7 Questions to Ask Yourself Before Renewing Your Property & Casualty Insurance
Property and Casualty Insurance
That gentle stream down the road has turned into a raging torrent after several weeks of heavy rain. You’ve never had a flood in your home before, but now your living room is a soggy mess, so you call your insurance provider to initiate a claim…only to learn that you’re not covered. Your neighbor trips and falls on your front walk and does a most unneighborly thing. They sue you. To add insult to injury, your liability coverage will not cover the award they are seeking. Your homeowner’s or auto insurance policy is about to expire, and you’ve received an invoice for another year of coverage. You send payment immediately, or perhaps you question whether you’re paying too much and investigate other providers. Either way, you assume you are adequately covered, and so you don’t go through the tedious exercise of curling up with a good policy and reading it thoroughly. This could be the biggest of the three mistakes you’ve made.
Homeowner’s Insurance: What Does It Actually Cover?
Policies vary from carrier to carrier, but typically, homeowner’s insurance covers:
- The physical structure of your home
- The contents of your home – furniture, appliances, etc.
- Your legal liability
The question is whether you have sufficient coverage to repair damages, replace belongings and protect your assets from unfavorable litigation. Here are seven questions to ask yourself before you renew your current policy or sign on with another provider:
- Does Your Policy Offer Named Peril or All Risk Protection?
- Named Peril, as its name implies, specifies the conditions you are protected against. These may include fire, theft, vandalism and damage from snow and ice, a falling tree, windstorm, or other mishaps.
- All Risk protection does not specify the catastrophes that could trigger a successful claim. Rather, it protects your home against all damages except those expressly excluded in your policy – floods, and hurricanes, for example. To protect yourself against these prohibited conditions, you may have to purchase a separate policy (see question #4). Still, All Risk coverage may be well worth the additional cost over its Named Peril counterpart for the added protection it provides.
- Will You Receive Replacement Cost or Actual Cash Value for losses you incur?
- That flat-screen TV that was recently stolen may have cost you far more than you will receive from your insurance claim, unless you are covered for replacement cost. Actual Cash Value coverage factors in depreciation when determining payment for your damaged or stolen property. As a result, you may not receive enough to replace that property with a new equivalent. Replacement Cost protection may exact a higher premium, but it will pay the actual cost of replacing your property with no depreciation adjustment.
- Are you covered for expensive possessions like jewelry, heirlooms, or art?
- Maybe. Homeowner's policies protect the contents of your house, but when it comes to these specialized items, they impose limits on that protection. For example, some policies will only pay a maximum of $500 for damage to artwork or loss of jewelry. Often, insurance companies offer riders to your policy that are available at additional cost and will provide you with more realistic protection. Other companies, however, include more belongings than others in their coverage and not necessarily at a higher cost. That’s why it’s important to shop around and do your due diligence before paying your first year’s premium.
- You live in a part of the country where floods, earthquakes, hurricanes, brush fires, and other natural phenomena are all too common. Will your homeowner’s policy protect you?
Again, the answer may be yes or no, depending on where you live. For example:
- Hurricane and tornado insurance is generally considered wind damage in many states and is therefore covered by your homeowner’s policy. If you live in a hurricane-prone state, however, you may have difficulty securing coverage, and if you do, you may be subject to a higher deductible that is often expressed as a percentage of your property’s replacement cost.
- Earthquake coverage is generally available but may be increasingly expensive for properties closer to fault lines.
- Wildfire coverage is more difficult to obtain these days in states that have been affected by recent droughts and conflagrations. If you can purchase coverage, you may be subject to high deductibles and/or limits on property damage that could leave you underinsured but at least partially protected.
- Flood insurance is offered by the National Flood Insurance Program, a division of FEMA. By purchasing a single peril policy in addition to your homeowner’s policy, you can protect yourself to a degree from flood damage to your home and its contents. If you live in a flood-prone area, you may wish to look into excess flood coverage as well. It should be noted that flood insurance will only protect you against floods that affect multiple acres and more than one property. Water damage due to seepage, sewer or drain backup, and burst pipes are generally covered by your homeowner’s policy.
- What about expensive appliances and equipment like my heating and air conditioning system, pool heater, home elevator, etc.? Am I protected if they break down?
- It depends on the circumstances. If lightning knocks out your HVAC system, you will probably be covered by your homeowner’s policy. If your home theater or elevator conks out for some unknown reason, you will probably not receive payment unless you’ve purchased a separate policy or included these specific items in your homeowner’s policy. Two caveats: First, it makes no sense to insure appliances and equipment that are already covered by a manufacturer’s warranty. Second, don’t expect your policy to cover losses incurred by the breakdown of a 15-year-old hot water heater or other appliance. You are responsible for maintaining and replacing these appliances when necessary.
- I’ve been increasingly concerned about identity theft and other cyber-security issues. Is there any way I can protect myself from financial loss?
- Your homeowner’s policy may provide you with some level of protection from losses incurred by identity theft. Ransomware and wire fraud, however, are another story. You may need cyber liability coverage to protect yourself.
- How can I be certain I get the coverage I require?
- Start by doing something you probably haven’t done in the past. Read your current policy. Does it offer Actual Cash Value or Replacement Cost coverage? Does it protect you from specific perils or all of them? What about expensive possessions, equipment breakdown, and cyber security issues? Not everyone requires all this coverage, but if you do, it makes sense to understand what you have and where it is lacking.
Once you determine what you want from your insurance coverage, consult with a professional who has no allegiance to any single insurance provider. Lenox Advisors’ parent company is NFP, one of the country’s leading insurance brokers, providing access to multiple highly rated insurance carriers. Your Lenox Advisor works closely with NFP specialists to search objectively for the coverage you’re seeking. Especially in states where certain coverages are becoming increasingly scarce or even unavailable, an experienced broker with longstanding carrier relationships can often use its influence to provide you with the protection you might not be able to obtain on your own.