Advocate Claim Service Newsletter July 2006
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:
- Uncovering Common Misconceptions about Flood Insurance Coverage
- It’s My Condominium, Do I Need Coverage?
- Protecting Your Home from Strong Winds
- Protect Yourself When Taking on a Remodeling Project
According to the National Flood Insurance Program (NFIP), flooding is this country’s most prevalent natural disaster. In the years between 1995 and 2004, flood losses in the U.S. averaged $867 million annually. There are about 4.7 million citizens who have taken advantage of the government’s flood insurance protection, however large numbers of at-risk Americans still refuse to find coverage. After hurricane Katrina last summer, when nearly 80% of New Orleans was underwater, it is surprising that people would not seek such coverage, since their homeowner’s policies do not insure them against floods.
Part of the problem stems from the innate sense that if it’s offered by the federal government, applying for it must be: a) tied up in red tape, and b) too complicated due to all the exclusions. Both of these statements, however, are not true. Let’s examine some of the commonly held beliefs about flood insurance:
- You can’t buy flood insurance if you are in a high-risk area. Flood insurance is available to all homeowners and businesses in any community that participates in the NFIP. You can check to see if your community participates by visiting http://www.fema.gov/fema/csb. shtm. The only issue which would prevent you from obtaining flood insurance is if you reside in a Coastal Barrier Resource System location, or a location that is designated as an Otherwise Protected Area. Land that falls under these two categories are undeveloped areas along coastlines. The flood insurance program doesn’t provide coverage in these areas to discourage settlement where there is an extreme risk not only for flooding, but potential loss of life.
- You can only get flood insurance if you are a homeowner. Condominium/co-op owners, apartment dwellers, and commercial/non-residential building owners can purchase NFIP coverage. There is a maximum of $250,000 worth of coverage on a one-family residential building. The maximum per-unit coverage limit on a residential condominium/co-op association building is also $250,000. Contents coverage for any residentialbuilding is limited to $100,000. Commercial/non-residential structures can be insured for a maximum of $500,000. You can also insure the contents of commercial buildings up to $500,000.
- You have to wait 30 days for flood insurance protection to take effect. Usually there is a 30-day waiting period from the time a policy is purchased until you are covered. However, there are some exceptions. There is no waiting period if you already have a flood insurance policy, but need more coverage to increase, extend or renew a loan, such as a second mortgage, home equity loan, or refinance. Coverage is effective immediately, as long as you pay the premium at or prior to loan closing. There is a one-day waiting period when additional coverage is requested because of a map revision. This applies when the NFIP revises the map so that a non-Special Flood Hazard Area becomes a Special Flood Hazard Area. Coverage must be purchased within 13 months following the map revision to be applicable for the reduced waiting period.
- You can get Federal Disaster Assistance even if you don’t have your own flood insurance policy. The Federal Disaster Program will only provide coverage to uninsured individuals or businesses if the affected area is declared a federal disaster area, which occurs less than 50% of the time. Statistics show the awards average about $4000 dollars and most are made in the form of a Small Business Administration Loan, which must be paid back with interest. Furthermore, the award recipient must carry flood insurance for the duration of the loan.
To learn more about the terms of flood insurance coverage, log on to http://www.floodsmart.gov/floodsmart/pages/faq_policy.jsp.
Source: FEMA Publication F-216 (08/04) and www.floodsmart.gov
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Owning a condominium is a cross between being a homeowner and being a renter. The unit you purchased belongs to you, but you are still subject to the by-laws of the association that runs the entire complex. That puts you smack dab in the middle when it comes to insurance coverage.
Generally speaking, the condo association will have a master insurance policy that covers general liability for the physical structure and physical damage to the common areas that you share with all of the other unit owners. Keep in mind that while you are covered under the master policy, it is only for these specifi c instances. It is important that you determine which structural parts of your condo are covered by the association’s master policy and which are not.
You also need your own coverage to protect you in the event you lose your possessions. You may also want to obtain coverage for third party injury liability within your unit, property damage to another unit that is caused by you, the loss of structural improvements that you have made to the unit, and additional living expenses that result from having to move out of your unit temporarily.
When you purchase individual coverage, keep in mind that premiums, types of coverage, and limits are affected by factors such as your geographic region and credit score. Talk to your insurance agent about what discounts the company offers for such items as installing smoke detectors and dead bolt locks, purchasing insurance for both your condo and your car with same company, and maintaining your home as a non-smoking environment. Also, if you want to lower your annual premium, you may consider raising your deductible; however, if you choose a higher deductible, you will pay for smaller claims outof- pocket. Handling smaller claims yourself is a good practice under any circumstances because too many small claims can raise your rates significantly.
Make sure your personal policy includes liability coverage even though you are covered under the general liability coverage in the master policy. You need liability coverage to protect yourself in the event of accidents to guests that occur within the confi nes of your dwelling. You could also be liable if an action of yours inadvertently causes damage to the physical structure or to common areas. The condo association may have insurance coverage, but if you were negligent, they can and will seek redress from you.
When you are reviewing the actual coverage, keep in mind two important considerations. When given the option of replacement coverage or actual cash value coverage, choose the former. Cash value is cheaper, but you will pay for that savings down the road if something happens to your possessions. Actual cash value policies reimburse you for what you paid for the items, minus depreciation. With replacement insurance, you are reimbursed for what it will cost to replace your possessions at today’s market value.
The second consideration is coverage for loss of use. This reimburses you for the expense of a hotel room or other temporary accommodation if you’re temporarily forced out of your home. Loss of use coverage is usually limited to 20% of the personal property limits on your policy.
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Severe weather can produce strong winds that can seriously damage your home and threaten your family’s safety. Unpredictable wind gusts can change direction and speed quickly and threaten the integrity of a building’s structure. During high winds storms, flying debris can prove lethal.
By maintaining a “tight seal,” keeping the outside wind from getting into your home, you may be able to keep your home safe from this type of damage and reduce the possibility of someone getting injured.
The following items can reduce the chance of your home being lifted off its foundation by providing uplift resistance:
- Anchor bolts with heavy-gauge, square bolt washers can be installed during new home construction or added in existing homes to connect the floor construction to the foundation.
- Plywood or OSB (oriented strand board) can connect the wall and floor components if properly nailed and installed.
- Metal bracing connecting roof trusses or rafters to the wall framing.
Sheathing should be properly sized and nailed to comply with applicable building codes. Install underlayment material, such as asphalt-saturated felt. Provide separate, secondary water infiltration protection by sealing roof deck joints with a self-adhering modified roofing underlayment (thin rubber/asphalt sheets with peel and stick undersides located beneath the roof covering).
Roofing products with high wind resistance are available. Discuss with a contractor what measures can be taken to ensure the installation of your roof will be completed with high winds in mind. Insist they use hot-dipped, galvanized nails instead of staples to attach asphalt shingles.
To protect against flying debris, windows and glass doors can be fitted with impact-resistant laminated glass or covered with impact-resistant shutters.
Solid wood or hollow metal doors are more wind resistant and are better equipped to handle wind pressure and flying debris.
Reinforce protection of entry doors by:
- Making sure your doors have at least three hinges and a deadbolt security lock with a minimum bolt throw of at least one inch.
- Consider not using double-entry doors, but if you do, install head and foot bolts on the inactive door of double-entry doors.
- Since double-entry doors fail when surface bolts break at the header trim or threshold, check connections at both places. The surface bolt should extend through the door footer and through the threshold into the sub floor.
Garage doors are especially vulnerable to damage during high winds, unless your doors are properly braced.
- If building a new home, consider installing horizontally braced, singlewide garage doors instead of double overhead doors.
- For existing homes, check with your garage door manufacturer for availability of retrofit bracing kits.
- Garage door panels, especially for doublewide doors, may require both horizontal and vertical bracing to ensure stability.
It is a good idea to have a room in your home to go to in the event of a high wind storm. If your home has a basement consider constructing a safe room, but if this is not possible then stay on the ground floor. A safe room is constructed with reinforced floors, walls and ceilings and can be designed for both new and existing homes. It will provide you with a safe haven during a major storm.
Manufactured homes are especially vulnerable during high winds since they are not built on a permanent foundation. While tie-downs can help they secure the frame, not the entire house and they can also weaken over time leaving the home susceptible to damage. The home’s foundation-to-wall or wall-to-roof connections may be compromised in the wind. Failure in either of these areas could result in a complete loss of the home. A safe alternative might be a community storm shelter or other permanent structure to ensure your safety.
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Due to sustained record low interest rates, many homeowners have elected to take on major home remodeling projects. According to the National Association of Home Builders, approximately 26 million Americans spend more than 180 billion annually on home improvements. In many cases, however, homeowners are not updating their insurance at the same time, leaving themselves extremely vulnerable.
Making sure you are appropriately insured should begin at the very start of a project. A contractor should not be hired if they cannot produce their certificate of insurance. The contractor should provide you with a copy of their certificate, which shows the type and amount of their insurance coverage. This should include general liability, workers’ compensation and auto coverage, and the policy must be current.
It is equally as important to make sure that any subcontractors that your contractor brings in to the job are similarly insured. This is particularly important now, as insurance rates for the construction industry have recently risen significantly. You want to make sure a member of your remodeling team didn’t choose a coverage lapse over a premium increase.
When you choose to take on a remodeling project yourself, you must review your own coverage for liability and property damage issues, particularly when bringing in subcontractors to help with the work. As the homeowner, you may be liable if they are injured during the scope of your project. Even if your current policy covers any injuries related to the renovation, we often recommend that homeowners carry umbrella liability coverage, which would cover a claim beyond normal limits.
In addition to liability issues, it is key to increase your homeowner’s coverage based on the added value to your home. Kitchen and bathroom renovations are the most common and tend to be quite costly. They also substantially increase the value of a home.
Homeowners should use caution not to over-insure themselves. Don’t increase your insurance based on the cost of the remodel. You should determine how much it would actually cost to rebuild your home with the added improvements. This replacement cost is the amount that needs to be insured. The cost to remodel also includes tearing out old materials. Therefore, in some cases, the cost difference to rebuild the home may be less than the actual renovation cost itself.
The most important item to consider is to contact your insurance agent to increase your homeowner’s limits before, not after, a renovation project. This will ensure that you are covered should any fire or damage occur during a renovation.
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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.