Valuation Battle: ACV vs. RC vs. ERC

Maybe you’ve spoken to your insurance agent and they’ve mentioned some sort of loss valuation, such as actual cash value.  My assumption is you left that discussion thinking, “Great!  My loss will be paid.”  But what does this actually mean? When it comes to loss valuations, there are three common valuations: actual cash value, replacement cost and extended replacement cost.  Let’s break these down…

 

Actual Cash Value

Actual cash value provides the least amount of coverage in most cases.  Actual cash value is replacement cost minus depreciation.  I’ll go into replacement cost in a second, but depreciation is whatever percentage that your items, homes, cars, etc. are said to lose in value each year, just because they’re a year older and their “useful life remaining” is coming to an end.  Thus, if you have items that appreciate in value or don’t lose any value, you may not end up with a settlement that you like. 

 

Let me give you an example – In the type of clients that I work with on a day to day basis, they like their cars.   I have many clients with collector Aston Martins or Ferraris.  The idea of this is that these vehicles appreciate in value and if they hold them for a couple years, they’ll come out with more money than they invested in the car in the first place.  For easy round numbers, let’s say a car was purchased in 2008 for $100,000.  Now, it’s 2014 and there is a total loss because the driver lost control of the car.  In 2014 the car might cost $120,000 to purchase, but because it is now 4 years older there might be a depreciation of $40,000.  Thus, the loss settlement will be $80,000 and you will not be able to replace the car.  Obviously, this is a generic example, but this happens often when it comes to homes.

 

Replacement Cost

Replacement Cost is pretty simple.  The valuation would be what it would cost to replace the item with a similar item today.  There is no “depreciation” taken into account, because the item might be more or less to replace today depending on what it is.

 

Here’s another example for you – I have an iPad that was purchased for $500 in 2010.  In 2013, there is a fire in my home and the iPad is completely damaged.  I find my same iPad purchased in 2010 for $200 because it is three years later and other, newer models have come out.  My insurance company will give me the $300 to replace it.

 

In the example above regarding the high end vehicle, in 2014, the insurance company would likely pay up to $120,000 (depending on how the contract reads) or the limit shown on the policy if it is less than $120,000.

 

Extended Replacement Cost

Extended replacement cost is similar to replacement cost, but it is not capped at the limit shown on the policy.

 

Here’s my last example for you – I purchase a beautiful $500,000 home, my dream home, which I insure for $500,000 with extended replacement cost.  Being on the gulf, we see hurricanes from time to time.  Well, a hurricane sweeps through and takes out my beautiful home.  I’m devastated, but I have extended replacement cost.  What this means is the other costs associated with my home, that didn’t come along with the previous owner such as debris removal, cost of labor increasing, cost of materials increasing (all because most of the other homes in my neighborhood were also destroyed), are now relevant.  So a year and a half and $700,000 later, my home is back standing.  The insurance company paid out that total $700,000 even though my policy only showed $500,000.

 

If we go back to our first example regarding the high valued vehicle, we would be able to add in other costs that go with obtaining the vehicle, even though the replacement cost is set at $120,000.  This would include things like delivery charges, taxes, etc.  So maybe in reality, it costs $135,000 with all those extra costs and this valuation would pay that amount.

 

Not all companies offer extended replacement cost and the ones that do will want to go to your home, or see an appraisal or bill of sale for your item in order to verify their valuation is correct.  But, if your company offers it, it’s definitely the broadest loss valuation.

 

Another challenge for you… Check out your policy, talk to your agent.  The last thing you want is to find out which of these loss valuations your policy uses when you have a loss.  Insurance contract surprises are not good at the time of loss.

Say My Name: Named Insured Status

What's in a name? As it relates to an insurance policy, a lot.

If you're actually to pull out your insurance contract and read the definitions, you'll find a definition for "named insured". This is basically the person named on the policy as the owner. It can be multiple people (usually a husband and wife), a single person or a company (in the case of a commercial policy). 

So, why is it important to make sure the named insured is correct on the policy? A lot of policies limit or even eliminate coverage for non residents. So think about this, a family lives in Texas. The husband has a job transfer that temporarily relocates him to Florida for a year. He moves and his wife and kids continue to live in Texas until he returns. While he is not living in the house, if he is not listed as a named insured on the insurance policy, he could be excluded from liability coverage. This is also true in divorces or separations. If a spouse moves out, there could be a gap in coverage as it relates to liability and property coverage. 

The other place to closely review named insured status is as it relates to vehicles. Who owns the car? What entity owns the car? That is who the named insured should be. So, if you use a company that bundles all the autos in the household into one policy, make sure that the named insured matches the owner on the title of the car and if it doesn't, then you'll probably need to have your agent or broker write a separate policy each of the vehicles owned by separate owners or entitles. 

And finally, what about umbrella or excess liability coverage? The umbrella policy should match the underlying policies. This will insure that coverage will be seamless in the event of a large liability loss. 

In some cases, you will put homes or cars in the name of a trust, LLC or LP. Some carriers will cover this under a personal lines policy, but will list an individual or married couple as the named insureds and the trust, LLC or LP as an additional insured. There is a difference between additional insured and named insured, but that is for another time. What's important in this post is being sure both spouses are listed as the named insured regardless of the additional insureds. 

So, moral of the story? Review your insurance policy. Make sure the owners match up with the named insureds and both spouses are listed. There are special cases where only one spouse will be listed, and your insurance agent or broker can speak to you more about this. 

Ignorance is Not Bliss: Homeowners Special Limits of Liability

What is your most valuable real asset? I'm not talking about your family, your personality, your job, etc. Some people might answer that question by saying their home or their auto, but what about items that are smaller or easier to be lost, stolen or destroyed? For example jewelry, fine arts, oriental rugs, antique furniture, silverware...?

These items typically have limited coverages on a homeowners or renters policy. While you see a limit for contents or personal property, within the contract you will find special, lower limits for these categories. I'm going to have a lot of insurance agents or brokers upset with me because I might be creating more work for them, but I challenge you to pull out a copy of your contact and look for a section called "special limits of liability." This will provide you with exactly the limits that your policy is subject to; if you can't find it reach out to you agent or broker, if they can't find it or you don't know who they are, it might be time to find a new agent or broker.

Now let's talk about a solution. Obviously you want to keep your valuable items out of harms way (jewelry in a safe or vault, fine art and furniture out of direct sunlight, maintain an active centrally monitored fire and burglar alarm), but is there an insurance solution? Are you surprised to hear there is? Probably not. 

It's called a collections/valuable articles/personal article/inland marine policy/rider/floater. Whatever the insurance company decides to call it, they all serve the same purpose, to protect those items (and more) mentioned above. These policies are typically inexpensive depending on the category of the item you're looking to cover and a lot of times you'll find that they are available without a deductible. 

There are two ways to provide coverage for these items, blanket or scheduled. 

Scheduled coverage is where each item is specifically listed on the policy with a description and a value (usually determined by an appraisal or bill of sale). So, if you were to encounter a covered loss, the company will pay up to the limit that is shown to replace it (some companies offer a cash out option where you are not required to replace the item, and some companies offer an extended replacement cost option if the value of the item appreciates). It is especially important to remember that scheduled items should have updated appraisals every couple of years as the value of art, gold, silver, etc. is increasing dramatically year over year at this point in time. 

Blanket coverage, while not offered by every company, lists a limit for each of the chosen categories. You are not required to advise anything to the insurance company about the items that are being covered under this type of collections policy, but there may be a per item limit. What this means is if you have a per item limit of $10,000 and you have a covered loss of an item worth $12,000, the company will only pay the first $10,000 for any single item (not a single occurrence). Some companies have a higher rate for blanket coverage, so typically if you're looking to pay less premium you'll want to look toward scheduled coverage. 

My guess is following this information, you've got some work to do! Good luck! Please feel free to post any questions, comments or concerns. 

Photo curtesy of

http://www.123rf.com/photo_5855575_closeup-of-wooden-treasure-chest-with-valuables.html

Constructing Safety: Home Construction Risk Management

Construction season is at different times of the year for different parts of the country, but in Texas (specifically southeast Texas) it's October. Within the last month I've had two friends and four clients who have started construction projects for a new home or renovations on an existing home. So let's address these two situations separately because for risk management and insurance purposes they will be handled that way. 

First, let's start with new homes. You're looking for a contractor that you can trust. How do you know they're good? How do you know they are properly covered?

1) Ask them for recommendations. Most contractors, especially if they're good, will have clients who can or have provided them with a recommendation, just as you would see with a job interview process.

2) Request to drive past another job site if they have one. This way you can see what the quality of the work is while it's in progress. 

      Have they left tools out overnight? 

      If the site's unattended, did they leave windows open? 

      If work is being done, are proper safety measures being taken? 

      Are the workers wearing gloves while stapling? 

      Is there someone holding the ladder while another person climbs to the roof?

      Where is paint or stain stored when it's not being used? (This is a huge fire hazard. I personally have see a situation where the house was almost complete but due to poor storage of paint in the garage, the entire home burned down.) 

3) Ask to see certificates of liability insurance providing accurate limits and waivers of subrogation. The accurate limits speaks for itself, but what is a "waiver of subrogation"? According to Investopedia, a waiver of subrogation "prohibits the insurer from attempting to seek restitution from a third party who causes any kind of loss to the insured." And now a translation, if there's a loss (typically liability loss) while the home is being constructed, the general liability insurer will not look to the homeowner for payment of the claim, rather the insurance company will pay the claim. This protects you if the builder or insurance company seems to think you're at fault for whatever reason. 

4) Do a "Google" search of the company. A lot of times you can find reviews online and while some may not be valid and most may be negative, this can give you a better idea of any issues they have had in the past. I don't recommend leaving it at that though. Ask the contractor about it, why they had these issues and what they have done to avoid them moving forward. Issues are going to happen and the true character of a company will show through in how they dealt with it. 

5) Make sure you have a builder's risk or course of construction policy in place. I'm not going to go into the differences between those policies at this time, but you are able to secure this coverage through the builder or you may even be able to do so through your insurance broker. 

      (One note to protect yourself if you have a builder's risk policy, if you start moving ANY personal property in the home - a couch, a bed, a lamp, etc. - the insurance contract from a builder's risk policy I voided and the insurance company will not pay the claim. Make sure the day you begin to move anything in you have a homeowners policy in place.)

Now let's look at updates to an existing home. What should you consider? Obviously all the information above applies in this situation as well, but there are a couple of other things you should consider. 

1) If you are living in a portion of the home during construction, make sure you keep your doors to that portion of the home locked and your alarms active. While you hope you can trust the workers who are updating your home, I recently had a client who had a significant amount of jewelry stolen from a construction worker doing updates. Additionally, you want to be sure if there is a fire in the portion you're living in the alarm sounds so you're able to get out safely. 

2) Regardless of how much or little work you're doing, talk it through with your insurance broker. If your just painting or updating a room, they'll likely tell you that your policy is okay, but if you're adding square footage, moving walls or making structural changes, they'll likely have to notify the underwriter for approval. If you don't talk to your broker and there's a loss, it's very possible the insurance company could deny to pay the claim. So then you've been writing checks for nothing and no one likes that!

3) Once construction is completed, review your homeowners dwelling limit shown on the insurance policy. It's likely that it needs to be adjusted. Most companies can help you out with this. This is a very important step because a lot of the carriers will require your home to be insured for at least 80% to value to avoid any penalties if there's a loss by something called a coinsurance clause. 

Now that you've got an idea of a couple items to consider, get to work! Your hose isn't going to build or repair itself!

As always, please share your thoughts and comments.  Happy construction season southeast Texas!

Some information sourced from

http://onswipe.investopedia.com/investopedia/#!/entry/,5228a3d9da27f5d9d0177eb2

Photo curtesy of 

http://adamcowherdconstruction.com/services/home-builders-springfield-mo/

Avoiding a Haunting this Halloween

Halloween is a fun time of year! You have the opportunity to be something or someone you're not, and who can overlook those adorable children and dog costumes! But, you're not reading this post to hear about all the wonderful things surrounding Halloween, are you? Didn't think so. 

What are your exposures during Halloween? For your kids, your home, yourself, your friends? What have you overlooked that if you take five minutes or less to prepare for can make October 31st and the days before more enjoyable?

So it's the weekend before Halloween when all the adults participate in their Halloween festivities (don't worry, suggestions for kids activities are coming next). What should you think about before you're dressed up in your costume at the bar or a friend's house?

-Regardless of if you're drinking water or whiskey water, don't set your drink down! This gives the opportunity for someone who may be looking to ruin your night to do so. 

-A cute guy (or gal) comes up to you with a drink they purchased or made for you. Respectfully decline. Drinking anything that you didn't see made or poured directly from the can/bottle leaves you open to something that you don't want being mixed in. 

-During this time, you'll also see a lot of "adult punches" that we're made by the host. My suggestion? Stay clear. Whatever you brought or bought is much safer than the sugary vat of alcohol sitting on the table. 

-You're at the party, it's coming to the end, so how are you going to get home? Make sure you have a plan beforehand. Call a cab, have a DD in place, walk (if you're close enough), but DO NOT get in your car to drive if you've had anything more than a coke. The last thing you want is to ruin you're costume by having it stuck in the back of a police car. 

-Say you've made your way to a bar crawl or are headed to your next destination, cross at crosswalks only and be sure you're alert to oncoming cars. You may have made good decisions in not driving, but not everyone is as smart and proactive as you. 

-Don't drink TOO much. Need I expand? You're smart enough to figure out the consequences of this one. 

-Lastly, stay with a group of friends. Ending up in an unfamiliar place with people you don't know is not the kind of "Halloween spook" you were looking for. 

Okay, you've had your fun, and now it's time for the kids to get in their adorable costumes and collect some candy! (Of course it's not for you, although if you're lucky you'll sneak in a couple pieces after they're tucked in bed!) What should you think about?

-If you are going to be leaving the house so you can walk the neighborhood with your kids, make sure your alarm is set. You can leave candy on the front doorstep, but leaving a dark home on a night where teens are looking for trouble, can be more trouble than you're asking for.

-Stay with your kids. Obviously there is a time where they're going to want to go on their own with their friends, but there should be an adult not too far away just to keep an extra eye on the group. 

-Because it's getting dark so early these days, be sure your kids have reflective tape or part of their costume is made with reflective material so cars can see them. The last thing you want is a close call when one of the kids is running to a house across the street to get the "KING SIZED CANDY BARS EVERYONE IS TALKING ABOUT".

-On that note, if you're driving on Halloween, be alert. Kids are running throughout the neighborhood, and it can be dangerous for you and them.

-I know some families like to stay traditional and use candles in their beautifully carved pumpkins, but I recommend considering the substitute flickering lights. These provide much less of a fire hazard and they actually appear pretty real!

-If you have a dog, be sure he is tied up. Regardless of how friendly or obedient your dog is, that 99th time the door bell rings or someone knocks on the door might just be enough for him. It's a scary time for dogs when they're seeing people in costumes and someone is constantly at the door. The last thing you want is to be part of the statistic that says dog bites account for over one third of homeowners liability claims. 

-If you're in a colder climate, make sure the kiddos (and yourself) are wearing something that is warm enough. Growing up in Chicago, my costume always consisted of a winter jacket under some adorable pumpkin, or M&M costume.

-As always, be sure to check candy wrappers prior to letting kids dig in. If you've received a homemade treat it's probably best to file that in the trash no matter how cute it looks. 

-Finally, make sure the kids don't eat too much candy. They've got plenty of time to eat it, challenge them to see how long they can make their stash last. A sugar induced stomachache is the worst!

Most of all, the goal is to have fun! I hope you've learned a little something from my tips. If you have any to share, please comment on this! Collaboration from prior experiences or other thoughts can only make this year that much more enjoyable!

Happy Halloween!

Information sourced from

Insurancejournal.com

Photo curtesy of 

http://www.ymcastlouis.org/carondelet-park-rec-complex/events/halloween-hullabaloo-2

Red Hot: Fire Prevention Tips

More than 3,400 people are killed in home fires each year, most of which are preventable. 

In honor of national fire prevention week, let's have a discussion to raise awareness of this fact. The age old story is of a homeowner who leaves a candle burning and leaves the home.  Or where a lit cigarette starts a small fire that ends up spreading to a neighbors house. In fact just this week Houston, someone was smoking a cigarette on their balcony of an apartment complex. When they went inside the cigarette was obviously still lit. By the time the fire department was able to get the fire under control, twelve units had been completely burned. And to think it was completely preventable...

So what can you do to minimize the risk of a fire in your home and protect your assets, starting with the obvious?

     - Always blow out candles if you are going to sleep, leaving the home or cannot sit in the same room with it. 

     - Always make sure your cigarettes, when done, are in an ashtray and completely out. Pour some water on it to be sure. 

     - Make sure working smoke detectors are in every room. 

     - Keep fire extinguishers in your home where every family member has access to it and knows how to use it. 

     - Create an escape route for your family and practice it. If you have kids this can be an especially fun time to get them active while making sure they know what to do if there's a fire. 

     - Have your furnace inspected before every winter to ensure it is working properly. 

     - Have your water heater inspected every year to insure it's working properly. 

     - When cooking, be sure to wear tight fitting clothing that will not easily dangle into a fire or on a burner. 

     - Do not leave food on the stove or in the oven unattended. 

     - After lighting a match run it under cold water for five seconds to ensure it is no longer burning before disposing of it. 

    - Do not plug too many electrical wires into a single outlet at one time. 

    - Do not leave space heaters on overnight or when unattended.  

If a fire is preventable, there is no reason we shouldn't do everything to do so. Ultimately an insurance policy will replace all your goods, but lives cannot be replaced. I encourage you to take every precaution moving forward and challenge you to sit down this weekend with your family to come up with a plan should a fire start. 

Remember - Only you can prevent home fires. 

Some information found via the following sources 

http://www.firesafetytips.com

http://www.redcrossdelmarva.org/home_fires.pdf

http://www.usfa.fema.gov/citizens/home_fire_prev/

Photo curtesy of 

http://www.hicaliber.biz/uncategorized/3611/

Intro to Personal Risk Management

While researching today I realized that most risk management online magazines and risk management blogs are related to commercial exposures. There is a hole in the market as it relates to providing individuals and families with free risk management advice. 

From reading contracts to filing claims, my day to day activities give me a little bit of knowledge in this field. I have been in the business only just five years, but throughout those years I have handled hundreds of hundreds of clients with account premiums ranging from under $60 to over $400,000. Throughout my interactions I've realized that clients are most appreciative when I provide them knowledge about their insurnace contract or suggestion about better protecting their assets prior to a claim. 

Do not expect me to share any details about my current, past or future clients or provide internal details about the company I work for. My intensions are to provide you with data, scenarios and knowledge that you can use to better protect your family and assets in real life. My hope is that you can use this information and if you feel led to do so, share with your family, friends, neighbors, colleagues, etc. 

Please don't mistake this blog as a substitute for an insurance policy, but rather a compliment to one. 

I look forward to hearing suggestions for topics, your questions, your comments, your concerns and meanwhile hope to learn something myself. While I don't have all the answers, I'm confident that I can always find one if it's available. 

Thank you for joining me in my first post and stay tuned for the first fully informational post. 

Photo curtesy of http://www.insurancejobs.com