The last few weeks in Illinois we have seen some pretty heavy rains and extensive flooding in the northern suburbs of Chicago. As a result there are many home owners learning hard and expensive lessons about water damage and flooding. What’s covered…and what isn’t by their homeowners policies.
When was the last time you reviewed your property and casualty insurance in a detailed manner with your agent? Have you bought a house, a new car, started a business or acquired a rental property in the past year? If so, schedule a review with your agent today. Take time to understand your coverage and walk through a couple of scenarios to make sure your coverage matches your expectations in the event of a claim.
A common mistake I see consumers make is an obsession with price. No one wants to over pay for coverage. However a lower price typically means lower coverage. If you ever become a victim of or suffer property damage having a claim denied could be financially devastating.
Don’t let the fruits of your hard work be exposed to the risk of poor insurance coverage or insufficient protection. I highly recommend getting a second opinion to ensure you are receiving the right coverage & service at a competitive rate.
If you are looking for a second opinion, feel free to contact me and I’m happy to provide a referral to licensed professional.
Comparing Auto Insurance Policies
You’ve just bought a new car, and now you need to insure it. Or maybe you already have auto insurance, but you’re looking to make a change. How do you cut through all the sales jargon and find a policy that suits you at a good price? Knowing how to compare policies is a big piece of the puzzle.
Compare similar policies
Comparing auto insurance policies makes the most sense when the policies you’re comparing are similar. The more similar they are, the more useful your research will be. Fortunately, the personal automobile policy is a fairly uniform contract that’s used throughout the industry. This means that policy exclusions, limitations, and other provisions shouldn’t vary significantly between policies. But you have some leeway when it comes to choosing your coverage. For example, collision coverage for your vehicle is optional in virtually every state. Medical payments (med pay) and uninsured motorist coverage may also be optional, depending on where you live. You can also choose the limits of your coverage in each area of auto insurance, though you can’t have less than state law requires.
Before you start comparing policies, ask yourself how much liability coverage you need to protect your home and other assets in case of an accident. If med pay is optional, do you need this type of coverage (and how much) if you have good health insurance? Do you need collision/other-than-collision (also known as comprehensive) coverage if you drive an older used car? Should you have the same limits of uninsured motorist coverage as liability coverage? The answers to these and other questions will allow you to determine your particular auto insurance needs. This is an important first step because you’ll then be able to compare policies that provide the same types and amounts of coverage. It’s best to have a qualified insurance professional help you make these decisions.
The premium is obviously important when you’re comparing policies. After all, your main goal is to get the coverage you need at the lowest possible price. This is especially true when you’re on a tight budget, though no one wants to pay more for coverage than necessary. You should get premium quotes from at least three reputable insurers and compare the results. Before giving you a quote, a company representative will ask you a series of questions about the coverage you’re seeking and other matters. If you’re working with an agent or broker, he or she will select the insurance companies and provide them with your information.
Don’t stop there–price isn’t everything
If the quotes you get are for policies that provide basically the same coverage, the lowest-priced policy may very well offer the best value. However, that’s not always the case. Sometimes a more expensive policy may actually be a better deal when you look at issues other than cost. Though auto insurance policies are standardized to a large extent, you should still compare the provisions and features of the policies you’re considering. It’s also important to learn as much as you can about the companies behind the policies. If you compare only premiums, you might end up regretting it down the road. Here are some good questions you should try to answer with the help of an insurance agent or broker:
- What level of customer service can you expect from the company? For example, does the company have a reputation for paying claims in a timely manner?
- How long do you have to file a claim after an accident, theft, or other covered loss? This is usually specified in the policy.
- What steps do you have to follow throughout the claims process? For example, can you choose your own repair shop or do you have to use one chosen by the company?
- Will the company cancel your policy if you miss a premium payment, or will it just send you a late notice?
- Does the company offer the extra endorsements you’re looking for (such as towing and labor or increased coverage for rental cars), and at what additional cost?
- Does the company offer the same (or better) discounts as its competitors (discounts can also vary widely among insurers)?
Property coverage–your home
To determine the level of property coverage you should have on your home, you’ll need to find out how much it would cost to rebuild it, since the cost of rebuilding a home is often higher than the price initially paid for it. An insurance agent can help you calculate the current cost of construction for a home like yours, or you can hire a professional appraiser.
It’s important not to mistake market value or taxable value for the amount for which you should insure your home. For example, assume you own a 2,000-square-foot home that has a taxable value of $125,000 and would cost $70 per square foot to rebuild. The total cost to rebuild your home would be $140,000. If you were insured only for your home’s taxable value, you’d have a $15,000 deficit.
Property coverage–your personal property
Standard homeowners insurance policies typically cover your personal property at 50 percent of the value of your home. Certain items (e.g., jewelry) are covered up to a specific dollar amount. However, this standard level of coverage may not be sufficient to cover the replacement of your property.
Ideally, you want enough insurance coverage to replace your possessions if they were destroyed or stolen. If the value of your possessions is more than 50 percent of the value of your home, you can buy additional coverage through riders and/or endorsements.
To determine how much personal property coverage you need, start by making an inventory of all of your home’s contents. List the serial number, date, and cost of purchase. Be sure to include any receipts, if possible. To make things easier, you may want to use a video camera or take photos.
The standard amount of liability coverage in a homeowners policy is $100,000, and the policy provides coverage for liability claims, medical payments to third parties, and legal costs for any lawsuits brought against you. The amount of liability coverage you should have depends on the assets you would like to protect (e.g., home, car, investments).
It’s important to periodically review your homeowners coverage to make sure that it’s in keeping with any major purchases or additions to your home. For convenience, you may want to add an inflation-guard endorsement to your policy, which instructs the insurance company to automatically raise your policy limit (no doubt this will also increase your premium) at each policy renewal, according to a predetermined index of local home values.
How can I reduce the cost of my homeowners insurance?
How can I reduce the cost of my homeowners insurance?
There are many ways you can save on the cost of your homeowners insurance premium, with some possibilities existing within the policy itself. Most insurance companies offer several different credits for certain characteristics and circumstances. Your state may offer discounts, as well.
Insurance rates will vary depending on the home construction and location. The more fire-resistant the building materials, the lower the rates will be. Brick homes have lower rates than wood-frame homes. Rates are also affected by how close your home is to a fire hydrant. The town in which you live affects the rates, with each town being graded by the state or the insurance company. The grades reflect proximity to the closest fire department, road accessibility, congestion, and other characteristics that would affect the fire department’s ability to get to a house fire quickly.
Insurance companies will often issue credits to their customers for the following:
** Having protective devices, such as smoke and burglar alarms
** Homes that are less than 15 years old
** All occupants in the home are nonsmokers
** Insuring both your auto and home with the same company for a multiple-policy discount
** Renewing the policy with the same company
Selecting a higher deductible and reducing or omitting coverage can also help you save money. Check your policy to be sure you’re not being charged for insurance coverage you don’t need. Some states offer credits in partnership with insurance companies and businesses. For example, you could attend a state-sponsored home safety workshop and receive a credit on your homeowners premium or a discount at participating home supply stores. Ask your insurance agent or insurance company for further information.
If you rent a house or an apartment, you might think you don’t need insurance because you don’t own the building. After all, your landlord probably has coverage. But your landlord’s insurance covers only the building, not the contents. Without insurance of your own, you could be left with nothing in the event of a fire or burglary.
That’s why you need renters insurance (HO-4), a special kind of homeowners insurance. It provides no coverage for the building itself. Instead, it covers your personal possessions and protects you against liability claims if you rent a house or apartment.
Property damage coverage
Renters insurance policies cover only losses that result from any of 17 named perils. If your property is lost or damaged as a result of one of these perils, your insurance company will compensate you for your loss.
Keep in mind that most renters insurance policies specifically exclude certain perils (e.g., earthquakes, flooding). As a result, you may need to purchase a separate policy to insure your possessions against damage caused by these hazards.
Property coverage levels typically start somewhere around $15,000 and go up from there. As you increase your coverage level, your premiums increase as well. An insurance professional can help you determine the amount of coverage that you need. Or, you can visit one of the many insurance websites for more information.
Replacement cost vs. actual cash value
These may sound like highly technical terms, but they are actually very important in determining how much money you will get if you ever have to file a claim. When you get a quote from your insurance agent, make sure you know which type of coverage is being described.
Actual cash value coverage reimburses you for only the amount that your property was worth at the time it was stolen, damaged, or destroyed. This means that if all of your clothes suffer smoke damage in a fire, your insurance company probably will pay as much as you could’ve made at a yard sale–not the $4,000 you spent over the last couple of years to create the perfect wardrobe.
Replacement cost coverage, by comparison, reimburses you for the amount that it will cost to replace your property. If you bought a $400 television two years ago, you’ll receive enough money to go out and buy another television just like the old one. You will probably have to replace the lost property with your own money and submit the receipt before you receive compensation. Nevertheless, replacement cost coverage typically pays significantly more than actual cash value coverage.
Renters insurance also provides liability coverage. A typical renters insurance policy covers you for accidents and injuries that occur in your home, as well as accidents outside of your home that are caused by you or your property. (This does not include automobile accidents.) This liability coverage includes legal defense costs, if you are taken to court over such an accident. Standard levels of liability coverage are $100,000, $300,000, and $500,000. The amount of liability coverage that you need depends on your individual circumstances.
IMPORTANT DISCLOSURES Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
Kit Lancaster is a Financial Advisor and Certified Financial Planner Professional from Chicago, IL. He enjoys working with professionals, families and business owners who have a desire to be financially successful and desire courses of action, education and perspective to aid them in accomplishing their financial goals. Kit holds regular educational events in Chicago and online.