How much is an hour of your time worth? Would you believe it could be worth thousands of dollars? Millions of home-owner’s policies are issued in conjunction with the mountain of paperwork associated with new mortgages, and it is easy for the majority of first time home buyers to overlook their insurance policies until it is 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 conditions of their insurance policy. You should take an hour of time to review your entire policy annually, and discuss any concerns you may have with your agent. Pay specific 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 the situations that the insurance company will not pay for in the event of a loss. This section is discreetly placed in your policy pages and is not on your declarations page, but this section is one of the most important. All basic home-owners’ policies exclude events such as earthquakes, sewage backups, nuclear explosions, war, mud slides, and sink holes 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 plane, but the fact is, if you live within five miles of ANY water source, then you need flood insurance. The good news is, the further away from the flood plane you are, the cheaper the insurance. There are also ancillary exclusions that are not covered except with the proper endorsements.
Endorsements are additions to your home-owner’s policy that may be added on to your basic policy much like luxury options on a new car. And just like the new car they will add to the bottom line price, but 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 backups, broken windows/glass, fallen trees, wind driven rain, and building-code required upgrades. Make certain that you carefully read all of your policy’s exclusions and endorsements.
How much is your deductible for wind and hail damage? Your deductible is the portion of a claim amount that you are required to contribute for your repairs. That amount is then deducted from the total payout you receive from your insurance company. A higher deductible usually means a lower premium, but many companies have been systematically raising deductibles rather than noticeably raising premiums. On most policies these days you will have two types of deductible. One deductible will be for general perils, and usually amount to $500-$1000. You will notice that there is a separate wind/hail deductible. This deductible is where some insurance companies have decided to recoup some expenses in states with higher than normal risk such as Florida, Louisiana, Texas, and Oklahoma. You may think that you have a $500 deductible when 2 inch hail crashes through your window, but you may not have realized that your insurance company raised your deductible to anywhere from 1{db3ae8a81280553779663c6dc431a922c9e5ce920863bf636bccd15cfbaaca0d}-5{db3ae8a81280553779663c6dc431a922c9e5ce920863bf636bccd15cfbaaca0d} of your policy limits.
Your policy limits are the maximum amount that your insurance company will pay out 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 taken out, but upon renewal most companies will use your current county’s appraisal amount. You should make sure that your policy limits are set at your home value plus at least 15{db3ae8a81280553779663c6dc431a922c9e5ce920863bf636bccd15cfbaaca0d}. If the value of your home is $100,000 then your policy limit should be at least $115,000 for your dwelling. It generally costs 15-20{db3ae8a81280553779663c6dc431a922c9e5ce920863bf636bccd15cfbaaca0d} more to replace, than to build new. What are your policy limits?
Do you have an RCV or ACV policy? The difference between these two policies can amount to several thousands of dollars out of pocket. The Replacement Cost Value (RCV) is the value of replacing your damaged items with current market rates. The insurance company will then depreciate these items based on their age and compare them based on their useful life expectancy. For example: a roof shingle that has a thirty year warranty and is ten years old will have a depreciation ratio of 10/30. The formulated depreciation amount is subtracted from the RCV to reach the Actual Cash Value (ACV). If you have a RCV policy, the depreciation that is retained by the insurance company will be issued to you after the replacement of your damaged items is complete. If you have an ACV policy the depreciation that is retained by the insurance company is non-recoverable and you will not be issued this amount. The benefit of an ACV policy is a lower monthly premium payment, which makes it attractive for rental properties and non living structures such as barns. You should discuss the pros and cons of each type of policy with your agent to determine which is best for your situation.
These are very basic insurance concepts. To have more detailed policy and claim questions answered you can visit http://www.hailandwind.com/ and submit a question to the forum. You can also acquire more detailed information from 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 should read it every time it is renewed. Make sure you know what is excluded and endorsed. Find out if you can afford your deductible in the case of a claim. Match your policy limits to the value of your property, plus 15-20{db3ae8a81280553779663c6dc431a922c9e5ce920863bf636bccd15cfbaaca0d}, and determine which policy you need, ACV or RCV. One hour of your time could save you thousands!
