INSURANCE POLICY BASICS!

So you have purchased your home – you want to protect it.  With or without a mortgage, you need insurance.  Many folks have used the same agent used by their parents or neighbors.  Find someone you trust and who will take the time to explain the details and will answer your questions.  Many qualifications go into insurance policies – these days, even your credit rating and past claim history is used to determine if you are a good risk.  History shows car accidents happen, but when it comes to your home, the prevalent thought is your home will be better maintained than your vehicle.  Thus the premiums are somewhat lower for homeowner insurance than car insurance.  BUT, as natural disasters seem to be increasing, Insurance Companies have found themselves in precarious positions when covering areas with hurricane and tornado activity.  As a small example, your insurance company will want to know how far you live from a fire station, whether you have a wood or brick structure, whether you live in a flood plain, any existing alarm systems, etc.

After meeting with your agent, many companies request an on-site evaluation prior to writing the policy.  Do not be alarmed.  This is becoming common practice.  Once your policy is written and delivered to you, READ IT IN ITS ENTIRETY!  Although legal translations may be required for many of us “laymen,” you need to know what’s covered and what’s NOT!  Start with the declarations page.  This page should show the coverage period, premiums, exclusions, insured names, covered addresses, deductibles and insurance limits.

First, determine what type policy you have, i.e. Named Perils vs. All Risk Policy   Named perils cover only what’s named or listed in the policy.  All risk policies cover everything not specifically excluded.

Review the exclusions:  You don’t want to be caught and find out too late something has been excluded from your policy.  For example and unfortunately, North Carolina has a cap of $5,000.00 for mold remediation and many policies have a total mold exclusion.

Review your conditions:  Many policies will dictate that certain actions must be taken such as protecting your property after damage has occurred (mitigating the loss such as turning off the water when you have a leaky pipe…) and filing a proof of loss in a timely manner.

Review your endorsements:  These can modify your policy in some manner which can affect your coverage, such as sewage backup.  Endorsements are used to add, delete or change property listed in the policy.

ACV vs. RCV:  What is this?  ACV refers to Actual Cash Value.  RCV refers to Replacement Cost Value.  An ACV policy may pay only 50% or less for your kitchen table purchased 10 years ago, based upon depreciation calculations.  If you have a RCV policy, however, your insurance company should pay based upon the cost to replace the table.  If you purchased the table 10 years ago for $500.00 and it would cost $800.00 for a comparable model today, that is what you should receive.  Please understand that the premiums will be higher for the RCV policy than for the ACV policy.  As a general rule, if you can afford the RCV policy, take it.  You do not want to be surprised to find out that all your possessions have been depreciated (like a car…)

Limits:  This is what is says.  In the case of a massive fire, rebuilding may be more costly than totaling out your home for the coverage limit.  Not surprisingly, rebuilding is actually much more expensive than new construction because of the additional work of demolition, existing material matches, etc.

Deductibles:  If you are reading this article, no doubt you are aware of deductibles.  Varying in amounts from $250 up, you are responsible for paying this amount out of your own pocket to whoever completes your job.  The insurance company will cover the loss LESS the deductible.  Many contractors would like to receive your deductible as a sign of good faith toward the beginning of your job.  Otherwise, this item tends to be overlooked and BAM, you owe it at the end to the contractor.  The Contractor WILL request your deductible to be paid in full as this is part of the cost of the job.

Preparation:  Take pictures of your home and the valuables inside such as furniture, paintings, china, silver – anything you might miss.  We’ve all heard what to do:  store important documents (such as your policy and appraisal documentation) in a safe place such as a safety deposit box.  You may also consider a scheduled endorsement for items of unusually high value.

Maintain your home!  Many insurance companies expect a certain amount of normal household maintenance – gutter cleaning, brick pointing, wood/vinyl/driveway maintenance, etc.  For example, do not expect any insurance company adjuster to supply you with a brand new roof for a small amount of hail damage if your shingles are aged out.

Now you’re ready…sort of.  Next week, we’ll discuss what to do when a problem happens – fire, water, storm, mold, trauma, etc.