How much is an hour of your time worth? Would you believe it could be worth thousands of dollars? Millions of homeowners policies are issued along with the mountain of paperwork associated with new mortgages, and it’s easy for most first-time homebuyers to overlook their insurance policies until it’s too late. It is only after a catastrophic event, such as a hail storm or flood, that people are forced to pay attention to the terms of their insurance policy. You should take an hour to review your entire policy annually and discuss any concerns you may have with your agent. Pay special attention to your exclusions section and your declarations page. The Policy Declarations page is a quick snapshot of the most important policy details, which are simplified for better understanding below.
What exclusions are listed in your policy? The exclusions section of your insurance policy lists situations that the insurance company will not pay in the event of a loss. This section is located inconspicuously on your policy pages and is not on your declarations page, but this section is one of the most important. All basic homeowners policies exclude events like earthquakes, sewage overflows, nuclear explosions, wars, mudslides, and sinkholes, just to name a few. Your policy will not cover flooding. Flood coverage can be purchased through your agent, but is not part of your homeowners policy. It is underwritten through the National Flood Insurance Program, governed by FEMA. You may live outside of the flood plain, but the fact is, if you live within five miles of ANY water source, then you need flood insurance. The good news is that the farther away you are from the flood plain, the cheaper the insurance. There are also ancillary exclusions that are not covered except with the appropriate endorsements.
Endorsements are homeowners policy additions that can be added to your basic policy similar to luxury options on a new car. And just like the new ones because they will add to the final price, but will have a relatively small impact on the monthly payment. These additions are things that most people assume are already covered in their policy. These include, but are not limited to, sewage overflow, broken windows/glass, downed trees, wind-driven rain, and building code required upgrades. Be sure to carefully read all exclusions and endorsements in your policy.
How much is your deductible for wind and hail damage? Your deductible is the portion of a claim amount that you must contribute toward your repairs. That amount is then deducted from the total payment you receive from your insurance company. A higher deductible usually means a lower premium, but many companies have consistently increased deductibles rather than dramatically increasing premiums. On most policies these days, you will have two types of deductibles. A deductible will be for general risks and usually amounts to $500-$1000. You will notice that there is a separate deductible for wind/hail. This deductible is where some insurance companies have decided to recoup some expenses in higher-than-normal risk states such as Florida, Louisiana, Texas, and Oklahoma. You may think you have a $500 deductible when 2-inch hail comes through your window, but you may not have realized that your insurance company increased your deductible to between 1% and 5% of your policy limits. .
Your policy limits are the maximum amount your insurance company will pay in the event of a total loss, such as a tornado or fire. Policy limits are set by you or your mortgage company when the policy is first purchased, but at renewal most companies will use your county’s current assessed amount. You should make sure your policy limits are set at the value of your home plus at least 15%. If your home is worth $100,000, then your policy limit must be at least $115,000 for your home. It typically costs 15-20% more to replace than to build a new one. What are the limits of your policy?
Do you have an RCV or ACV policy? The difference between these two policies can add up to several thousand dollars out of pocket. Replacement Cost Value (RCV) is the value of replacing your damaged items at current market rates. The insurance company will then depreciate these items based on their age and compare them based on their expected useful life. For example: a roof shingle that has a thirty year warranty and a ten year warranty will have a depreciation rate of 10/30. The amount of depreciation is subtracted from the RCV to arrive at the actual cash value (ACV). If you have an RCV policy, the depreciation retained by the insurance company will be issued to you once the replacement of the damaged items is completed. If you have an ACV policy, the depreciation retained by the insurance company is not recoverable and this amount will not be issued to you. The benefit of an ACV policy is a lower monthly premium payment, which makes it attractive for rental properties and uninhabitable structures like barns. You should discuss the pros and cons of each type of policy with your agent to determine which one is best for your situation.
These are very basic insurance concepts. For more detailed answers on policies and claims, you can visit http://www.hailandwind.com/ and post a question on the forum. You can also get more detailed information on your state’s Department of Insurance website, and you can call your insurance agent if you need to make any changes. He or she will be happy to take your call. It only takes about an hour to read your insurance policy, and you need to read it every time it’s renewed. Make sure you know what is excluded and supported. Find out if you can pay your deductible in the event of a claim. Match your policy limits to your property value, plus 15-20%, and determine which policy you need, ACV or RCV. An hour of your time could save you thousands!