Flood, Mudslide, and Earthquake Exclusions—What You Don’t Know Can Hurt You

Why aren't these perils covered in a standard (unendorsed) Homeowner’s/Renter's policy? How can I get these covered? Do I really need to have these perils covered?

Thousands of homeowners are surprised each year by flooding, and some of them are even more surprised when their insurer denies their claim! Similar scenarios happen for both earthquakes and mudslides, too. What many homeowners don’t realize is that their standard Homeowner’s/Renter's policies do not cover these perils!

The reason these perils aren’t covered is because they are typically part of catastrophes, and catastrophes are often hard to cover by a non-government entity. The typical insurer simply doesn’t have the financial capability to insure everyone in a flood zone. That’s why programs such as the National Flood Insurance Program (NFIP) were made. So there are certain parts of the U.S. that are drastically susceptible to floods, mudslides or earthquakes, and those places are where government programs really come in. The rest of the United States is in low to medium risk zones, which can often be insured by private insurers--but only by endorsement! Remember that no standard form of the Homeowner’s or Renter's policies will cover any of these perils!

So if you’ve gone this long without these coverages, do you really need to insure them now? Flood maps and fault maps are available online, and for those in Nebraska, we have a low to moderate risk of flood, mudslide, and earthquakes (the fault that runs through Nebraska hasn’t been disastrously active--yet). Coverage for these perils usually don’t cost too much to cover, and might keep you from having a claim denied some day.

A note about flood insurance: covering your home for the peril of flooding is a broader coverage than you might think. It doesn’t have to be a river, pond, or lake overfilling to cause a flood. Public sewers backing up, water tables rising and causing seepage through your walls, and more are covered by a flood policy—and would otherwise be excluded.

Extras:

• You can find a seismic risk map HERE and other earthquake information. 
• As a FYI, a 2.9 magnitude earthquake just happened back on January 5^th, 2014 from south Lincoln down to Manhattan, Kansas (100 miles west of Kansas City).
• You can find more flood information HERE.

   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.

Credit Scores: Increase Your Score, Reduce Your Premium!

Our credit scores affect a lot of things in our life, and it reaches as far as determining our insurance rates! It has been statistically proven that people with higher credit scores will have fewer claims, so almost all insurers use your credit score in determining your rates. However, increasing your credit score isn't as straight-forward as you might think. That’s why we've listed a few tips on less-known ways your credit score is affected, and strategies you can use to increase your score! (For an introduction to Credit Rating, click HERE)

Ratio of Debt:

When using credit cards, you want to use between 5%-30% of your total credit each month. Having more or less will negatively impact your score (yes, you can be penalized for not using enough credit!).

The total credit is the cumulative amount of credit lines you have. So if you have three credit cards (store-issued credit cards count too!) all with a $1,000 limit, you have a total credit limit of $3,000 a month. Using any combination of the cards to accumulate between $150-$900 that month will positively affect your credit score.

Payment History:

Payment History and Ratio of Debt make up approximately 65% of your score. Payment history is a record of all payments made on your debts. Timely payments stay on your record forever, while missed/late payments stay on record for approximately 7 years. When a late payment is initially reported, it can reduce your score by (up-to) 60 points!

Credit Inquiries:

Whenever you apply for debt (a credit card, loan, mortgage, etc.), the debtor will make a hard credit inquiry. Each hard credit inquiry on your record will decrease your score approximately 3 points. Soft credit inquiries are when you check on your credit score yourself, say through www.credit.com or www.creditkarma.com. Soft credit inquiries have no effect on your score. All inquiries stay on your record for 2 years, however.      

Length of Credit History:

This part makes up approximately 15% of your score, and can only be improved by the passage of time. The Length of Credit History starts with the very first line of credit you have, oftentimes a loan or credit card.The best thing a young person can do is get a credit card (and manage it responsibly!) as soon as possible. A co-signer may be needed initially, but can later be removed with proof of sufficient income. 

For older persons, closing an old account may have a negative affect on their score, because closing a credit line erases all credit history associated with it. If you have an old card you don't use anymore, it's often better to just keep the card open, but just not use it.

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.

Save Money on Your Insurance with Update Information!

A plethora of information goes into deciding your rates in property insurance: your credit score, loss history, location, structure type, and much more goes into configuring rates. On top of all that, each company weighs each of the factors differently. However, one of the easiest ways to save money with any company is having a thorough update history.

An Update History is an itemized list of all updates/major repairs that have happened since the initial construction of the building. All insurance policies that cover buildings, personal or commercial, will ask you for any known updates, and the more you know, the better the rate/coverages you'll get. Not everything will qualify for discounts, but the following items will:

Roof: One of the largest factors in getting a preferred rate is the year the roof was replaced. An old, worn-out roof increases the chances of a loss occurring tremendously, so the newer the roof, the better. Also, many insurers give a discount for hail-resistant shingles, so replace your roof with certified hail-resistant shingles when yours are worn out. 

Wiring: The building's electrical system can play a big part in rating. During the 60’s to 70’s, copper prices soared, so instead of copper, they used aluminium wiring…with disastrous effects. Aluminium isn't suitable for building wiring, and it has been the cause of numerous fires. Another very important item is if your building is using a fuse box or a breaker box. Breaker boxes replaced the fuse box because fuses created many hassles and safety hazards (E.g. fire hazards). So if your building has copper wiring and a breaker box, you’ll get a much better rate. Note that some insurers won't even insure buildings with aluminum wiring and/or a fuse box!

Plumbing: Way back, someone decided to use lead pipes for plumbing before we found out about all the 'fun' side-effects. Then copper piping used to be the norm, but as we all know from Lady Liberty, copper and water don’t exactly play nice together. Today, homes are made with plastic and/or non-oxidizing alloy plumbing. If your home has had its plumbing replaced, a discount might be available.

HVAC: Heating, Ventilation, and Air Conditioning units are another area where you can receive a preferred rate. When you have these replaced, always note if it gas, oil, or electric, and the type it is (Heat Pump, Forced Air, Central Air, etc.)

For each one of these, save receipts that verify when the update occurred and what was done. Keep everything in a file, and make a simple list of updates for quick reference. Also, when buying an older home, make sure the seller has all the update information!  

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.

Loss of Use Coverage: Keeping You Secure While You're Away

What is the Loss of Use Coverage? Why is it in my Homeowner’s/Renter’s policy and what all does it cover?

In your Homeowner’s or Renter’s policy, there is a coverage for Loss of Use (Coverage D). The Loss of Use Coverage pays your additional expenses when a covered loss happens at your home that makes it uninhabitable, or when one of the covered perils happens somewhere else and it causes your home to become uninhabitable. It is an added benefit in your policy, helping you maintain your normal standard of living after a loss.

The first coverage is for your additional living expenses due to a covered loss. The covered loss could happen at your home or someone else’s, but if either make your home uninhabitable, the additional living expense coverage will pay.

The second coverage is for fair rental value. If you rent out part of your home and a covered loss makes your home uninhabitable, this part of the Loss of Use Coverage will pay you back for the missing rent(s) you would normally receive. This coverage has an exception, as it will not pay for any expenses due to the cancellation of a lease or agreement.

The third and final part of the Loss of Use Coverage is for civil authority prohibiting use. An easy example would be a fire in an apartment building. Say the neighboring unit to yours catches fire, yet your unit is completely untouched. Despite this, the whole floor is deemed ‘unsafe’ by the Fire Marshal and you are forced out of your unit until further notice. The extra expenses for food, a hotel room, etc. are all covered. This part of the Loss of Use Coverage only lasts two weeks, however.

Things to Consider:     

•       Each part of the Loss of Use Coverage is subject to covered losses. This means that the only things you will have coverage for are the perils you are insured against. So, the broader your coverage, the better your chance you’ll be able to collect Loss of Use money. The broadest coverage you can buy is Special Coverage, which covers everything that happens, minus a short list of excluded perils. The next step down from this is Broad Coverage, which only covers a set list of perils.
•        Each part of the Loss of Use Coverage has a capped limit on what it will pay. The amount of coverage is usually 30% of the Dwelling amount (Coverage A). So if there are extra expenses over that, you will have to pay out-of-pocket.
•       Additional living expenses and fair rental value are both subject to the stipulation that these coverages will only pay for the shortest amount of time it takes to return to the home/find a new home. So if you intentionally delay the repair process, you will be expected to pay for the additional time spent.
•       Any payments made are only for additional costs of living, so if you normally have total monthly expenses of $1,000, only living expenses over that $1,000 will be covered. 
•       An endorsed policy may pay for Loss of Use on an Actual Loss Sustained (ALS) basis. With ALS, there is no limit to the amount you can collect under any of the parts of the Loss of Use Coverage. The only caveats to this is that you are still only covered for the shortest amount of time it takes to get you back into your home/into a new home, and the ALS payments will only continue for 12 months after the Loss of Use Coverage was triggered.
•       Determining how to preserve your ‘standard of living’ includes many things, such as the quality and type of meals, extra mileage, extra pet expenses, finding a proper quality and square-footage of the temporary residence, and much more is taken into account.
•       The exact amount the Loss of Use Coverage pays is often hard to accurately determine, as exemplified by the previous note. Being hard to determine, settlements often come down to trust and goodwill of the insurer. Having a quality insurer with a highly rated claim-support history is the key to getting a fair amount for your extra costs.

   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: Credit Rating and Insurance Underwriting

A big factor in determining the premium of a personal auto policy has nothing to do with a person’s driving record—it’s his or her credit record. According to Conning and Company, more than 90 percent of insurers use an applicant’s credit history—his or her insurance risk score—to slot him or her into a certain program.

When a person applies for auto insurance, the insurance company asks for permission to pull his or her credit information. The insurer then secures a credit report from one or more of the credit bureaus—TransUnion; Experian; or Equifax. For more information on credit reports or to secure a copy of your own report, go to http://www.credit.com.

Credit scores range from 300 to 850. If your score is below 650, you may have trouble getting insurance or you may have to pay a higher premium. In order to improve your credit score, keep in mind the following factors that influence the score.

●       Payment history—The largest factor is credit and loan account payment history. A steady record of on-time payments going back several years shows responsibility.

●       Debts owed—The number of accounts you currently have, including type and balance. Try to have just a few active accounts with low balances.

●       Length of credit history—The longer your credit history, the better.

●       New accounts—Every time you apply for a new account, a record of that application appears on your credit report and drops your score. Limit the number of applications you submit.

●       Balance of accounts—It is best to have between two and six open credit cards and one or two loans.

●       Negative records—Collections, judgments, and bankruptcy filings will drop your score.

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.