Insurance policy basics

[Bola A.]

What are the basic component of a good insurance policy? Thanks.

[John Mocker]

Bola A.,

Here is the text from some prior posts I did that will give you lot of basic info:

When deciding on a property here are some things to look for from an

Insurance prospective:

1.Any in-ground tanks (active or inactive)

2.Any Knob & Tube or Aluminum Wiring

3.If built before 1978, does the building have Lead Safe certifications

4.Any wood stoves or secondary heating units. If so, were permits

pulled & were they installed by a professional

5.Are any of the homes rented to students

6.Is there a flat roof

7.Are there asbestos

The Year that the following were updated (either partially or fully) would

be good to know:

- Heating systems

- Roof

- Plumbing

- electrical

Some companies will not write properties with systems that have not

been updated.

If you are living there, the proper policy for a 1-4 family is a

"Homeowners" policy. If the property is solely tenant occupied you

will be looking for a Dwelling/Fire Policy (may be called a Landlord

policy or similar name) or a commercial policy such as a Business-

owners or Package policy.

Most Homeowners or Dwelling/Fire policies include:

1. Dwelling (Building coverage)

The limit should be based on the Replacement Cost of the

building (cost to rebuild with the same kind and quality excluding

the foundation)

2. Contents (Personal Property):

most homeowners policies give a set % of the Building limit for

Contents. Dwelling/Fire policies requrie that you request a limit

for conents.

3. Detached Structures:

for other buildings on the property (ie. sheds & detached garages)

Again, there is normally an included limit of 10% of the building limit.

That can be increased if needed.

4. Loss of Use / Loss of Rents:

Normally, there is a 20% included limit. Loss of use is for your

additional expenses if you can not live there due to a covered

claim (ie. Fire). The Loss of Rents is for the loss of your Rental

income if tenants cannot occupy the house after a covered loss.

5. Personal Liability:

For claims due to Bodily Injury or Property Damage that you

Become Liable for and which is covered under the policy.

Companies normally offer limits up to $500,000 but some

offer $1,000,000. Buy the max.

6. Medical Payments:

Provides coverage for an injury suffered on the premises. Does

not require proof that you were at fault. Used to keep small

loses into becoming lawsuits.Normally offered up to $5,000 but

check to see if higher limits are available.

7. Deductible:

This is not a coverage but rather your portion of a claim. Most

better policies will not have a deductible for either the Liability

or Medical payments coverage. It will apply to the other 4 coverages.

You can select the amount of the deductible, usually ranges from

$500 to $5,000. The higher the deductible the lower your overall

Premium but get quotes on all the deductibles you are interested in.

Sometimes the incremental savings from $1,000 to $2,500 or from

$2,500 to $5,000 are too small to make the higher deductible

worthwhile.

***depending on how far the house is from the coast, you may

also be required to have a separate Wind or Hurricane

deductible. Most times, the deductible will be 2% to 5% of

the building value. That is a significant amount (on a $500,000

building that comes to $10,000 for 2% or $25,000 for 5%).

A policy with a higher premium may be a better deal if it does

not have a wind deductible.

Most of the better rates are from companies that write the Building

coverage on a "Replacement Cost" (RC) basis.It is a better coverage

for the policy holder than "Actual Cash Value" (ACV).A policy based

on ACV will normally have a lower limit (ACV = RC minus depreciation).

RC is the cost to rebuild the structure with the same kind and quality.

In a market where rents are depressed, the RC will often be significantly

higher than the ACV.

The problem with ACV is that, on a partial loss, the claim, under an ACV

basis, has a deduction for depreciation.You will have to kick in for the

deductible and the depreciation.If your Rental is in good shape, updated

systems, well maintained, etc. the rates from some companies with only

RC may be equivalent to others that will only do ACV.I just wrote one in

CT that one of our carriers for $400,000 RC was $100 less than the next

best rate which was based on $110,000 ACV for the same property.

There are many endorsements that are available on the Homeowners

policy. Without knowing the details I cannot suggest which would be

right to add on.  Several you should pay attention to are:

- Ordinance & Law:

Provides additional building coverage to deal with rebuilding cost

Increases due to changes in Zoning or Building laws

- Personal Injury Liability:

Libel, defamation of character, wrongful imprisonment, etc.

(normally recommended, especially if you are a landlord)

- Water Backup:

For water damage due to the backup of Sewers or Drains.

- Personal Articles:

Coverage for belongings that have a special or collectors value

such as Jewelry, Furs, Fine Arts, Collectibles, etc...

Depending on which company is being quoted, some of these other

factors may get you credits:

- Insurance Score (company pulls certain info out of your credit report)

   It is not your credit score but generally better credit will result in a

   better score

- Time at your job

- Education level

- time at current residence

Good Luck