Thursday, April 28, 2011

Looking at Insurance Part 3: Personal Property

Personal property is everything you own that is not attached or a part of the structure. When I talk about personal property with a client, the first thing they think of is computers, flat screen, jewelery, and stereo. Then they tell me they don't have that much stuff.

There is a lot more to it than that! Personal property is EVERYTHING you own that is not attached or a part of the structure. Computers, flat screen, jewelery and stereo just scratch the surface. Your clothing, dishes, pots and pans, sofa, chairs, breakfast table, night stand, medications, cd's, dvd's, dog bed, your bed, those fridge magnets you got on your vacation, etc. When you really look at replacing everything you own, this coverage is usually not too far off. Carriers usually calculate personal property as 55% of the dwelling value, but you can increase this to 75% or more depending on the carrier and your needs.

While you may have to meet your lenders requirements for property coverage, it's ultimately up to you to determine the right amount of coverage.

Monday, April 25, 2011

Looking at Insurance Part II: Other Structures Coverage

One question I get often is "Can we get rid of other structures coverage?" What the client is really asking is can we save some money and get rid of this since we don't have a detached garage or shed.

Other structures covers more than detached sheds and garages. It also covers fences, walls around the property, walkways, concrete patios,  pools, spas, outdoor BBQ's, etc. For most policies the coverage is set at ten percent of the dwelling value, (ie, dwelling value is $200,000, other structures would be $20,000) but you can increase this limit if you feel more coverage is needed, like for a large concrete patio.

But to get back to the question, "Can we get rid of other structures coverage?, some carriers allow you to eliminate this coverage. But would you want to? If a large fire took out your neighborhood, you would not only have to rebuild your home and replace your personal possessions, but also the fence around your home, the large patio and the spa.

Thursday, April 14, 2011

Changes are coming to how your carrier determines your replacement cost.

In June the new replacement cost regulations put in place by the California Department of Insurance will take effect. Many carriers are gearing up for it and all property and casualty insurance agents must take a course on replacement cost calculations by June or they can no longer discuss replacement costs with a client.

What this means for the customer is that they will see a more detailed analysis of how the insurance carrier arrived at the replacement cost for their home.The customer will also need to provide more details about the property and themselves to obtain a quote. Type of flooring, roofing, counter tops, bathroom fixtures and more will all need to be put into the analysis. Most insurance carriers do this analysis already based on rebuild cost data for your area by companies like Marshall, Swift, Beck, and certain assumptions about the property. For example, some carriers will add 20% to the value if the home is over a certain square footage, or 25% if it is a 2 story home, etc.

Some carriers use the current real estate value, which is constantly changing, and add or subtract a certain percentage from that. This second approach leads to a lot of problems and personally I think this is what led to the regulation. It would be very easy to under insure a home based on it's current market value. Ultimately it is up to the property owner to determine their replacement cost for the property. If  you have a loan on the property, you will have to satisfy your lenders requirements for property insurance.

Lets say you buy a home for $245,000. You might think that in the current economy that it would cost about that or a little less to rebuild it. Your insurance carrier covers the home for $320,000.  Why the huge difference?

Well, the size of the home, the area it is in and the year it was built all play an important part. In this example the home is over 2,000 sq.ft. and in a good neighborhood. Cost of building materials and labor are another factor. But the one that most people miss is the costs of debris removal, permits, governmental fees, and changes to the building codes since the home was built. Costs of permits and government fees have gone up because of the down economy. Local and state governments are trying to grab any nickle they can. If the house was built in the 1960's and burns down in 2011, the home must be rebuilt to 2011 building standards.

Talk to your agent. Ask them for a copy of the rebuild cost analysis after June 27th when the new law is in force and all carriers must provide a copy and explanation of how the rebuild cost of your home was determined.

Thursday, April 7, 2011

Looking at Insurance, Part I: Dwelling Coverage

The dwelling coverage on your insurance policy is for the main structure you occupy or rent out. Your house, the apartment complex you own, the house you got a great deal on and have just rented to a nice couple with 2 kids.


This figure may seem high to you. The real estate market is down, demand for construction is also down, so the cost should be down, right? Well, not really. While the real estate market is constantly changing, insurance companies are not concerned with value, they are concerned with replacement. Replacement includes things like debris removal, county, city and state fees, permits, building code upgrades and more. Next, they have to look at costs of building materials for the term of the policy. If a large disaster occurs, like a wildfire, demand for labor and materials will go up and so will cost.

When you look at the dwelling coverage on your policy, think about building a home from the ground up and all the costs associated with it. That is what your carrier is doing.