In your standard home insurance policy, there’s a limit of liability for personal liability claims. The usual coverage that’s automatically provided is generally $100,000. However, given today’s litigious society and the cost of medical care, a claim can easily exceed that amount. If you are a homeowner, your assets, including your house, can be attached in the event of a judgment against you. This is where an umbrella policy can really help out.

The personal umbrella policy is given its name because it acts as an umbrella over more than just your personal liability policy. Most people who have umbrellas use the policy as extra protection for both their personal liability and automobile liability coverages. For example, if you have a $1 million umbrella policy, it will provide the $1 million in protection if either your personal liability or auto liability policy limits were exhausted.

Keep in mind that this is a liability policy and not a property policy. Therefore, even though your home insurance policy has two main types of coverage, the umbrella only applies to the personal liability portion of the coverage. As an example, if you have not insured your home for the proper amount and have a large claim, the umbrella policy will not provide you with any benefit. On the other hand, if someone is injured on your property and sues you, the umbrella policy will be prepared to step in if your home insurance policy’s personal liability limit is exhausted.

It’s common for people to consider the umbrella policy as an optional item and not necessary. Even if they are aware of the existence of umbrellas, many people choose not to purchase them, thinking that a very large loss will never happen to them. Unfortunately, when something unforeseen actually happens, it’ll be too late to purchase the coverage. Umbrellas are generally inexpensive when viewed in relation to how much coverage they provide. That low premium is a good sign of the relative infrequency of loss contemplated by the insurance companies in underwriting the policies. However, just because everyone thinks it’s rare for a loss to occur doesn’t mean they don’t believe it will never occur.

You should also keep in mind that there might be some ways to save on insurance premiums by purchasing an umbrella policy. Because many insurance companies offer a multi-policy discount, you might find that it’ll defray the cost quite a bit. When I first started purchasing an umbrella policy, the discount I received from adding it to my existing home and auto policies with the same insurer almost covered the entire cost of the umbrella! Given its low cost and potentially great benefit, you should really invest in an umbrella policy.

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When insurance companies consider nothing but the premium they take in and the claims they pay out, they create a measurement known as the loss ratio. A loss ratio of 1.00 means that for every dollar the insurance collects in premium, it has paid a dollar out in claims. Insurance companies also generate other ratios that take into account their expenses. After all, someone actually has to collect that $1.00 in premium and someone needs to write a check to pay the claim. All of those expenses mean the insurance company actually needs to collect a little more than a dollar just to break even!

Now that we’ve established how the loss ratios work, would you be surprised to know that it’s pretty common for insurance companies to regularly operate with ratios greater than 1.00? That means they are actually spending more on claims and expenses than they are collecting in premium. If you’re wondering how they can do this and stay in business, your instincts are correct. The saving grace of most insurance companies is this little thing known as investment income!

Think about how often it is that someone pays premium to their insurance company on day one of their policy’s effective date. Then think about how often the insurance company actually pays a claim on that day. Probably not a lot, right? The insurance companies rely on a delay in the time they collect your premium to the time they need to pay a claim. During this interim period, the insurance company invests your premium money and hopes to earn some interest and investment returns. This is how they can manage an underwriting loss on your business but still come out ahead.

Certain types of insurance take longer than others to pay out. Those lines of coverage allow the insurance company to earn even more investment income. Unfortunately, the overall business climate right now is one of low interest rates. As a result, insurance companies have to charge higher premiums to make up the investment income they would otherwise have earned on your premium dollars.

If you’re a savvy investor, you might be wondering why the insurance company doesn’t just invest in higher-yielding options, such as stocks. They do invest in them to a certain degree, but because those investments are more volatile, the state insurance regulators limit how much risk the insurance companies can take with your money. After all, you’d really hate to find out that your insurance company invested your premiums in a bad stock when you need them to pay a claim!

As you can see, external forces such as the global financial markets can actually have a direct impact on something as personal as your home insurance policy. The next time you either enjoy a premium decrease or are frustrated by an increase, consider that there may be larger factors out there driving the change.

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The situation in Florida is not unique so it can serve as a good example of how insurance regulation and legislation works together to provide the best insurance options for consumers. In many sectors of insurance, if losses are overwhelming, private insurance companies will start to withdraw as they don’t believe they can make money, regardless of how much premium they charge. When this happens, it creates a huge void and crisis for the consumers in that market. With certain types of insurance, it’s less of an issue as those policies may be ones that are purchased by only a small percentage of companies and individuals.

However, when it comes to more common coverages that are very necessary for individual consumers and businesses, the state will step in to create solutions. Common coverages that generate this type of response are homeowners, automobile, and workers compensation. In most states, there’s an automobile assigned risk pool for individuals that have difficulty purchasing insurance. Usually it’s because they have a poor driving record. Regardless, as licensed drivers and vehicle owners, they must carry liability insurance. Therefore, the state creates a system whereby these otherwise uninsurable drivers are allotted to the insurance companies in each state that write automobile coverage. As a condition of their licensing to conduct business, they must also agree to take on a portion of the assigned risk pool of drivers.

In many states, a similar pool of risk exists for homeowners insurance, known as the Fair Access to Insurance Requirements (FAIR) plan. We previously wrote an article about this plan and how it works. You might wonder why Florida’s situation is different, if the FAIR plan should be helping the difficult to insure. Unfortunately, because nearly the entire state of Florida is exposed to the same risk (windstorm), the FAIR plan would be overwhelmed. That is why Citizens Property Insurance was created. In California, a similar situation is the threat of earthquakes, which affects nearly the entire state, and the California Earthquake Authority (CEA) was created.

Unfortunately, sometimes the population of the state becomes too dependent on these types of solutions. In Florida, it appears that the legislature is attempting to ease homeowners back into the private insurance marketplace by passing a bill to limit the exposure Citizens can take on, according to Reuters. The state-mandated solutions are often designed only to be a stopgap measure to help protect the population while the private market corrects itself. However, if the private market is somehow shut out of the state’s insurance business, it’ll simply retreat, leaving everything in the hands of the government-created solutions.

As you can see, if you find yourself in one of these plans, you should be prepared for the day that you’ll be forced back into the traditional insurance marketplace.

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On the standard home insurance policy, any firearms you own will be covered as personal property. However, like many items that are often small, valuable, and easily transportable, firearms are subject to a sublimit. Sublimits are usually a limit on the policy for a specific type of item that is lower than the overall property insurance limit. In many cases, the firearms sublimit is $2,500 and it’s only for loss by theft. This is important to recognize because most personal property not subject to a sublimit isn’t restricted to coverage only when stolen. Instead, the property can be covered either for theft or just general loss or destruction.

If you need more coverage than is normally available on the home insurance, you’ll have to look for more specialized coverage. The two most likely options are to ask for a rider to your existing home insurance policy or buy a separate, stand-alone policy. A rider is a policy that covers small, valuable items and is often issued by the same insurance company as the one providing your home insurance policy. Riders are pretty common for items such as jewelry and antiques. In the case of firearms, you’ll need to ask your insurance company if they offer riders. If a rider is available, you’ll find that the terms are likely to be more generous than the standard home insurance policy. For example, you might be able to secure coverage for loss due to more causes than just theft.

If a rider is not available, there are still insurance companies out there that offer specialized, stand-alone policies just to cover your firearms. Because these policies are tailored specifically to the needs of firearms owners, they can often offer very specific coverage. If you do purchase such a policy, you’ll definitely want to ask for a copy of the policy form to read before signing on the dotted line. Often these policies can be found through gun groups or organizations such as the National Rifle Association (NRA). Instead of marketing a product on a widespread basis to only a segment of the population, these companies will focus on their likely audience through affinity groups.

Once you have insured your firearms for loss or theft, you will want to consider the liability implications of owning a firearm. Whether or not you can be held liable for damage or injury caused by owning or using a gun is not always a black-or-white decision. However, to the extent that you can or may be found liable should be enough reason to make sure that you have sufficient liability insurance. Instead of solely relying on the basic home insurance policy’s $100,000 personal liability limit, you should consider purchasing a personal umbrella policy that will provide additional liability protection. If you think it’s a rare instance, you should do a Google search online for the word “homeowner” in the “news” section. Without any other search terms, the search results return multiple stories of homeowners shooting intruders in their own home. These cases can be quite messy to sort out, which is why having sufficient liability insurance is a must.

Owning a firearm is a major responsibility and requires significant insurance to go along with the responsibility.

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1. Catastrophic LossEven the very wealthy who can afford to maintain very high deductibles on their insurance still tend to carry some insurance for catastrophic losses. These are the rare, but very expensive losses that can wipe someone out financially for a long time. However, due to their low probability and low frequency of occurrence, coverage is usually pretty inexpensive. If you are looking to save money, considering raising your deductible. This way you will save on day-to-day premium and pay for minor to moderate losses but will be covered for a rare, catastrophic loss. When you consider how much value you will get out of your policy in the event of a catastrophic loss, the money is well-spent.
2. Future InsurabilityHave you ever noticed that almost all insurance applications ask you how long you have continuously maintained insurance? The insurance companies ask because they perceive someone who is continuously insured as a stable, reliable risk. If you jump in and out of the insurance market, you present a degree of uncertainty to the insurance company. Additionally, if you have not been insured for a long period of time and all of a sudden want to buy insurance for the first time, this makes the insurance companies suspicious. Could it be that you intend to file a claim in the near future? Even if that’s not the case, you will face some skepticism in the future when you try to go back into the marketplace. If you are able to find coverage at that time, it will likely cost you a lot more than if you had continuously maintained coverage.
3. Liability ClaimsEven if you are completely comfortable rolling the dice and taking your chances with your property, you still have to consider the benefit of liability coverage that is part of the home insurance policy. What if you are involved in a claim and are sued by another party? Without any liability insurance, you are exposing all of your personal assets in the event of a serious lawsuit and judgment against you. One of the greatest benefits of liability insurance is the legal defense it provides you in the event you are sued. In many circumstances, the cost of a hiring an attorney to represent and defend you can cost more than the judgment itself. Without any liability insurance, you are going to bear this cost yourself. Additionally, you might pay a higher rate to the attorney who likely has a negotiated lower rate with insurance companies. Liability coverage is usually even less expensive than property insurance, so it would be foolish to give up $1 million in coverage to save a couple hundred dollars each year.

Before you make any decisions to not maintain home insurance, think about how much benefit you would potentially derive versus the cost of not being insured. In the end, it should be a pretty simple equation.

The post 3 Reasons It’s More Expensive to Not Purchase Insurance appeared first on HomeInsurance.org.

“The key to success for any do-it-yourself endeavor is the ability to follow instructions,
maintain confidence (particularly when things go wrong), and give yourself the time necessary to get the job done right,” advises DIY extraordinaire, Larry Bilotti, senior editor with BobVila.com.

With proper preparation and guidance, homeowners can tackle some of the biggest DIY projects without hurting their pocketbooks. We’ll take a look at some of the more costly professional home improvement projects and provide tips on how homeowners can not only do it themselves, but how doing so could lower their home insurance premiums.

Heating, Ventilation, and Air Conditioning (HVAC): Staying Current Saves Money

Frank Darras of DarrasLaw in Ontario, Canada, said updating and keeping the HVAC system in good working condition, especially in older homes, can reduce homeowner’s insurance premiums. He said a good rule of thumb is that a system should always be less than 10 years old. If a system is over 10 years old, insurance premiums are likely to rise.

Over time, the insulation on outdoor air conditioner lines can wear, age, and begin to rot — which can cost the homeowner valuable energy. A great DIY project for air conditioner repair is replacing the rotten insulation.

This blog breaks it down into two easy steps.

First, measure the air conditioner line diameter and order the insulation, then seal each end of the tubing. Secondly, cut the new insulation to length and install the new foam.

Looking Up: Roof Improvements

With the threat of damage from weather and natural disasters, the roof is one of the most important parts of the home that needs maintaining. Being proactive in roof maintenance is best, and Darras suggests homeowners invest in impact-resistant roofing, especially if they live in an area known for hail, strong winds, hurricanes, and tornadoes. Doing so can cut insurance premiums as much as 30-40%.

One way homeowners can lower their insurance bill is to choose a tough roof.

It’s best for homeowners to talk to their insurance agents to learn about specific discounts for materials other than standard asphalt for the roof. While metal roofing will usually provide the largest discount, it can be much more costly than standard asphalt shingles. Experts suggest considering heavier-grade Class 4 modified asphalt and shake shingles, which include a 30- to 50-year limited warranty. This is a more economical alternative than replacing a roof damaged by storms.

Routine roof inspection and maintenance is important because fixing a roof can be the most expensive home repair an owner may face with full replacements ranging from $2,000 to $12,000.

While many roofing repairs are best left to the experts, some repairs — such as fixing a roof that has been damaged by a fallen tree — can be a DIY project.

Pool and Fence Safety Improvements

Building a fence around the swimming pool not only is a smart insurance saver — in some states it’s a requirement. Virginia, Maryland, and North Carolina have pool fence codes.

In addition to the insurance benefit, this security measure protects the homeowner and neighbors because it reduces the chance of someone wandering into the yard, falling into your pool, and accidentally drowning — which is a lawsuit waiting to happen.

Death by drowning is the second leading cause of accidental deaths for kids between 1 and 14. ÿBesides increasing your insurance coverage and building a fence around it, pool owners should keep it covered or drained when not in use.

Fences also help lower premiums by acting as barrier to vandalism or burglary, and some underwriters will classify fences as a form of security like an alarm system.

While building a fence can be a DIY project, there are important first steps to consider. Planning for a fence is more than picking the material. Homeowners need to:

• Be sure of the property line. Building on the neighbor’s yard — not good.
• Know where cables are. While this isn’t a DIY, it is free (usually). Ask your utility company to mark the location of buried power cables with spray paint. This helps ensure you won’t ruin your fence building experience by splitting a buried power cable with a shovel and lighting up like a Christmas tree. Additionally, take into account any buried water lines to swimming pools, low-voltage lines for decorative lighting, sprinkler systems, and tree roots you don’t want any injury stemming from building your fence.
• Be a good neighbor. It’s not just a slogan. Inform your neighbors about your DIY construction plans.

Focus on Security

There are numerous improvements homeowners can perform for the purpose of enhancing security, many of which will lower insurance premiums.

A few examples are:

• Installing home sprinkler systems and putting up smoke detectors.
• Using shatterproof windows instead of standard window panes.
• Putting in motion-sensor lighting.
• Making sure all electrical wiring is up-to-date. Insurance companies pay particular attention to electrical wiring being up to code because this makes homes less likely to experience an electrical fire.
• Leak detectors can warn homeowners of plumbing failures by using battery-operated or plug-in temperature sensors to detect furnace breakdowns which lead to frozen and bursting pipes. Installing a leak detector can easily be a DIY project. The detector will sound an alarm or automatically shut off the home’s main water line valve when water touches the sensor. This installation can drop insurance premiums by two to five percent.
• People with homes in areas prone to hurricanes can put up storm shutters — which Darras said can save the homeowner up to 30% on the hurricane portion of the insurance premium and up to 60% in coastal areas.

Before homeowners attempt any DIY improvement projects, they should consult with their insurance provider to get a list of discounts available to them.

“Besides added safety, there’s no point in wasting a ton of money if it won’t actually lower premiums,” said Darras. “Ask for specifics. It may be that your alarm system has to meet X, Y, and Z criteria in order to lower your premium. You want to make sure you are following these guidelines to the tee before investing in any home improvement project.”

If done properly, DIY home improvement projects stand to be of dual benefit — homeowners maintain the upkeep of their homes and shave money off insurance premiums.

The post The Big DIY Projects That Will Save on Insurance appeared first on HomeInsurance.org.

The most common home insurance and the one that you should always seek is the “special” form, which is also known as an “all-risk” form. This means that the policy covers damage to your home from any peril (or cause) other than those that are specifically excluded. The opposite of this is a named peril policy, which only covers damage to your home by perils listed on the policy. As you can imagine, the latter is much more restrictive as you can’t likely guess at all the possible things that could cause damage.

However, when working with the all-risk form, you still need to be aware of the various excluded perils that can bar you from recovering under the home insurance policy. The most likely barrier to coverage for terrorism would be the exclusion for war-related actions that result in damage. What’s interesting about the war exclusion is that it generally defines war or warlike action as one being taken by a military force or military personnel. Frequently, terrorist activities are the result of individual civilians and can be difficult to trace back to a nation’s military.

The difficulty with defining terrorism has even greater implications on commercial policies. After the September 11, 2001, attacks, insurance companies began to clamp down on coverage in their policies for terrorist acts. With the concern for businesses and their ability to continue operating being called into question, Congress enacted the Terrorism Risk Insurance Act (TRIA) to provide the federal government’s support in the event of a terrorist act that results in significant losses. Unfortunately, TRIA’s definition of terrorism is still fairly narrow and requires a certification of an event by the Secretary of Treasury, the Secretary of State, and the Attorney General. Consequently, many activities that may be construed as terrorism may not meet the definition and will not be certified.

As an individual, there is also a significant amount of ambiguity on your home insurance policy. However, in many cases when it comes to insurance policies, ambiguity can be to your benefit as the courts have often come down on the side of the policyholder. The belief is that the insurance company knows better than to provide ambiguous wording in insurance policies. If there is something not clearly defined and the policyholder believes it to mean something different than the insurer believes, most courts will support the policyholder.

Even with that said you still need to be aware of the clear exclusions in your policy for terrorism-related activities. Anything that can be construed as warlike will definitely be excluded. There’s also an exclusion for anything arising out of nuclear activity, regardless of whether or not it was intentional on the part of the party causing it. However, in comparison to commercial policies that now contain a clear exclusion for terrorism and require policyholders to buy back the coverage, your home insurance policy likely still provides more benefit.

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In addition to the explosion in Texas, the 2010 gas line explosion in San Bruno, Calif., also resulted in a significant number of homes damaged or destroyed. A large fire also resulted. While you certainly don’t expect something like this to happen to your home, it’s nevertheless a good idea to understand what kind of coverage you have on your policy.

In most home insurance policies, explosion is a basic peril that is covered without any caveats. For example, some perils on the policy have a short paragraph that describes the circumstances under which coverage does or does not apply. However, when it comes to explosions, the word “explosion” is listed by itself without any additional clarification. This is actually beneficial as it would appear that damage caused by explosions is largely covered, without any exceptions.

Unfortunately, some other exclusions to the policy may take away the benefit of the standard coverage for explosions. For example, under the exclusion for nuclear hazards such as nuclear reaction, radiation, and/or radioactive contamination, resulting explosions are excluded. This is a good example of why you need to carefully read through your home insurance policy. If you had simply stopped at the “perils covered” section of your policy, you would think that all explosions are covered. It’s only by digging a bit deeper that you find the carve-out for explosions due to nuclear hazards. Another potential exclusion for explosions is when they are the result of a war or warlike activity. The policy excludes damage resulting from such situations and you will be left with uninsured damage.

To the extent that your home is damaged by an explosion and is covered by the home insurance policy, you should also be aware of some additional policy benefits. While your primary concern is to have your home repaired or rebuilt, you will have some other pressing needs in the wake of such an event. Keep in mind the coverage your policy provides for additional living expenses. It’s very likely that you will not be able to even return to your home, let alone live there after an explosion. The additional cost of finding other shelter is a benefit provided by most home insurance policies.

Another nice benefit of the home insurance policy is coverage for debris removal. Before you can get started with the rebuilding process, you need to clear all the remaining parts of your damaged home. This activity can actually be quite expensive so the policy does help out in this regard.

As you can see, fairly extensive coverage is on your home insurance policy for damage arising out of an explosion. However, to properly benefit from your coverage, you need to know what coverage you actually have. The best way to do this is to read your policy before anything actually happens to your home.

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One of the interesting things in the study is that it’s based on claims reported to the insurance company for 2012. What that means is it’s somewhat variable depending on wind and hail losses in a given year. Just because 2012 was particularly bad for certain states doesn’t mean those states will make the list in future years. Weather can be quite unpredictable so you always need to be prepared.

Another thing to consider with this particular study is that it’s based on claims compiled by the insurance company. This statistic leaves out all of the damages and losses that were uninsured in 2012. It’s entirely possible that some states had even more losses from wind and hail but they also had a large number of uninsured homeowners. Those homeowners’ claims would not be counted as they were not paid by insurance. Now that is definitely a statistic you do not want to be a part of.

So what can you do to prepare for high winds and hail storms? The Insurance Institute for Business & Home Safety recently completed an amazing indoor study of the effects of a hailstorm. To conduct this study, they actually recreated a hailstorm indoors in a controlled setting to understand the effects and help homeowners. Of course, this is a pretty sophisticated study, which means they didn’t just toss ice cubes at each other (readers, do not attempt this at home). Once the study has been fully completed and reviewed, we’ll be able to share the results with you.

In the meantime, common sense prevails when it comes to hailstorms. First and foremost, you need to protect yourself from any injury. Try to get indoors as quickly as possible and, if you are already indoors, make sure you are away from windows that can break and shatter. The same advice applies to times of heavy wind. With wind, you tend to have a bit more warning whereas hailstorms can start without any signs.

When it comes to preventing damage, there are now roof materials that are more resistant to hail damage than others. If you live in an area that is prone to hailstorms, you should definitely look into replacing your roof. If it’s not feasible to immediately make a change, you can certainly plan on using proper materials when it does come time for a roof update. As we recently pointed out in a blog post, some insurers have started resisting the repair of roofs that are only cosmetically damaged. If you can put a new one on that is safe from dings and divots, you might not have to worry about uncovered “cosmetic” damages.

Wind and hail are a reality of life that you need to understand and be aware of. Always ensure that your home insurance policy provides adequate coverage for damage and do everything you can to protect yourself and your home. Unlike disasters such as earthquakes which are more prone to certain areas, everyone is exposed to the potential of wind and hail damage. Therefore, there’s no excuse to think that it’s can’t happen to you.

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One of the most common problems with insurance renewals is the automatic increase of insured values. Many insurance companies will send you a renewal a few months before your current policy expires and include an increase of a certain percentage. This usually represents a standard inflationary adjustment. While this may have its benefits, it can also have the undesired effect of significantly raising your values and premium over time. The process probably helps a lot of homeowners who don’t go through the process of properly reviewing and updating their insured values each year. However, if the increase happens at a too-rapid pace, you’ll end up paying for a lot more insurance than you actually need. Therefore, you do need to review your renewal policy each year before it is finalized.

During the course of the year, if you’ve made any significant changes to your home, you need to make sure the values are properly reflected in your policy. Of course, it’s a better idea to do this as soon as the changes were implemented. If, however, you have forgotten to update your insurance company, renewal is a good time to do a thorough review of your property. Instead of relying on an automatic insurance renewal, take the annual renewal of your policy as an opportunity to give your home the once-over it deserves.

Even if nothing has changed and the renewal policy sent to you seems in order, you still owe it to yourself to see if your current policy and insurance company are the best option for you. The insurance marketplace is an ever-evolving and dynamic environment. Insurance companies sometimes change their appetite for risk very quickly and an insurer who was previously a big supporter of your business may find itself in the position of avoiding your home insurance policy. Without a refusal to renew your policy, one of the ways this manifests itself is in the premium being charged. Therefore, you need to do a review of the insurance marketplace to see if you’re still with the best option when it comes to which insurance company provides your coverage. Sometimes these changes in focus have nothing to do with anything specific to your policy, but rather, a change in business focus that then renders your business less desirable. Don’t take it personally — just move on.

While it can be very tempting to accept those automatic renewals that come in the mail each year, you do need to do a review of your policy before accepting the offer.

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