| -- End Ad Box ---> | | | | of various items. Some people collect figurines, wine, |
| A Tutorial that may save you hundreds of thousands | | | | vintage watches, stamps, guns, art, antiques, dolls, |
| of dollars | | | | sports memorabilia, well, you get the idea. Most |
| In October of 2007, Homeowners throughout San | | | | homeowners policies have limits on the amount the |
| Diego County suffered devastating losses of their | | | | policy will pay for these types of items. The good |
| homes. Multiple fires burned consecutively in all regions | | | | news is there is always additional insurance you can |
| of the County and people helplessly watched as | | | | purchase to protect yourself from losses in these |
| firefighters battled to extinguish the fires. | | | | areas. Ask your broker/agent about endorsements |
| Once residents were given the authority to return to | | | | that may add additional coverages for those items. |
| their homes, they discovered the extent of their | | | | Most of the endorsements I’ve seen provide |
| damage. Homeowners immediately filed claims with | | | | much broader coverage to that personal property |
| their insurance carriers and began the long claims | | | | than is contained in the standard |
| process. As early as March, 2008 insurers were | | | | homeowner’s policy. For example, jewelry |
| claiming that 97% of all October 2007 fire claims had | | | | riders provide worldwide coverage for your jewelry |
| been settled. The reality is that many homeowners | | | | which is broader than offered in the standard |
| have not settled their insurance claims. | | | | homeowner’s policy. |
| What is most disturbing is that almost two years | | | | Liability Coverage — Section II of your |
| after the fires, homeowner’s losses continue | | | | standard homeowners policy insures you for |
| to increase. | | | | damages for which the insured is legally liable for. This |
| The main reason for the increase of loss is due to | | | | means if someone gets hurt while visiting your |
| the widespread issue of homeowners being | | | | property, they could sue you for the bodily injury or |
| underinsured. Fire survivors have learned a very | | | | property damage they suffer. This coverage also |
| important lesson. Relying upon their insurance agent | | | | provides your legal defense for the suits against you. |
| or insurance company to set the limits of their policy | | | | Additional liability insurance can be purchased via an |
| can be a very detrimental act. Unfortunately, it is an | | | | Umbrella Policy. An Umbrella Policy will increase your |
| act that only hurts the homeowner, without | | | | limits on all of your liability coverages, including those |
| repercussion to the insurance agent or insurance | | | | on your automobile policy, a boat owner’s |
| company. If it is later determined the insurance limits | | | | policy or any other policy you may have that insures |
| are not sufficient to rebuild their damaged or | | | | property. Umbrella policies are very inexpensive for |
| destroyed home, what actions can the homeowner | | | | the amount of additional insurance you receive. |
| take? | | | | When setting the limits for your Dwelling, the |
| 1) It is necessary to know exactly how much you | | | | following steps will help you determine the |
| are underinsured bya. Obtain an estimate from a | | | | appropriate limits. |
| licensed contractor to rebuild the damaged houseb. | | | | 1) Talk to a licensed contractor to obtain current |
| Have a line-item Scope of Loss prepared to use as | | | | building costs. Ask what the average per square-foot |
| the basis of your claim. | | | | costs are to rebuild your home. Keep in mind if you |
| 2) Once it has been determined how much the | | | | have a partial loss, it is more costly to repair your |
| property is underinsured by, a request can be made | | | | house than it is for new-construction. |
| to the insurance company to reconsider the limits | | | | 2) Refer to a real estate appraisal or talk to a real |
| they have set. In some cases, the insurance | | | | estate appraiser to find out what their Replacement |
| company will make an attempt to reform the policy. | | | | Cost Values calculate to. |
| This is a time-consuming process that will require the | | | | Other factors affecting your coverages are: |
| insured to answer a lengthy questionnaire and return | | | | Extended Replacement Cost Endorsements — |
| it to the insurer. Regardless of how you answer the | | | | Is the insurer offering to increase your limits with an |
| questionnaire, inevitably the insurer will state the | | | | Extended Replacement Cost Endorsement? This is |
| responsibility to determine the appropriate levels of | | | | the new way of attempting to increase your limits. |
| insurance lies with the insured. It is uncommon for the | | | | The old way was to sell Guaranteed Replacement |
| insurer to accept responsibility and increase limits. | | | | Cost Policies. The trouble with those policies were the |
| 3) The homeowner can file a Request For Assistance | | | | insurers found it was very difficult to limit their |
| (RFA) with the California Department of Insurance. | | | | exposure, so they switched to Extended |
| The instructions and form for this can be obtained on | | | | Replacement Cost Endorsements. |
| the Department’s website at: | | | | One of the problems this coverage creates for the |
| It has been my experience that many homeowners | | | | homeowner is being able to comprehend your |
| have not reached a favorable outcome to the action | | | | coverage limits. You see, these endorsements |
| steps outlined above. So, how do you prevent this | | | | typically increase your limits on all coverages. In |
| from occurring in the future? | | | | effect, the limits will float up or increase limits in your |
| Be sure to purchase a Replacement Cost (RC) policy. | | | | other categories — such as Additional |
| A Replacement Cost policy will cover the total | | | | Structures, Personal Property, Loss of Use, Additional |
| amount necessary to rebuild your property, up to the | | | | Living Expense, etc. |
| policy limits. However, the insurance company will only | | | | Another problem this coverage creates for the |
| pay you the Actual Cash Value (ACV) of the | | | | homeowner are the additional conditions that must |
| property until the repairs are complete or the | | | | be met in order for coverage to apply. So, not only |
| property has been replaced. Some insurance | | | | do you have the regular policy conditions to meet, |
| companies calculate ACV by determining the amount | | | | you also have the additional policy conditions for the |
| of the RC and then subtract depreciation. However, | | | | Extended Replacement Coverage. How does this help |
| ACV should be calculated as the Fair Market Value | | | | the homeowner? Seems to me this only benefits the |
| (FMV) of the property. This is very important when | | | | insurer. Wouldn’t it have simply been easier to |
| valuing personal property. Insurers like to rely upon | | | | increase the stated Dwelling limits? You may sense a |
| the age of an item to determine the amount of | | | | bit of skepticism, but I deal with real people on real |
| depreciation. The problem with this methodology is | | | | claims and this is my experience. It is rare that an |
| that it fails when the value of an item increases over | | | | insurance company makes a change that somehow |
| time. Likewise, how do you address 20 year-old | | | | benefits the insured. We often learn later these |
| carpet that is still in like-new condition? Based upon | | | | changes have only helped the insurer. |
| the insurers view, you would owe them money! I | | | | Discrepancies on Square Footage — Some |
| suggest that depreciation should be based upon the | | | | insurers are turning to Tax Assessors records to |
| remaining life expectancy of the property. | | | | determine the amount of square footage the insured |
| First — Insurers claim it is the responsibility of | | | | property had. Guess who this creates a problem for? |
| the homeowner to determine the appropriate levels | | | | Obviously, the homeowner now has one more thing |
| of insurance for their property. The agent or broker | | | | to deal with. It is a rare occurrence to see the |
| will not know your property as well as you do. | | | | records of the Tax Assessors Office reflect exactly |
| Accept the responsibility to properly insure your | | | | the same amount of square feet that is listed on the |
| house. If you do not purchase the appropriate | | | | Declarations Page of the insurance policy. What can |
| amounts of coverage, the loss will be yours to | | | | you do to address this discrepancy? |
| suffer. | | | | 1) Refer to the insurance policy first. Your policy |
| When shopping for coverage, be sure to provide the | | | | covers your property as described on the |
| agent/broker with all relevant information. For | | | | Declarations Page. As long as your property is |
| example: Do you have an office at home? Do you | | | | correctly described, with the correct number of |
| run a business from your home? Do you have any | | | | square feet, then you have paid insurance for the |
| special hobbies or interests that includes special | | | | number of square feet listed. |
| equipment? Do you have expensive collectables or | | | | 2) Most Tax Assessors Records only include the |
| antiques? Riders and endorsements can be added to | | | | square feet of livable area of your house. This does |
| your policy to ensure you have sufficient coverage | | | | not normally include a garage. So, one reason for a |
| to insure those items. | | | | discrepancy could be the garage. Your insurance |
| Some of the most commonly overlooked areas are: | | | | policy should include the total number of square feet |
| Additional Structures - Additional Structures includes | | | | for your house and should not be limited to livable |
| outbuildings, sheds, walls, fences, decks, driveways, | | | | square feet. |
| pools, and other structures not attached to the | | | | 3) Ask the insurer in writing to explain to you how |
| residence Dwelling. Be sure you describe your | | | | they would resolve a discrepancy if the Tax |
| additional structures to your broker. Additional | | | | Assessors Records reflected a larger number of |
| structures are typically insured for 10% of the | | | | square feet than is stated on your Declarations Page. |
| Coverage A limits. Coverage A insures your Dwelling. | | | | Would they increase your limits or pay more than is |
| This amount can be increased if needed. | | | | stated in your policy? I doubt that very much. |
| Landscaping - Landscaping is not typically insured as a | | | | Insurance Requirements Under A Mortgage or Deed |
| separate category, but rather is included in the policy | | | | of Trust - Another area of importance is relative the |
| as an Additional Coverage. This coverage insures | | | | requirements under a Mortgage or Deed of Trust. |
| trees, plants and shrubs up to $500 each. The total | | | | The homeowner is referred to as the Borrower and |
| limits are generally capped as 5% of Coverage A. For | | | | has certain obligations and requirements to maintain |
| many people that live in rural areas or have large | | | | appropriate levels of Replacement Cost insurance. |
| parcels, this will not be adequate to replace all of their | | | | Typically, the lender will require Replacement Cost |
| trees, plants and shrubs. Be sure to ask for increased | | | | limits up to the amount of the Unpaid Principal Balance |
| limits if you do not think 5% of your Coverage A | | | | (UPB). A word of caution — do not relay solely |
| limits will be sufficient. | | | | upon the minimum requirements your mortgage |
| Personal Property — Many homeowners have | | | | company requires. It most likely will not be sufficient. |
| hobbies or interests that lead them to build collections | | | | |