Two important questions are often misunderstood when I am asked about personal insurance.
Recently, a client asked, “I have replacement cost insurance on my house, so I’m in good shape, right?”
Then he added, “Because I have high liability insurance limits for my business, I don’t think I need a personal umbrella.”
The yellow caution flags started flapping vigorously!
Let’s delve into those two questions.
1. What’s your house worth?
That’s a question with several answers depending on the context. Your realtor will give you one answer, your friends another, and your insurance broker (hopefully) a very different one. If you purchased your insurance online or from a direct writer, you may not get much help here.
For insurance, you need reconstruction cost of your dwelling, and perhaps other buildings on your property (usually measured in $ per square foot). Land, location, school districts, and views that come into play if you want to sell or buy don’t matter to the insurance company’s claim adjuster.
And remember the real kicker – you are the one responsible for determining that amount of insurance. If you get it wrong, too bad!
So what to do? You need to get some good estimates. Accuracy depends on several assumptions, like type of construction (simple, typical or standard, custom, etc.), materials (drywall, plaster, solid doors, wood paneling and floors, special windows, etc.) and slope and access to your site.
Your broker should be able to make some estimates from building value software. Or take a look at Cost To Build, a calculator.
Then there may be complexities that can have a serious impact on your loss settlement. Examples include demand surge in large-scale loss situations like wildfire, hurricane, or tornado, and construction code upgrades from the time of your home’s origin.
Check out the insurance options that exist for:
- Extended replacement cost coverage that pays more than the insured value, if and when necessary. Often there are percentages you can choose above your insured amount. Of course, the higher the better.
- Ordinance and law coverage pays additional amounts for new construction code requirements. Your basic policy agrees to provide you with “like kind and quality.” Requirements for new types of plumbing and electric installations, tempered glass windows, earthquake bracing, and etc., that weren’t there before, won’t be covered without this extension. Again, you may be able to get percentage choices.
2. Can you be liable to others? Let me count the ways …!
Let’s now look at question #2. We all know we live in a litigious society, with many attorneys looking for new ways to protect their clients.
First, remember that personal liability is not at all the same as business liability. These are two different insurance policies and there is very little overlap.
Most individuals have auto liability insurance and personal liability coverage included with homeowners or renters insurance. These basic policies are separate and distinct from any business policies you may have.
Liability insurance covers bodily injury or property damage you cause in an accident that is from your negligence. You can be negligent if you do something which a reasonably prudent person would not have done under similar circumstances.
Umbrella or excess liability policies provide limits of insurance over and above the basic policies. Once again, personal and business are separate. One policy covers in addition to your personal and auto liability, and other non-business liability policies (watercraft, for example). The other covers over your basic business liability insurance policies.
So don’t be confused if your broker, when discussing one policy or the other, says, “It covers everything.” It does not! “Everything” is a vague, and therefore, an often meaningless word.
If you have questions or need clarification, don’t hesitate to click reply or give me a call – firstname.lastname@example.org
510-685-3883. There’s never a charge for brainstorming!
Did You Know?
Objective business risk assessments and quick check-ups keep your risk management and safety programs up to date, and your insurance costs reasonable.