Insurance 101

Many people do not understand what their insurance is doing for them. They know they need it, they know they have to pay for it, but they often do not fully understand what they are getting for their money. The hope is that they will not need to use it, so a thorough understanding of their policy of often not pursued. You would not buy a house without an inspection, however, and you would not buy a car without knowing what features it has so why would you pay for insurance every month without knowing what you are paying for?

Insurance is a form of security. When things go wrong such as water damage, fire damage, or even a car accident, it can cost a small fortune to get things back to pre-loss condition. No one anticipates such tragic events to occur in their lives so it is important to understand how to be covered, and understand when you might not be covered.

It is scary how many people do not understand what their deductible is. When you sign up for an insurance policy, most companies will give you different deductible amounts to choose from ($500, $1,000, and $2,000 are most common) and those number directly affect your monthly premium. Many people who do not understand what the deductible is will choose to keep their monthly payments lower and choose a higher deductible about. This can cause severe stress when something like water damage occurs in your home, and you have a surprise bill that you are responsible for paying. Your deductible is YOUR portion of any claim you file. Let us break it down. Say you have some water damage to your home, you file a claim and an estimate is approved for $2,000. Let us say that your deductible is $500. Your insurance will cover everything after your deductible is met which means you pay the contractor $500, and the insurance will pay the contractor $1,500. Notice I write that you will pay the contractor, not the insurance company. As much as the insurance may like to take additional money from you, the deductible goes to the party performing the work.

Another concept to understand about your insurance policy is what is considered a covered loss versus what is not a covered loss. We have had customers who get quickly frustrated when they find out that the loss on their home may not be covered. Most insurance companies will cover damage to your property if it is sudden and/or accidental. The weather gets stormy and a tree falls on your house, the temperatures outside drop and a pipe freezes and breaks, the electrical glitches and sparks a fire. These are sudden or accidental. They typically will not cover damages that are a result of neglect. If your roof is 30+ years old and starts to leak into your home they will likely consider that a denied claim. You as the homeowner are responsible for maintaining your home which means replacing your roof in a timely manner. If you notice your siding is not looking good and choose to ignore it instead of replacing it, that can also be seen as neglect. Being aware of what might need updated on your home can prevent denied claims. Another reason they might deny your claim is if you knew there was a problem and waited to report it. This is not to say one or two days waited, but weeks, months, and years. If they feel you neglected the problem which made it drastically worse (more expensive to fix), they can also deny the claim. Be sure to take good care of your home to prevent astronomical unplanned costs when things might go wrong.

One last thing we like to talk to people about is understanding what your insurance coverage includes. You can add additional coverages for things like dry rot, mold, tree removal and even alternative living expenses. Things many people do not think they will have to deal with but you cannot foresee what might happen in the future. When an event like water damage or fire happens in your home, the removal that comes with it can reveal some unsightly things like mold and dry rot. Unfortunately, the weather is not always predictable so if the wind blows a tree on to your roof you will want coverages as tree removal can get expensive quickly. Lastly, alternative living expenses are a great security if the damages in your home make it unlivable and you have to stay somewhere else. Your insurance will pay for a certain amount of time for you to live somewhere else while the repairs are made on your home. Many insurance policies do not automatically offer this benefit so it is worth asking your agent about what your coverages are for alternative living expenses.

Understanding what your insurance covers for the premiums you pay each month can be the difference between a few hundred dollars and a few hundred thousand dollars. Planning ahead as if the worst could happen will always provide you better protection no matter what may occur. Most do not think about all the things that could go wrong in their home, and we often hear how they wish they knew what they had coverage for before something had gone wrong. Spend some time learning about your insurance, you will be happy you did.