Causes of Loss—Modifying Your Protection

Every insurance policy has perils that are covered and excluded. In Property insurance policies (E.g. your home, commercial building, etc.), the policy follows the ‘Cause of Loss Forms’. The Forms are Basic, Broad, and Special. Each Form insures your property against different perils, with Special being the most thorough coverage.

Note: Before the three Forms can be properly discussed, you’ll need to know what a Named Peril policy and an Open Peril policy mean. In a Named Peril policy, the coverage provided is limited to the perils that are specifically named. If something happens that isn’t specifically named, the claim will be denied. Conversely, in an Open Peril policy, every claim scenario is covered except for named exclusions. So if a claim was caused by literally anything other than the named exclusions, it is covered.  

Basic:

As you’d expect from its title, the perils covered by Basic Causes of Loss are very limited. This Form is a  Named Peril coverage, covering your property for only the most basic perils. Typically, your Basic form will cover the following:

• Fire
• Lightning
• Windstorm/Hail
• Explosion
• Smoke
• Vandalism
• Aircraft or Vehicle Collision
• Riot or Civil Commotion
• Sinkhole Collapse
• Volcanic Activity

Broad:

Broad Form is another Named Peril coverage, expanding on the perils found in the Basic form. The Broad Form includes all of the Basic Form’s perils, and expands the coverage to include the following:

• Burglary & Damage Caused by a Burglary
• Falling Objects
• Weight of Snow and Ice
• Freezing of Plumbing
• Accidental Water Damage
• Artificially Generated Electricity

Special:

As you might have guessed, Special Form is written on an Open Peril basis, making it the most comprehensive coverage form. The biggest benefit to the Special Form is that it would cover odd, completely unforeseeable accidents that would otherwise be excluded in the other policy Forms. Being an Open Peril policy, the Special Form typically has the following exclusions:

• Ordinance or Law* 
• Power Failure*
• Earthquake**
• Flood** 
• Neglect
• War
• Nuclear Hazard
• Intentional Acts

*These exclusions could be covered by adding an endorsement to the policy and paying additional premium.

**These exclusions can sometimes be added by endorsement or by purchasing a separate policy.

The bottom line:

Not all policies are made equally. Don't leave things up to chance—always make sure to check what coverage Form your property insurance is written on. When you compare insurance quotes, always make sure to take a look at the policy language—even two ‘Special Form’ policies could have different exclusions! 

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

Understanding Your Homeowner's & Renter's Policy

Many people don’t fully understand how their Homeowner’s or Renter’s policy works. This article will give a brief overview of the coverage included in both policies, and will provide links to articles that further explain the coverages and terms.

Homeowner’s and Renter’s insurance policies are package policies designed to cover the insurance needs of the average renter or homeowner. There is a lot of overlap with these policies, but the Homeowner’s policy covers the extra property exposures that they face. Each of the policies have coverage parts, designated by different letters. Below is each coverage part, with a description of what it does:

Coverage A, Damage to the Home:

Coverage A is exclusive to the Homeowner’s policy, as a renter (obviously) doesn't own their residence. The coverage provided can be widened or narrowed, depending on the provisions inside the policy. The first provision that modifies coverage is what valuation the home is written as—either Replacement Cost or Actual Cash Value. The abridged explanation is that Replacement Cost valuation would provide you with a brand new home after total loss, where Actual Cash Value would reimburse you with the market value of the home, allowing you to go find another home of similar price to purchase.

Another provision that modifies Coverage A is what Cause of Loss Form it is written on. These Forms define which Perils your home is insured against. The Forms are Basic, Broad, and Special, with Basic providing the narrowest of coverage and Special being the widest. Lastly, you are required to insure your home for approximately its exact worth due to the Coinsurance Clause.

Coverage B: Other Structures:

The Other Structure coverage is another Homeowner’s policy exclusive, as it covers any unattached buildings or structures on your property (such as a shed or gazebo). The amount given by the coverage is usually 15% of the Coverage A amount, and can be adjusted to accommodate your specific needs.

Coverage C, Personal Property:

Both the Renter’s and Homeowner’s policies have Coverage C. This section provides coverage for all of your personal items, such as your TV, furniture, clothing, etc. Like Coverage A, it is subject to Replacement Cost or Actual Cash Value valuation and the Causes of Loss Forms. However, Coverage C is also subject to Sublimits. Sublimits typically apply to collection items, such as furs, guns, precious metals, etc. To properly cover all of your personal property, you may need to increase the Sublimits, or alternatively, you can Schedule each individual item.

Coverage D, Additional Living Expense:

Also known as Loss of Use coverage, Coverage D can be found on both the Renter’s and Homeowner’s policies. Coverage D would reimburse the policyholder’s expenses after a covered Peril makes their home uninhabitable. So if a fire destroys your home, Coverage D will pay to put you in hotel while your home/apartment is being rebuilt. It will also pay any additional expenses you have to pay, such as increased cost for food. The amount provided for Coverage D varies, but can usually be increased. Note that this coverage typically is only available for a stated amount of time, such as coverage for up to six months after a covered loss.

Coverage E, Personal Liability: 

This section covers the renter or homeowner and their family against lawsuits (legal liability). Situations that would be covered by your Personal Liability coverage would be if your dog bites someone, if a guest trips and injures themselves on your property, if you damage someone else’s property, Personal Injury, etc. The limits can typically be set as low as $50,000 up to $500,000. (the Personal Umbrella policy provides additional liability coverage on top of the Personal Liability coverage)

Coverage F, Medical Expense: 

Also known as Medical Payments coverage, this coverage is available for both Renter’s and Homeowner’s policies, and it is a supplementary coverage to your personal liability. Though your Personal Liability coverage will cover any medical expenses that you’re held liable for, the Medical Expense coverage will pay the medical expenses of people who harm themselves on your property even though you didn't negligently cause it. Essentially, this coverage was designed to pay their medical bills to keep you out of court.

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

Property & Casualty Insurance Lingo

The Property and Casualty (P&C) insurance industry is a vast segment of the insurance industry, and there are numerous terms used in it. The following list was made to explain common terminology used in Personal and Commercial Property and Casualty insurance:

Property Insurance: It covers any physical item that could suffer a loss. Examples: your home, your car, your office building, your jewelry, your copier/printer, etc. 

Casualty Insurance: Any situation where you might be liable for harming someone or someone's property. It is a cover-all term for liability insurance coverages. 

Deductible: Also known as a Retention. The Deductible is the amount the insured must pay in order to have the rest of the claim covered. 

Exposure: As in, exposure to loss. Some businesses have exposures that require specialty insurance. Example: The Exposures of an amusement park are harder to cover than a bakery’s.

Peril: A cause of loss. Examples of Perils: Fire, Wind, Hail.

Risk: The possibility of a loss. Example: Contractors have more risk than an ice cream parlor.

Hazard: Something that increases risk; something that increases the chances of a loss. Example: Wet floors in a grocery store, cracked pavement in a parking lot.

Inception Date: Also known as the Effective Date. The day and time when your policy starts to cover you.

Expiration Date: Also known as Ex-Date. The day and time when your policy stops covering you.

Coverage: A single line of insurance. Property coverage is a single line of insurance. A Homeowner’s policy has multiple coverages.

Package policy: A Package policy combines two or more coverages into a single policy, where you pay one premium and the coverage all have the same Inception. A Homeowner’s policy is a package policy, as it has property and personal liability coverages.

Personal Lines: These are the coverages that deal with the risk of the average consumer. These products are far simpler than Commercial Lines, and the products are fairly consistent between insurance companies.

Commercial Lines: These are the coverages that deal with the risk of businesses and organizations. The products in Commercial Lines vary greatly between insurance companies, and the total number of products available is vast.

Standard Insurer: An insurance company that has products for the general public. The products are broad with competitive prices, with the goal of gaining market share.

Surplus Lines: An insurance company that has products for special exposures (such as a bad claim history). These companies specialize in writing high-risk exposures. The products are non-standard, meaning that the policy wording will be less broad, and the premium will be higher.

Assigned Risk Worker’s Compensation: Also known as ‘the pool’. Assigned Risk is for companies that have a bad Workers’ Comp claim history and/or companies that are in a high-loss industry. Being similar to Surplus Lines, the premium you pay with Assigned Risk will be far greater than a Standard Insurer.

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

What to Do if Your Engine Overheats

With the dog days of summer upon us, you can bet that the number of cars parked along the side of the road with their hoods up will increase. It’s Murphy’s law that on the hottest day of the year, your engine's temp will start creeping up into the red. So after you grumble a bit and let out a sigh, do you know what to do? Let's start with ways to keep an overheating engine at bay.

Steps to Prevent Engine Overheating:

Determining the Normal Operating Temperature: Keeping your car from dangerously overheating is done best when you know how warm your engine should be. A properly working car will take 5-10 minutes to fully warm up in hot weather, and you’ll know it’s fully warmed up when the temperature gauge’s needle stops moving. Note: Even in sub-zero temps, a properly working car will run as warm as it does on a hundred degree day. So once the needle stops moving, make a mental note of where it is—this is your normal operating temperature.

Be Proactive: Now that you know where your engine should be running, make sure to keep an eye on the engine temperature. You don’t have to constantly hover over it, but checking on it occasionally is a good habit to have—this is especially so on extra hot days.

Note: Running your car’s A/C puts a lot of extra load on your engine. So on very hot days, don’t be surprised if your engine runs a little hotter than usual if your A/C is on—just be extra attentive to the heat gauge if your A/C is on!

Maintain: The easiest way to prevent you engine from overheating is to keep the coolant level at 'Full'. To keep your coolant properly filled, you'll first need to know what to look for: the coolant tank is usually a translucent plastic container that can be found under the hood. It will have markings on the side indicating the proper coolant level. If it's below full, add a 50/50 mixture of water to coolant fluid to get it back to full. Note: The fluid in your coolant reservoir is usually a 50/50 mix of water to coolant fluid, but make sure to read your owner's manual to make sure! The cooling system is a closed system, so theoretically, your coolant level should never drop. However, leaks happen, and low-quality coolant evaporates, so make sure to keep an eye on the coolant level. 

How to Handle an Overheating Engine:

When the Needle Starts to Rise: If you notice the engine’s temperature rising past normal, you have a few options before you have to pull over. First, turn off your A/C immediately. It won’t be as nice as air conditioning, but rolling down your windows should still keep you cool. If that doesn't fix it, turn your heater on as high as possible. This will redirect some of the hot air in the engine and hopefully keep it cool (you’ll have to sweat it out, though).

Pulling Over: If those two options still haven't changed anything, pull over as soon as you safely can. Find a good shoulder on the highway or interstate, or find a side street or parking lot if you're in town. Get as far away from traffic as (safely) possible. Also, wait for an overpass to park underneath or a shady tree if you can. Note: It’s recommended to never go more than a quarter mile while your engine's temperature is in the red!

Opening the Hood: Once you’re safely pulled over, turn off the vehicle and open the hood, but don’t touch it with your bare skin! If you have gloves, wear them while raising the hood. A towel or shirt might work as well. Also, there might be steam or smoke trapped under the hood, so be careful as you’re opening it! With the hood up, it may take over thirty minutes to cool your engine down to a safe temperature. Note: DO NOT pour water directly onto the engine/into the radiator! 

Playing Mechanic: When the temperature has gone down, it’s time to start troubleshooting.The best place to start is checking the coolant level. The coolant tank is usually made out of translucent plastic, and the proper coolant level will be marked, often with a line with “Full” by it. If the level is below full, you can add water to get you where you need to go. Note: again, a 50/50 mixture of water to coolant is typically recommended, so put in some coolant as soon as you can. 

However, if the tank is almost or entirely empty, you've probably sprung a leak. Check for cracks in the coolant tank, or cracks in the radiator (the radiator is at the very front of your engine. You'll know it's the radiator because there will be a metal cap on it that has an orange sticker on top of it, and the sticker will say something like: “Warning: Never open when hot"). If you can't find any cracks, look for hoses that are worn out or disconnected. If you've found the broken/worn-out part, it's probably not going to be an easy fix—it's time to call a tow truck.

If your engine has overheated but the coolant level is where it should be, the problem could be a clog in your cooling system, or it could be a mechanical/electrical issue. Again, it's time to throw-in the towel and call a tow truck. 

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

IRMI Tip of the Month: Maintain Your Clothes Dryer

According to the U.S. Consumer Product Safety Commission report, there are approximately 10,000 annual residential fire losses in which the source of the fire is in the clothes dryer or vent. Dryers are the third most common type of equipment involved in fires, ranking behind stoves and fixed area heaters. Clothes dryers can catch fire due to excessive lint build-up in the exhaust pipe or inside the dryer; this lint build-up is often out-of-sight. As a result, you should take the following steps to reduce the chance of your dryer starting a fire.

• Follow the manufacturer’s instructions when installing the vent pipe.
• Keep the dryer vent clean and unplugged. Check for a plugged vent if the dryer does not dry clothes efficiently.
• Remove and clean the lint screen before each use.
• Keep all combustibles away from the clothes dryer.
• Hire a qualified technician to periodically inspect gas clothes dryers.

Get more personal lines insurance and risk management tips and ideas from IRMI.

Copyright 2008, International Risk Management Institute, Inc.

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

Excess Liability Policies

The Excess Liability policy has many similarities to the Umbrella policy. However, the differences are in breadth of coverage, pricing, and policy provisions. Excess Liability policies can be written for both personal and commercial risks, but this article focuses more on the commercial application.

An Excess Liability (EL) policy works in a similar fashion as an Umbrella policy; it provides an extra tier of liability coverage for large losses. The EL policy is typically written for a combined occurrence/aggregate limit of $1,000,000, and it would step in after an underlying liability policy limit is maxed out.

Example:

Let's imagine your business has a General Liability limit of $1mil occurrence, $2mil aggregate. Your Excess Liability policy has a combined occurrence/aggregate limit of $1mil. If your company sustained a $1.5mil General Liability loss, your General Liability policy would cover the first $1mil of the loss, and then your Excess Liability would cover the $.5mil left over. If any other losses happened during the policy term, the General Liability policy would have up to $1mil of coverage left, and the Excess Liability would have $.5mil left to go over the General Liability policy, or any other liability policy. (A similar situation could be played out with automobile liability coverage.)

What makes the Excess Liability policy different from the Umbrella policy?

The main difference between an Umbrella policy and an Excess Liability policy is in the breadth of coverage of each. The Excess Liability policy typically follows the wording of the underlying liability policy exactly, while the Umbrella policy has its own coverages and exclusions. So for an Excess Liability policy, if the General Liability policy excludes claims of mental anguish, so does the EL policy (this is called a 'follow-form' Excess Liability policy). Typically, an Umbrella policy would cover claims involving mental trauma on a first-dollar basis (as a standard General Liability policy typically only covers direct bodily injury and damage to property of others). 

To summarize, the Excess Liability policy literally just adds X amount of liability dollars above your underlying liability policies, while the Umbrella policy both adds a layer of liability protection and broadens coverage. Because of this, underwriting standards will be higher for Umbrella policies than Excess Liability policies, and an Excess Liability policy will be cheaper than an Umbrella policy. 

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.