities exist for premium discounts, not every discount is available in every state or with every insurance company.
When shopping for homeowner’s insurance, you should follow these tips:
- Accept a higher deductible – When you file a claim, the deductible is the amount you pay personally toward the loss before the insurer pays the balance of the claim. Deductibles on most homeowner’s policies start at $250. If you raise your deductible, your premiums will be lower. However, before you accept a higher deductible, be sure you can afford the additional out of pocket.
- Use one insurer for both your homeowner’s and auto policies – Most insurance companies offer multi-policy discounts.
- Consider the cost of insuring any home before purchasing – The geographic location of your home has a significant impact on the amount you pay in premiums, especially if your home is located in an area frequently hit by natural events that cause large scale damage. The age of the house will also play an important role, as does the age of the electrical, heating and plumbing systems. Older structures, pipes and electrical wiring pose a greater risk.
- Buy insurance coverage for your home, not the land it sits on – Never include the land value when you calculate how much insurance you need.
- Be sure your home is safe and secure – Dead bolt locks, burglar alarms, and smoke detectors generally qualify you for premium discounts. Your insurance company may also offer an even larger discount if you install a home-security system. Check with your insurer to see which systems entitle you to a discount before proceeding.
- Stop Smoking – Smoking increases risk of fires. Some insurers offer discounts if your family is tobacco free.
- Ask about discounts for seniors – Retired people stay at home more, so they can spot fires sooner. Older people also spend more time maintaining their homes.
- Review your policy each year – Any improvements you have made to your home should be reflected in your coverage. Talk to your agent about increasing your coverage as necessary.
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If you’ve never thoroughly reviewed your homeowner’s policy, you could find yourself out of luck at your time of need. When you bought your policy, you assumed it would provide the necessary funds needed to recover from a disaster. However, if you are unfamiliar with your policy’s terms and conditions, you may not have as much protection as you think. The standard homeowner’s insurance policy includes four basic types of coverage:
- Coverage for the structure of your home – If your home is damaged or destroyed by fire, lightning, windstorm, or other peril listed in your policy, your insurer will pay to repair or rebuild your home subject to the terms of your coverage. However, if the damage is caused by a flood, earthquake or mudslide, there would no coverage unless you had purchased a separate policy for these risks. Most standard policies also cover detached structures such as a garage. Coverage for these structures is automatically provided at 10% of the amount of insurance you have on the structure of your home. You can purchase additional coverage if necessary. Do you know if your policy would provide enough coverage to rebuild your home?
- Coverage for your personal belongings – Furniture, clothes, and other personal items are covered if stolen or destroyed by fire, wind or other insured disaster. Most companies provide personal belongings coverage equal to 50 to 70 percent of the amount of insurance you have on the structure of your home. High-ticket items like jewelry are covered, but only at minimal dollar limits if stolen. To insure each of these items for their full value, you would need to add a special personal property endorsement to your basic policy. Trees, plants and shrubs are also covered under standard homeowner’s insurance for theft, fire, lightning, explosion, vandalism, and riot. They are not covered for damage by wind or disease. Limits are usually $500 per item.
- Liability protection – This protects you against lawsuits for bodily injury or property damage that you or your family members cause to others. Liability coverage also pays for damage caused by your pets. Your insurer pays the cost of defending you in court and any court awards, up to the policy limit. You are also covered not just in your home, but anywhere in the world. Liability limits start at about $100,000, but you should purchase more coverage. You can also purchase an umbrella or excess liability policy, which provides broader coverage, including claims against you for libel and slander. Your policy also provides no-fault medical coverage if a friend or neighbor is injured in your home. Your insurer pays the individual’s medical expenses without a liability claim being filed against you. You can generally obtain $1,000 to $5,000 worth of this coverage.
- Additional living expenses – This pays for any additional costs in the event you are temporarily unable to live in your home because of a fire or other insured disaster. Many policies provide coverage for about 20% of the insurance carried on the structure of your home. In addition to reviewing your homeowner’s coverage, you should keep updated records of your property in a safe location that is easily accessible. The Insurance Information Institute offers free software you can download to create a home inventory. Log on to www.knowyourstuff. org.
Finally, try to review your homeowner’s policy with your insurance agent annually. Your agent can help you determine if your coverage is still adequate for your needs.
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Watch out. Mold is lurking in your homes, in offices, in plants and factories. Increasingly, it can be found in courtrooms too, as a wave of litigation spreads like wildfire across the country. Mold comes in many forms, some harmless to humans and others harmful, though to what degree remains, in some cases, a source of controversy. To many, it would seem as though mold was an invention of the 21st century.
Rather, it is the contagion of mold-related property and casualty claims and lawsuits that has spread across the US much more rapidly than the mold itself, making for a costly epidemic for the insurance industry and for you.
For the uninitiated, here’s a mold primer… Mold requires three basic conditions to thrive
1. Warmth (typically above 70 degrees fahrenheit)
2. A host environment (vinyl covered wallpaper, for example)
As might be expected, mold litigation similarly thrives in environments where higher temperatures are prevalent. Texas has produced the largest single verdict to date ($32 million reduced to $4 million on appeal), and more lawsuits than any other state. Predictably, states like Florida, California, Hawaii and Louisiana are not far behind. However, warm climates are not the only culprits and even cold weather states are not immune to outbreaks. Roy Harris, in a recent article in CFO magazine cites so-called “tight buildings,” in vogue since the energy crisis of the 1970’s as a source of the problem because their restricted air flow, while preventing mold intrusion from the outside, also prevents moisture release.
The spread of toxic mold litigation, and the observations of insurance industry pundits hailing mold as“the next asbestos” have inspired insurers to try to get a handle on the toxic mold issue. Unfortunately, for clients seeking coverage for mold-related claims right now, the news is not that good. Insurers have filed exclusions for many homeowners’ and commercial policies to eliminate or drastically reduce the amount of coverage available for the exposure. On the more promising side, insurers are slowly coming to grips with the coverage and if history is any indication, once there is a belief that the exposures can be adequately quantified, assessed and contained, coverage should broaden and prices will rise or sink to appropriate levels. Naturally, the situation will vary from state to state and the coverage line, but if you are looking for coverage for mold right now, be prepared for expensive, but limited coverage.
What may delay the industry from fully assessing the exposure is the lack of cohesive data around mold as a source of claims activity. Mold cuts across so many different insurance product lines, from workers’ compensation to professional liability, and insurer data doesn’t track the cause of claims across all these product lines. The result is a bit of a black hole for underwriters and actuaries. While claims against homeowners’ policies and commercial packages have been at the forefront, the issue affects realtors, property inspectors, appraisers, product manufacturers, architects and engineers, contractors, landlords, and a myriad of other types of businesses drawn in to the flood of litigation by plaintiffs. It may take years to track the claims data in a meaningful fashion, and by then, the next “flavor of the month” in litigation may hit, and toxic mold fears may gradually or abruptly fade away. In the mean time, risk management is the key, particularly in environments where mold flourishes.
Whether you are a homeowner, business owner, or both, it makes sense to monitor HVAC systems, including home air conditioning units, for sources of moisture, invest in a dehumidifier if conditions warrant it, and take care to investigate and remediate any water damage quickly and thoroughly.
If it means ripping up carpets or replacing old, rusty pipes – do it. It will be well worth the investment.
And last but not least, check with your agent to see what insurance options there are for your home and business.
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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.