Molly's Musings | Questions Addressed About Insurance
Questions addressed that may be a bit amusing.
Why do I need homeowner’s insurance?
Why do I breathe oxygen instead of carbon dioxide? Why is a flat looking earth round? Who invented the ponytail? These are one of the many complicated questions in life. Fortunately the age old question of why you need homeowner’s insurance is relatively simple. If your neighbor flicks a smoldering cigarette butt onto porch and burns your house to the ground how are you going to pay for re-building your house? This isn’t a trick question. You guessed it. The answer is insurance.
The complicated questions arise as a subset of the initial question. Do I have enough coverage? Do I have too much coverage? (You can NEVER have enough coverage is probably what you think I’m thinking but that’s not true.) What is covered? More importantly what is excluded? What is the meaning of life?
Let’s first discuss the coverages that are included in a standard homeowner’s insurance policy.
Dwelling – This would be your actual house and structres attached to the home such as decks, balconies, garages etc.
Other Structures – This includes but is not limited to sidewalks, patios, detached decks, detached garages, emotionally detached sheds etc. I’m getting tired of saying detached so I’ll stop here and elaborate later.
Contents – This is your stuff such as your clothing, furniture, donkey kong figurine collections, so on and so forth. There are some limitations to this coverage that I will delve into later.
Loss of Use – If you can’t live in your house due to a loss this coverage will pay for the EXTRA expense for a hotel, food, etc. This isn’t an all expense paid outing to a penthouse in Portland unless the house that you lived in was a penthouse in Portland.
Liability – This coverage is for incidents in which you are found liable for. Imagine that. If you don’t clear off ice on your driveway and your pesky little neighbor coming to dish you a helping of scones and gossip slips on the sidewalk and twists her legs into positions you didn’t think were possible she could sue you. Your liability coverage would kick in.
Medical Payments – This coverage is lovingly called “good-will” coverage in the insurance world. (I would not want to live in this world. All of the buildings would be made of reinforced concrete and the occupants would carry around lead-lined pocket protectors.) You don’t have to be liable for this coverage to kick in. If your mother-in law trips on her shoe lace and you feel like saving yourself from an exhorbitant amount of whining you could have your insurance cover the medical costs for said mother-in-law even though it wasn’t your fault.
There are more coverages available on your homeowner’s insurance policy but my hands are sore. If you want to know about more options on your policy the sky is the limit. Feel free to talk to your agent who is most likely going to be me. Be NICE to me.
Chances are if you have a standard homeowner’s insurance policy you have replacement cost on your dwelling and your contents. If not you need to check with your agent and relay your extreme displeasure with them unless your agent is me. If your agent is me then there is probably a good reason why you don’t have this coverage. Namely your home is too old to qualify for the coverage or the home is vacant.
If you have a home built in the 1950’s and you have replacement cost on your home if your home burns down to the ground you will receive from your glorious insurance company the amount it costs to replace your home. (subject to the policy limits of course) If you don’t have replacement cost on your house you will only get the depreciated value of the house which is going to be considerably less than what it would cost to rebuild it due to its age.
The same goes for your contents. If you have a couch made in the 1950’s and you have replacement cost you will get a brand spanking new couch that has that new couch smell. If you don’t have replacement cost you will be taking an excursion to the goodwill to find a couch similar to the couch you had. Now I have nothing against the goodwill. I spent a good amount of time there in the 90’s in the attempt to emulate the style of the late Kurt Cobain but I doubt you would want to replace all your furniture and clothing there.
There is a limit to how much your insurance company will pay even with replacement cost. Most standard companies will pay a little bit more than the policy limits. If your home is listed on the policy at $100,000 and you have an extended replacement cost of 25% you will have limits up to $125,000. (I am a MATH wizard. I should have gone to MIT and counted cards in Vegas.) Some companies have a 50% extended replacement cost. Other companies don’t have a limit. This is called guaranteed replacement cost meaning the insurance company will pay for the cost to replace your home to what it was like before no matter if the cost exceeds the limits on the policy. A company that includes guaranteed replacement cost will also go to the nth degree to make sure your policy limits are adequate. Be prepared for a little insurance gnome to wander around your house with a tape measure and a laptop.
As you probably know the higher the deductible you have on your homeowners insurance policy the lower your premium will be. Most insurance companies have a minimum deductible of $500. Depending on the insurance company you get you can choose deductibles of up to $10,000. Picking your deductible is a personal matter. You have to weigh how much of a savings you will incur by choosing the higher deductible and how much of a blow to your pocket book you can take at the time of a loss. Sometimes the savings isn’t worth bumping up your deductible. Keep in mind you’re not going to want to turn in a bunch of small claims (I’ll get into this later.) so it may behoove you to pick a higher deductible. Behoove is an incredible word. You can just slam it into a sentence and make the sentence that much greater.
Exclusions (cue the pipe organ and Count Dracula)
The exclusions listed below are what you most likely will find on most homeowners insurance policies. Each company is different. There are definitely more exclusions than what I’m going to list below but I don’t have enough space to include all the exclusion. These are some of the biggies.
Flooding - is excluded whether it be man-made or made by the cruel hand of nature. If you live in a place that could flood call your agent and discuss purchasing a flood policy.
Earthquake – is excluded. You can purchase this coverage as an endorsement on your homeowners policy or you can purchase it as a separate policy. Mold – Most homeowners insurance policies exclude mold. Most companies out of the kindness of their hearts offer the coverage back with limits ranging from $5000 to $10,000.
Business use of other structures – If you have any kind of items used for a business in a detached structure the structure will not be covered. Even if you only have one tool used in your business in this structure the insurance policy WILL NOT cover the structure. You can talk to your agent about covering the structure that contains items used in a business but the insurance company must be notified and most likely there will be a separate charge.
Age related deterioration – If you haven’t replaced your roof since the Cleveland administration and the roof starts to leak your insurance company will not pay to replace or fix your roof. The damaged structure will not be covered if it was damaged due to neglect.
Continuous Exposure – If you notice that your toilet is leaking and don’t take care of the leak immediately most likely you won’t have coverage for damage that has been incurred. Notify your insurance company immediately after noticing damage to your home especially if the loss is water-related.
Limitations of Contents Coverage
Your contents are covered anywhere in the world under your homeowners insurance policy except for other property’s that you own or rent.
What’s umbrella insurance? I use raincoats.
This is an insurance policy hopefully you will never need to use but when you need it you REALLY REALLY need it. I know this doesn’t make the case for purchasing one because generally people don’t buy things they don’t need unless it’s sitting on the shelves of a Wal Mart supercenter.
An umbrella insurance policy is an excess liability policy. If the liability limits on your primary insurance policies are exceeded (auto, home, boat, motorcycle, atv, segway…) the umbrella insurance will fly in like Superman and save the day.
Umbrella insurance can be purchased up to $10,000,000 or even more if you are super rich like me. (Namely because I sell so many umbrella insurance policies) Generally limits are purchased in the amount of $1,000,000 to $2,000,000. Say for instance you’re in a tragic car accident and you maim ten people because you’re on the phone texting to your twitter account stating how awesome your day is going. You are going to get sued big time and the liability limits on your auto insurance are not going to cover the damages of all 10 injured people and the guy on the side of the street selling flowers that wasn’t injured but suffered “emotional” damages. If you have an umbrella policy the umbrella policy would kick in covering you for up to the limits stated on your insurance policy.
Another example would be a liability claim on your homeowners insurance policy. Say you are on par with my golfing abilities and you hit fifteen people on the head with a ricocheting golf ball. These fifteen people sue you for more than your homeowners insurance liability limits. Guess what insurance policy is going to be the ray of sunshine in your dark, dark, existence?…That’s right your umbrella policy.
I’m of the opinion that everyone should purchase an umbrella policy considering the litigious nature of our society and to the sad state of my checking account. You need to consider not just the amount of money and assets you have now but what you will be worth in the future. Umbrella insurance is cheap. An approximate rate for one vehicle and a primary home or renters policy is $130 a year. That’s merely 35 cents a day on earth. On Mars you’re looking at 18 cents a day so some of you, including myself are going to get a great deal!
Why do I need auto insurance?
It’s a HUGE conspiracy with the sole purpose of lining the pocket books of evil agents like myself. The government wants to see insurance personnel prosperous so insurance requirements were placed in the law books. OK so some of that might be a little true. Every business needs to make a profit to succeed.
It’s actually a case of what came first…. The chicken or the egg. In the beginning there was insurance and then came the lawsuits. Or in the beginning there were lawsuits and insurance became necessary. That theory is up for debate. Either way if you slam your car into another car be sure that one way or another, unless you hit a happy nun or a Buddhist monk, you are going to be liable for the damages you created. If you don’t have auto insurance, your little house with the white picket fence may incur a lien. Your future earnings may also be subject to siphoning. Even if you are an underpaid peon with the debt the size of the nation’s GDP someday you may be making beaucoup bucks as a Doctor, Lawyer, Reality Show TV Tycoon, or the director of Goodwill Industries. Those hard earned dollars you will make could be sucked up into the hands of the poor little lady you ran into….. and her lawyer. However with the proper insurance coverage you could prevent this very scenario from happening.
Why won’t Huggins Insurance let me purchase the minimum liability limits that the state requires?
Let’s use some common sense here. The minimum limit the State of Oregon requires you to carry for property damage for the car you slam into is $10,000. Maybe it will help if I make that a little bolder. $10,000. New cars cost thrice that amount. You could meander into a car 7 years old and still owe a ton of dough after your insurance company pays out their measly $10,000.
I haven’t even started on bodily injury. Admit it. You’ve watched one of those hidden camera reality shows that run at 3:00 in the morning that show people faking falls in grocery stores so they can sue the store. Imagine rear-ending one of those people, and ta-da, they are injured. Really injured. Documented by a law-abiding doctor with awards for saving kittens out of trees in his exam room. Do you think that person will be satisfied with $25,000 which is what the State of Oregon requires? Let me write it a little bolder so you understand the gravity of the situation. $25,000.
Huggins Insurance recommends that you carry liability limits of at least $100,000 per person for bodily injury, $300,000 per accident for bodily injury, and $100,000 for property damage. We don’t care that it will cover the cost of your accident. We want the $5 extra in commission it will grant us with your higher liability limits. That’s right. Increasing your liability limits is generally a pidly little amount of extra premium. Oh and we also get added benefit of not getting sued by you when your policy limits don’t cover the cost of your accident.
What do I do if I’m involved in an accident?
Make sure everyone is alive and breathing. OK so those are mutually exclusive terms but don’t just sit in your car spewing epitaphs of rage until you know everyone is OK. Even then you should probably keep your rage contained. If someone is injured or if your accident is blocking traffic and causing other motorists to wield unfriendly hand gestures at you call the police. Once you have assessed the situation at hand garner the following information from the other party:
The names of everyone in the car, the name and policy number of said person, their drivers license number, the plate number of the car as well as it’s year make and model, addresses and phone numbers of at least the driver if not all of the occupants, and names and phone numbers of any witnesses that may have stopped.
Make sure to actually look at the driver’s license of the driver and the actual insurance card if you’re lucky enough to hit or be hit by someone that has insurance. If they spout of their policy number out of their heads you are either in the presence of the Rain Man or someone is trying to scam you. My bets are on the latter.
The number one item I personally ascribe to is to BE NICE even if the accident isn’t your fault. Chances are you have been in an accident that is your fault or you will be at some point in the future.