Many of us (I mean, hardly ANY of us) have taken the time to actually read our homeowner’s insurance policy. Maybe we may have STARTED to read it, since we felt that knowing what was in our policy was a pretty important thing. I’ll tell you, that even for a hard-core insurance guy like me, slogging through all of the “who is an insured,” and “what is a contract,” and “time is of the essence” stuff in the insurance contract, well, it can get a little mind-numbing......
There are, however, little tidbits in the homeowner’s insurance contract that I’ll bet you didn’t know about. Items that could provide you with coverage in places and situations that you least expected! I’ll go over three different coverages that you may very well find yourself needing at some point in your life. First of all, your homeowner’s insurance policy could extend liability to another location. For example, if you were to buy a home in another part of the state, like in the mountains, and could only get a California Fair Plan policy, your homeowner’s insurance could be amended to provide liability to that location. In many cases, at absolutely no extra charge, or for very little charge. This is a huge amount of potential savings to you and your family! Call your insurance agent to make sure this coverage is included. Secondly, hall rental is probably covered by your policy. As some of us get older, we start facing the prospect of our kids getting married. Without opening up ANOTHER can of worms, insurance-wise, I’ll stick to talking about facilities’ rental. Most facilities require that you provide at least $1,000,000 worth of liability coverage prior to using their hall. If you were to get this coverage out on the open market, the cost would be around $150 per event: per location! Your homeowner’s insurance policy can most likely be temporarily tailored to accommodate the $1,000,000 requirement for just pennies a day. I have actually had policyholders tell me AFTER the wedding that they had paid close to $200 for event insurance that I could have provided for almost free. Yes, your homeowner’s policy can do that! Finally, your policy covers Additional Living Expenses. Did you know that your policy could provide you with a place to stay EVEN if absolutely nothing has happened to your house? This recently happened to a couple of my insureds. There were fires all around their neighborhoods, and the local law enforcement and fire departments had ordered residents to voluntarily evacuate. One of my insureds was hesitant to leave because it would have cost a large amount of money to get a hotel room. I called them personally to inform them that their policy would provide Additional Living Expenses (ALE) coverage EVEN IF nothing had happened to their home. All that was needed was an order from the Civil Authority to evacuate. Bottom line, the insurance company doesn’t want to have anybody in the home getting in the way in the event of a large-scale fire or incident. There you have it! Three different coverages that are provided at little or no cost to you, all included! To find out what additional coverages might apply to you, please give or office a call at (661) 946-4224 or email me at dave@thedaveowens.com. This article obviously does not take the place of speaking with a licensed professional about your policy. Make sure you look at your individual policy to see what is specifically covered.
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For anyone who has lived in Southern California for any length of time, you know that this is Earthquake Country! In fact, a little shaking of the ground barely generates a comment from locals! It has to be a fairly large earthquake to get our attention!
That being said, earthquakes are no laughing matter. A casual observer can see hairline stucco cracks radiating out from windows in homes of even fairly recent construction. While our homes in Southern California are designed to be earthquake tolerant, they are NOT earthquake proof! One of the most common questions I am asked as an insurance professional is, should I purchase earthquake insurance for my home? The answer to this question is not a pure “yes” or “no,” but each individual situation needs to be examined. While only you can make the right decision on purchasing earthquake insurance, I will give you a few thoughts to consider. First of all, the big player for earthquake insurance in California is the California Earthquake Authority, or “CEA.” Admitted insurance companies (those who have been licensed by the California Department of Insurance) who sell homeowner’s insurance are required to offer earthquake insurance through the California Earthquake Authority. In fact, insurance buyers are required to sign a form saying that they were offered earthquake and that they chose not to purchase it. That’s how important the State of California views earthquake insurance. In addition to the CEA, there are a number of other companies that offer earthquake insurance as well. They often offer earthquake insurance for larger risks like apartments or retail buildings. With that introduction to the earthquake insurance market, the question remains, “should I buy earthquake insurance?” In my opinion, the main concern you should have is another “EQ” word, and that word is “equity.” Equity is the value of your home, minus any financial encumbrances you have on it. In other words, the value of your home minus the mortgage. For several years, many people had negative equity, or they were “upside down” on their home: they owed more than the home was worth! For someone in an “upside down” situation, purchasing earthquake insurance may not make sense. The reason for this is, if an earthquake were to occur, the purchaser could still very well find themselves without a home. They purchased insurance on their home, but after the deductible is factored in, all of the money goes to the mortgage company, and the homeowner does not have the means to rebuild! The earthquake policy ended up leaving them in a worse position because they paid premiums for a policy that provided them little to no benefit. On the other hand, someone who has a substantial amount of equity should seriously consider purchasing earthquake insurance. When you have a mortgage on your home, you and the financing institution share ownership of the property. As you pay down your mortgage, your share of the ownership goes up, the bank’s goes down. The amount of money that needs protecting goes up as the years go by. We are currently seeing a rise in property values which is speeding up the increase of values of homes. You may very well have gone from “upside down” to very well placed value-wise in a very short period of time! If you are in this position, a visit with your insurance agent is probably in order. Earthquake policies are structured differently than regular homeowner’s policies. Rather than having a set dollar amount of a deductible ($1000, $2500, etc.), the deductibles are set as a percentage of the total rebuild cost of your home. Currently, the CEA offers a 15%, 10%, and very recently, a 5% deductible. How it would work is, if your home costs $300,000 to rebuild the deductible would be $45,000 if you were to have a 15% deductible. If you were to purchase a policy with a 10% deductible, you would pay $30,000 out of pocket. This high deductible has kept many people from purchasing a policy, and that reticence is certainly understandable based on the scenario I detailed above. The logic in purchasing an earthquake policy if you have equity in your home, even if you do NOT have the $45,000 to rebuild is that you would at least get SOMETHING out of your home. If you had $150,000 worth of equity, and you had $45,000 as your deductible, you could still potentially get over $100,000. Without the coverage, you get nothing. People often ask about whether or not the Federal government would help out in that situation. While I’m not disparaging the hard-working people of FEMA, the assistance provided by the Feds was variable at best. Using FEMA as your sole hope for insurance is probably not a good idea. As I said before, purchasing an earthquake policy is unfortunately not a black and white issue. It takes thought and information: something that our office can provide. If you are struggling with whether or not to purchase earthquake insurance, give our office a call. You can reach us at (661) 946-4224, or you can email me at dave@thedaveowens.com. I or my licensed staff will be happy to go over the “ins and outs” of earthquake insurance. I would also strongly suggest that you check out the following website http://www.shakeout.org/california/ for information on how to get prepared for the “Big One.” Whether or not earthquake insurance is right for you, every family should have an earthquake disaster plan, and this site can help you be prepared. Personal Liability Umbrella Policy (PLUP) One of the insurance products that I am often asked about is the Personal Liability Umbrella Policy, or “an Umbrella” for short. An Umbrella policy is one that provides an “umbrella” of liability protection over your auto and home insurance. Umbrella policies are purchased in increments of $1 million and work with the auto and home liability coverage provided by your personal lines policies. While the mechanics of an Umbrella policy are fairly simple, whether or not one is for you is the question that more people have. While not everyone has an Umbrella policy, the people that own one are very satisfied. They really enjoy the peace of mind that the Umbrella policy provides. Think about it: being assured that if you were sued for something over which you believe you had no control would be covered $1 million above and beyond your auto or home policy. How much is this peace of mind worth? What usually gets people hung up is that one cannot just purchase an Umbrella Policy without a review of the underlying auto and home insurance. To qualify for the Umbrella, you need to have at least $300,000 worth of coverage on your home policy, and 250/500/100 on your auto policy, or some variation thereof (at least with most insurance companies). Many homeowners carry at least 100/300/50 on their auto policies, but to purchase an umbrella, the liability levels must be increased to the amounts I indicated above. Some companies require that you carry your auto and home insurance with them before they will write an umbrella policy, or else they charge a higher premium. The thinking is, they don’t want to take up where another company left off should the Umbrella Policy be accessed. They would much rather control the claim from start to finish. There is one other important feature that makes Umbrella Policies very attractive to certain consumers. Umbrella policies can be endorsed to include income properties. For an extra fee per property, the Umbrella can be expanded to cover each additional property. Apartments can also be included in some situations. So the big question is, should I purchase an Umbrella Policy? The answers is probably so. If you are a single person renting a single bedroom apartment with a ton of student debt and a car that barely runs, the answer is probably not. If you were in an accident, you would not be that big of a target. You don’t have many assets to protect. I’m not saying that it’s a bad idea, I’m just suggesting that your insurance dollars may be better spent elsewhere. If you are a homeowner, the situation becomes a bit different. You now have a very valuable asset. During the housing boom prior to the Great Recession, people were finding themselves millionaires on paper. Their home’s value had skyrocketed, and they were now in possession of a very valuable piece of real estate. They were now a MUCH bigger target than they were before. While the Recession wiped out much of the value of the real estate market, prices are starting to go up again. People who kept their homes through that difficult time are now starting to see their equity grow. Bottom line, they have more to protect. Are homeowners good candidates for Umbrellas? You bet! Over the years, I’ve seen that the presence of a Youthful Driver can increase, not only the occurrence of losses, but the severity of losses. Parents of Youthful Drivers should give extra thought as to whether or not an Umbrella is a wise investment in coverage and peace of mind. Another group of people for whom Umbrellas may be a wise purchase are people that are in professions that many people may perceive as highly prestigious, or if people have the perception that they have money. _This would include professionals like doctors, attorneys, or even business owners. Many doctors and other professionals, when they first start out, have a fairly low net worth since they probably have 10’s of thousands of dollars in student loan debt. While their net worth may be low, people perceive them as being wealthy. Prominent people in the community should also seriously consider purchasing an Umbrella Policy. Umbrella policies have made the news in past years when prominent people found themselves in situations that they would rather not have been. Former President Bill Clinton used his Personal Liability Umbrella policy to cover some of the lawsuits he experienced. You can check out the story here. http://bit.ly/22nZtdQ The final questions is, what does $1 million worth of Liability Insurance cost? The answer is (drum roll please…..) possibly under $250 per year. I tell people this figure, and many simply don’t believe it. They could get $2 million worth of coverage for under $375 per year. No joke. While there are several factors that weigh on the premium (number of cars, number of houses, presence of youthful drivers in the household, etc.), the rate is much more affordable than many people think. The biggest expense usually associated with getting an Umbrella Policy is getting the Liability limits on the auto insurance up to the appropriate levels. If you think that you may benefit from the peace of mind that owning an Umbrella Policy brings, feel free to contact my office at (661) 946-4224, or email me at dave@thedaveowens.com. I or my licensed staff will be happy to review your individual situation to see if an Umbrella Policy is for you. My daughter recently got her Learner’s Permit. She may now legally drive if she has a licensed driver over the age of 25 years old. This event got me to thinking about when I was just about her age. Back then, getting a driver’s license was a rite of passage, and every young person could hardly wait to get out on the road! Whenever my parents needed some milk picked up at the supermarket, I was their guy! As I got older, I learned about things like car payments and insurance. When I first started paying for it myself, the most important thing was to get it as cheap as possible! Unimportant little things like coverage were not for me! Just get that price down! As a result of these skewed priorities, my initial insurance policy was at the State minimum. Uninsured Motorist? Nope. That costs extra. Gotta keep that price down! When I got a newer vehicle, I had to learn about full coverage. I learned about this thing called a “deductible,” and that created a whole new level of consideration. What if I were in an accident? I didn’t have $1000 laying around, so I decided that I would keep my liability limits low, and decrease my deductible to $250. I might be able to scrounge up $250 if I were in an accident, or if my car were stolen. Fast forward a few years, and I am now a married man with a mortgage. While price was still an important factor, coverage moved WAY up on my list of priorities. When I first got into the insurance business, I came to realize that State minimum for a homeowner was a really bad idea. If I were in a very serious accident, I could very easily find my home ownership in jeopardy. I started to make some changes to my policy based on my newfound knowledge about how insurance works. I also increased that $250 deductible to $1000. I saved more on increasing the deductible that increasing my liability cost me. I had finally graduated from “high school insurance.” A few years later, I caught up with a friend I knew in high school. He heard that I was in the insurance business and wanted me to take a look at his program. Like me, he was now married with a child and one on the way. He actually had TWO homes: the one he was living in, and the one he used to live in, but kept as an income property. I was very happy to see that he had done very well for himself. I asked him to send me over his insurance declaration pages and I would see what I could do for him. I was quite shocked to find out that my friend still had State minimum for his liability coverage with $250 deductibles. While his home insurance program was okay, he was grossly underinsured with his auto coverage. When we spoke next, I asked him when he had last reviewed his auto coverage. He told me that he had never really reviewed his coverage since he had bought his first vehicle in high school. He had just replaced his vehicles with his insurance agent and kept the same coverage every time he swapped vehicles. He figured that since everything had been going okay, there was no real reason to change. My friend and I had a great conversation about graduating from high school! He had quite a bit of equity in his income property, and he had quite a bit saved up in his retirement program. He was astounded that his current insurance agent had never suggested that he increase his auto liability coverage (as was I!). We immediately increased his liability limits as well as his deductibles. He ended up with a vastly superior program, and he also bought some life insurance for himself and his wife.
The moral of this story is that it is very easy to just kind of let things go if there is never any reason to consider changing your policy. My friend had a clear record and had only had a minor accident. While he got off lucky, many other people find themselves in a bad situation because they never moved on from “high school insurance.” If you think you are still stuck in high school, it’s time to graduate! Give my office a call and we’ll make sure you get your diploma! You may reach me at (661) 946-4224, or you can shoot me an email at dave@thedaveowens.com. I or my licensed staff will be happy to go over your program and give you a graduate degree in insurance! Homeowner’s Insurance, Dwelling Insurance, and Coverage, Oh My! For those of you who have bought a home, you are aware of the mass of papers that await you before you can close escrow. There are legal documents, government documents, vesting documents, loan documents, documents to document that you got documents….it can be VERY intimidating! One of the documents that must be submitted if you have a loan is proof of insurance. This is usually one of the very last items requested because you don’t want to pay for insurance on a home you don’t own yet! After looking at piles and piles of paper, many of which, to be honest, you didn’t read, what kind of insurance policy you need probably takes way more mental energy than you’re ready to engage! Never fear! That’s why you have me, your friendly Hometown Agent who lives for examining insurance policies for you! I’m going to break it down for you so that you can make a good decision on what will probably be the largest purchase you will ever make: your home. The reason insurance is required when you get a loan is that your mortgage company doesn’t want to be left with a pile of ashes in the event your home burns down. In a home purchase, the mortgage company initially takes on the bulk of the risk in that they have more invested in it than you. They want to make sure that they will get their money back should your home go up in flames. That being said, the mortgage company is looking out for their own interests, not yours. They just want to make sure that if the house is destroyed, they get paid. They have no real concern about your liability, your personal property, or whether or not your guests get hurt at your home. Fortunately for you, I care a great deal about that and it is my mission to make sure that you have a policy that meets your specific needs. Here is what you need to know about coverage for your home. Homes can be insured in a variety of ways. The two most common are the Homeowner’s Policy (insurance shorthand calls them “HO” policies) and the Dwelling Policy (insurance shorthand called, you guessed it, “DP” policies). To differentiate the different classes of policies, they are given numbers. You might see an HO-1 policy, but those are very rare because most savvy homeowners realized that the coverage provided under the HO-1 policy just wasn’t sufficient. Much more common is the HO-3 policy. For people who live in their homes (as possessed to owning an income property), I ALWAYS recommend an HO-3 type policy. These policies are much broader in that they provide replacement cost coverage, liability, personal property coverage, and offer a large variety of endorsements that you can pick to cover specific items or situations. It is important that you sit down with an insurance professional at some point to go over what you want to cover. On occasion, I have written a policy for someone because they needed it to close escrow before we had a chance to get together, but I always insist that we get together shortly thereafter to go over everything. As I often say, AFTER the claim is a really bad time to learn about your policy! The second way to cover a home is with a DP policy. The DP policies are based on older policy language than the HO policy and is much more limited in what can be covered. The most basic building coverage you can get is a DP-1. This policy is very bare bones, but your mortgage company will accept it for the purpose of closing escrow. Since the coverage is so limited, the premiums are usually much lower than the HO policies. The term used in the insurance world is “Named Peril.” That means that the policy specifically names what is covered by the policy. You’ll often seen fire, lightning, hail, and windstorms as covered losses, but….theft, water damage, and liability may be left off. If someone was not paying attention, they could be leaving themselves open to a devastating loss that is not covered by their policy! At the same time, there is a place for the DP policy. Many property investors purchase Dwelling policies for their investment properties because they have quite a bit of liquid assets that they use to “self-insure.” They apply some risk management techniques to calculate risk versus reward and figure out what types of risks they want to retain, and what risks they want to shift (also known as insuring them). Where the rubber often meets the road on Dwelling versus Homeowners policies is that, when someone is buying a home, keeping costs down is often very important. Every dollar counts when coming up with what type of monthly payment someone can afford. Rather than buying a home that may be a little smaller than what they want, they make the unwise choice of getting a bigger house and skimping on the insurance. I have seen people with very expensive homes being covered by DP-1 policies because they made the double mistake of buying too much house and underinsuring it. Your best bet is staying within your budget and buying a policy that will adequately cover your investment. Insuring your home improperly could have devastating consequences for years to come. Just to give you the whole gamut of insurance number combinations, you may see an HO-4 or an HO-6. The HO-4 policy is coverage for Renters. This policy provides pretty much the same coverage as an HO-3 MINUS the dwelling coverage. You can cover your liability and personal property while leaving the dwelling coverage to your landlord. Renter’s insurance is one of the best kept secrets in insurance in that it is very inexpensive, provides broad coverage, and can qualify you for discounts on your auto insurance with many companies. The HO-6 policy provides coverage for Condominium owners. Condominiums are kind of unique in that, the homeowner owns the unit, but they don’t directly own the structure they live in. In condominiums, there is a Master Policy that covers the structures, but does not cover the individual unitowners’ liability and personal property. A general rule of thumb on Condominium coverage is that, if you can see it, it’s NOT covered by the Master Policy. It’s also called “paint to paint” coverage. The individual owner usually needs to insure all of their buildouts like their sink, their bathroom commode, and possibly even the walls within the unit. For condo owners, having an experienced insurance agent is extremely important. Not all agents are familiar with the unique requirements of a condominium owner, so make sure that your agent knows his or her stuff!
I could cover quite a bit more, but I think for most people, this information will give you a framework to form the basis of an educated decision. As always, if you would like more information, please feel free to call my office at (661) 946-4224, or shoot me an email at dave@thedaveowens.com. While this information is useful for many folks, it is no substitute for sitting down with an insurance professional to look at your individual situation. |
AuthorDave Owens, Owner/Agent. I have proudly served in the Insurance Industry for over 20 years. Archives
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