Shepard on Insurance Current events and feedback on insurance

The worst time to figure out if you have chosen the best home insurance policy to meet your needs is when you have suffered a large loss. So, here are some pointers to help you be certain you have made the right choice for you and your family.

Critical Points

With the recent storms we have experienced in the Northeast the first point to consider is to view your insurance as a vehicle to address large claims. Figure out how much you can personally handle as a small loss, and use this as your deductible, keeping your premiums and claims to a minimum.

1. A traditional home insurance policy has two key values that drive your coverage.

Dwelling Replacement Cost - the amount it would take to rebuild your home in the event of a fire.

Contents Replacement Cost - most policies provide 70% or 50% of your dwelling replacement cost as automatic coverage and this may be more that you need. Lowering contents will save money on each year's premium.

2. Premium or Basic Coverage - a basic policy has strict limits on coverage in comparison to a premium contract, where the guarantee to rebuild is without a cap.

3. Deductibles - with all the storms the deductible is becoming a more important issue. Deductible credits used to be capped (limited), but to encourage insured's to accept the responsibility for small claims, caps are being removed. Start with a deductible of 2% of the dwelling and consider moving it to 5% to save on premium long term, but make sure you look at all deductible options.

4. Insurance Company - buying a home in Fairfield County is unique. You can not use a company that specializes in insuring homes that rebuild for $250,000 and expect they are a long term option for a $5 million dollar home. Secondly, many insurers seem to only stay in a line of business if they can make a profit. In our region, home insurers have had 3 straight years of losing money, so make sure you find a stable partner with financial depth.

5. Ask for credits - below is a list of credits that will help discount your cost:

• security and fire detection system
• generator
• new home
• renovation
• leak detection
• gated community
• sprinklers

6. Limits and Exclusions - are found in all home policies, such as: $5,000 coverage limit for jewelry, or flooding and earthquake coverage being excluded. Ask your agent for a list of your policy limitations and exclusions to know where you do not have coverage.

7. Meet with your Agent- it is very important for you to know your agent. Meet with them so that he or she has a full understanding of your circumstance. At the same time you can judge their capacity in protecting what is your most significant asset.

FLOOD is an excluded coverage on all home insurance policies. If you need, or want coverage for water damage from outside your property, you will need to purchase it separately on a flood policy. But while a flood policy provides insurance for water exposed property, it is not at all like your Home Insurance Policy.

Here is what you need to know:

 COVERAGE

1. Flood Insurance is issued primarily through the National Flood Insurance Program (NFIP) that is governed by the  Federal Emergency Management Association (FEMA).

 NFIP provides for very limited coverage:

$250,000 for Building 

 $100,000 for Contents

At no time during a claim is more than $250,000 for the dwelling or $100,000 for contents paid regardless of special NFIP language. If you need more coverage many times you can buy Excess Flood coverage, but not through the NFIP.

2. If you have a mortgage and you are in a designated Special Flood Hazard Area (SFHA), you are required to have flood insurance. NO EXCEPTIONS

3. You do not need to be in a Special Flood Hazard Area to purchase flood insurance; it is available for all properties. 

4. The premiums for basic flood coverage are determined by your Flood Zone, which is identified by FEMA, and generally confirmed by an elevation certificate. The important number is the elevation of the lowest floor of your house in relation to the Base Flood Elevation.

5. Here is the first critical difference in Flood Coverage. The dwelling has replacement cost coverage and the contents are limited to Actual Cash Value, but it is not a replacement cost contract. If your property is damaged by flood, your recovery is reduced by depreciation; in other words, the value is reduced by how long you have owned the items. Items of unique or special value such as antiques or art are not recognized for their real value. YOU WILL NEVER BE MADE WHOLE FOR YOUR FLOOD LOSS!

6. If any part of your dwelling is located in a higher Special Flood Hazard Area, the zone and rate determination for your property defers to the higher zone.

7. If your garage is used to only house your vehicles, 10% of the building limit can be applied to garage damage. If you use it for an office, or there is an apartment above, it is not covered under the home flood policy. You have to write a separate policy to insure it or other detached structures like a pool house.

8. Most property below the residence primary living area of a home is not covered, so other than your mechanicals in the basement or lower level (below grade) there is no coverage. There is no building coverage for a finished basement.

9. A building needs to be 51% above ground to be eligible for flood coverage.

10. Residential flood coverage can insure a 1-4 family house, but only the owner can buy building coverage. Renters may buy coverage for their contents.

CLAIMS

11. If you suffer flood damage, claims have to be reported within sixty days (for Superstorm Sandy they extended that limit to one year).

12. Your selected deductible will apply separately to your building damage claim and then also to your contents claim.

13. VERY IMPORTANT - For a NFIP flood claim to apply, the water damage must have occurred to at least two adjacent properties or affect an area of more than two acres.

14. There is NO consequential coverage on a flood policy, such as Additional Living Expense (ALE) that is found on a regular home insurance policy. If you are forced out of your home due to flood, the cost of alternate housing is not covered.

16. There is no debris removal coverage, unless the debris is in the house or leaning on it.

17. Flood insurance will pay $1,000 for sand bag reimbursement and $1,000 to safeguard property but this is part of the total policy limit.

18. If you suffer damage that incurs an increase cost of construction due to building code the community must issue a substantial damage designation, and then there is up to $30,000 of additional coverage applicable (but never more than the policy limit). 

19. Building claims for repairs are limited to two feet above the high water mark of the flood.

We all held our breath when Hurricane Irene rolled thru Connecticut and the tri-state area as Tropical Storm Irene, with much lower winds than anticipated.   Wind aside Irene proved to be a problem with flooding and power outages that knocked out sump pumps leading to more water damage.  Insult to injury when Lee dropped 10 inches of rain just a few days later.

The real drama of the storms was the insurance companies response.  I am aware of only one company that identified the storm as a Tropical Storm, not a Hurricane, waived any wind deductibles and stepped up to cover

claims appropriately.   The rest of the property insurers in Connecticut got a serious arm twisting from the Insurance Department and slowly agreed to cover losses without applying the much larger wind deductibles.  Some of those made payments with the caveat that their decision to waive the wind deductible should not be construed as a posture that they would apply with the same logic in the future.  Really…

And to date, nearly 3 weeks later out of the 40+ property insurers, one is still holding out, applying the larger wind deductibles to several hundred insured who suffered damage during the storms.  Their comment is, " we are aware of the Insurance Department’s concern, we continue to talk with them". 

I would call this poor judgment,

Very unfortunate but true.

High wind speeds and heavy flooding experienced last year in the northeast affected many of us. Fallen trees, damaged roofs, power outages, flooded basements, broken windows and collapsed garages & sheds were sights that lined the streets of our neighborhoods. Homeowner’s Insurance does not cover a vast amount of the damage that would occur in storms of this nature; leaving yourself unprotected could make storm and flood damage a catastrophic, financial bombshell.

 Flood insurance is a decidedly important insurance product that no strong insurance portfolio is complete without. The insurance is inexpensive and the coverage is extremely important as homeowners insurance will not provide flood protection. That being said, other effective measures can be taken to reduce damage to property and to help keep your family safe.

Preparation is essential to mitigating the dangers of hurricanes, flooding and other natural disasters.

    As part of an effective disaster kit, FEMA recommends the following items: food, water, medical supplies, battery-powered radio, batteries, flashlights, and other items that will allow you to get by for 3 days after a hurricane hits.

    Because you may need to leave your home immediately during a disaster, filling your car with gasoline before a storm is also important.

 Planning ahead can reduce the amount of destruction in a hurricane or flood and help tremendously in avoiding unnecessary damage.

    Removing loose objects such as ornaments and furniture from your yard can protect your family and home from objects that can become projectiles when exposed to high wind speeds.

    Overgrown trees and shrubs near a home can crush buildings and destroy property, maintaining trees prior to a storm can prevent damage.

    Lastly, having gutters cleaned of obstructions and before a storm can greatly increase the likelihood that the gutters will be able to carry and direct water away from your house, preventing flooding.

With the tragic and devastating events that occurred recently in Japan, it’s expected a homeowner would take this time to reassess their insurance needs. Putting yourself in the shoes of a victim of the tsunami, earthquake, or potentially, nuclear disaster, you would likely ask yourself, “would my coverage protect in events like these?”

For the vast majority of homeowners in the United States, the answer to this question would be an unfortunate, “No.” While not included in most homeowners insurance policies, additional policies are available to protect against Earthquake and flood damage. Nuclear disaster, on the other hand, cannot be insured against.

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