Is Your Property Insurance Adequate

With hurricane season in full swing, insurance seemed the perfect place to start with our first post.  Insurance is that necessary evil, we must have it, don’t like having to pay for it, but when something happens boy are we glad we did.  The biggest mistake people make though when it comes to either their private residence or investment property is to not have the right or adequate coverage.  Unfortunately, they don’t usually realize this until something happens and then it’s too late.

Don’t let price be the sole deciding factor.  None of us wants to pay more than we have to, but, the lowest cost is not always the best option and, in the end, can end up costing you.  When shopping around for the best deal, make sure to thoroughly compare the different policies and know what is and isn’t covered.

A few things to keep in mind when shopping for a policy:

• Deductible.  Everyone knows the higher the deductible the lower the cost.  This may seem like a good idea up front, but, if something happens and you can’t afford the deductible that can be a major problem.  If you do choose to go with a high deductible plan, then a good idea is to set up a savings account and put a little away each month until you have enough set aside to cover the deductible if/when you need it.  Be sure you know the deductible for each type of loss as some claims may be subject to a higher deductible.
• Flood or water damage.  Everyone knows that if your property is in a FEMA special flood hazard area and have a mortgage then you are required to purchase flood insurance.  If not located in a flood zone a lot of people assume since they are not required to purchase separate flood insurance that their regular policy covers them for any flood or water related damage.  Be sure to read your policy carefully as any water damage from flooding, or even just from an outside source such as a sewer or drain line back up will most likely not be covered without separate flood or water back up coverage.  This latest hurricane is a good example, they estimate that only 10% of those who are facing partial or total losses due to Florence will be covered.  The rest were not required to have flood insurance, so they didn’t, and now will not be covered.  Don’t make the mistake of thinking that FEMA disaster relief funds will make up for no or inadequate insurance and cover you either.  Even if you do qualify and receive an award it is generally very small, maybe only a couple of thousand dollars or less which certainly won’t replace your home and possessions.  In other cases what they may offer you is a low interest loan which you will have to pay back.
• High wind damage/hail.  Another item that catches people off guard, and usually not until a loss occurs and their claim is denied, is damage caused by high winds or hail.   Some policies require a separate rider or even that a hurricane policy had been purchased to cover you for losses due to a severe weather event.  You don’t want to wait until you lose your roof in a storm to find out it isn’t covered.  A client of ours recently went through this.  A hail storm caused significant damage to her roof and luckily, she had a rider in her policy and was covered.  Her neighbor wasn’t so fortunate, she didn’t and as a result wasn’t covered for it at all.  Even if your policy does cover you for any storm or wind related events it may impose a higher deductible for storm/wind related claims.  If it does cover you, the amount you receive may be based on the age of the roof.  If you have a new roof that’s great, you will probably be fully covered for repairs/replacement just less the deductible.  However, if you have a roof at the end of its life span, by the time they factor in depreciation and your deductible you may receive very little if anything.
• Don’t underestimate your contents.  When looking over policy limits it may seem that the default levels for content replacement sounds like a lot, but is it really enough?  Take the time to really think about what it would cost you if you must start from scratch and replace everything you own.  If you have a catastrophic loss, say a fire, and all you have left are the clothes on your back this will be a significant amount.  This not only includes personal items such as clothing and furniture but also consider any updates you have done to the property, kitchens, bathrooms, etc.  In a lot of policies the base coverage for replacement means to the homes original condition, which in a lot of cases will mean standard builder grade fixtures and finishes.   Any upgrades you’ve done such as granite counters, high end appliances, etc. are then covered under these separate limits.  If you have something specific like expensive jewelry or art, you will want to have them specifically listed in the policy to ensure they’re covered.

Condo owners or renters also need to have their own condo owner or renter’s policy.  A mistake those living in a condo or rental make is to assume they’re covered since their building or landlord has a master policy.  And while that master policy will cover the rebuilding of the building it will most likely not cover the contents of any of the owners or renters.  That means none of your personal possessions are covered.  For condos that also means that the master policy is only responsible to put the unit back in the condition it was in when the building was originally built.  As discussed above that means builder grade finishes, it will not cover any of the upgrades that may have been done by the owner.  In multi-family buildings you are also responsible for any damage caused by you or something in your unit.  If you have a leak that causes damage to another unit you are responsible for any repairs to both your unit and to any other unit or common area affected as well. Because of the limited responsibilities of these types of policies, the premiums are generally very inexpensive so there really is no reason not to have one.

For the investor, make sure that not only do you have adequate insurance on your investment property but that you also make it a lease requirement that any tenants carry renter’s insurance.  This will protect both you and the tenant in the case of any loss or damage.

While you don’t want to overpay for insurance, you want to make sure you really know all your options, fully understand what is and isn’t covered and select a policy which offers you the best coverage for what you can afford.