Author: wesleyani

Home Insurance Claim. Roof with missing shingles.

Paying Too Much For Too Little

by wesleyani

If your agent didn’t ask this question, you could be paying too much for too little.

I don’t like to gripe, but there is one thing about the insurance industry that bugs me. The bar to get in is not really very high. Yes, in order to talk coverage with a client, we must be licensed, but the test isn’t that hard, and you only have to score a 70%. This causes issues from time to time. One in particular is especially grievous because it can cost you more than you should pay AND cause you to be underinsured, which can cause you to pay even more if you have a claim!

I’m referring to the age of the roof on your house. An agent should never assume anything here. Roofs are replaced all the time for a wide range of reasons. This affects both the price of your policy and how your roof is covered.

Insurance companies do in fact have a different rating for every year of age on a home and also every year of age on a roof. Why the roof specifically? Simply put, the roof is one of the leading parts of a property that is damaged and covered by insurance year in and year out. Think about it. It’s essentially the shield of your home. It takes the most daily abuse from all sorts of things. Over time it wears out and as it wears out, becoming weaker, the roof becomes more vulnerable to damage and therefore your home is more vulnerable to resulting damage inside the home.

So, the older the roof, the higher the rate.

Now what about the coverage for the roof? Most insurance companies have switched to some form of depreciating coverage schedule. Allstate led the way with this around 2012 or 2013 and most other companies followed shortly after. Typically, it’s only applied to wind and hail damage. The way it works is that the roof is covered for a specific percentage of replacement cost that is reduced for every year of age. For example, a brand-new roof would be covered at 100%, a 1 year old roof would be covered at approximately 97%, a 2 year old roof would be covered at approximately 94% and so on. These may differ slightly from one company to another, but you get the idea. Most companies also offer an option to buy back full replacement cost coverage. But at a certain age, ranging from 10 years to 15 years, the coverage buyback is no longer available.

So lets say your roof is 16 years old, it’s still in good condition, so it hasn’t been replaced. Then a thunderstorm with very high straight-line winds comes through and tears off shingles all over the roof. Let’s use simple numbers and assume the cost to replace the roof comes out to $10,000. If the coverage is reduced by 3% every year, you’re only going to get 52% of the coverage or $5,200. But your deductible still hasn’t been applied. So, if your home is covered for $250,000 and you have a 1% deductible, that’s $2,500. Your insurance will pay you $2,700 and you cover the other $7,300. If it’s a 2% deductible, that’s $5,000. Your insurance will pay you $200 and you cover the other $9,800.

If you bought back the replacement cost coverage, you’ll only be responsible for the deductible and the insurance picks up the rest.

But what if your roof was replaced, your agent didn’t ask, and you didn’t know to mention it? Well, you’re paying more for less. In a worst-case scenario, you don’t know what you don’t know and you’re just left holding the bag. If you do appeal the coverage decision, you’re going to have to get the underwriters to update the coverage to allow the claim adjuster to correct the payments. That can be very difficult because you’ll be required to prove it. Pictures probably won’t fly. You’re going to have to have documentation. So at best, this will be a hassle and a delay. At worst, you may not be able to prove it.

It’s always best to get this right from the start. Your agent should ask. As long as the inspection process doesn’t throw up any red flags, you’ll have the right coverage at the right price.

The point is that your agent should ask, you should give as accurate an answer as possible and always keep documentation for things like this. If you bought it after an update was made, get documentation from the seller. Your price and your coverage will be correct and in the event of a damage claim, you’ll be glad you did.

Real Estate Investor / Insurance Agent – Tips For Your Investment Property

by wesleyani

I’m a Real Estate Investor and an Insurance Agent. How Do I Cover My Properties?

Real Estate Investors want to maximize their cash flow and NOI. In order to do that, expenses need to be kept to a minimum. One of those expenses is insurance. Eliminating it completely typically isn’t an option. Investors want protection from disasters and potentially large losses. So we have to find a balance between paying through the nose and having good coverage. But how?

First, we need to establish how much risk we are willing to take on ourselves. We start with the amount of cash on hand that we are willing to use in the event that one or more properties are damaged. We need to analyze how close our properties are to each other. This is important in evaluating our risk from weather events. If the properties are in close proximity, they are more likely to be damaged in the same event. If they are spread out, this becomes less likely. Plan accordingly.

Next, it’s a good idea to compare the savings we could realize to the increased amount of the deductibles we choose. For example, if I increase my deductibles by an extra $10,000 which saves me $2,000 per year, that may be worth it to me. But if it only saves me $200 per year, it’s probably not worth it to me.

So, what about coverages? Which ones do I need to make sure to get and why?

The first coverage you want to make sure to get is the coverage for the property itself. Whether this is a single-family, tri-plex or 500 unit apartment complex, you want to make sure you get a few things right on this. First is the amount of coverage is important. If you want to have adequate claim payouts, without co-insurance penalties, you need to make sure to insure it to full replacement value. That’s basically the amount it would take to rebuild the structures and not what you are buying it for. If you fail to get this right, or at least very close, your claim payouts could be penalized. Not good. The second part you want to get right is that you have Replacement Cost Loss Settlement, not Actual Cash Value. The difference in claim payouts could be massive, depending on the age of the structures because ACV takes age into account and reduces payout accordingly. The third big thing to get right is your chosen peril coverage. If it’s a 1 – 4 family property, you want a DP3 with open peril coverage. If it’s more than this, (or commercial property) it will be covered on commercial paper, in which case you want to get Special Cause of Loss. These are the most broad form of coverage you can get. They don’t typically cost much more than a named peril style of coverage and put the burden of proof on the insurance company, not you.

The second coverage you want to make sure to get is Loss of Rent (1 – 4 family) or Business Income (commercial or multi-family). If you have damage that is being covered by the insurance policy, there’s a better than average chance that you’ll lose rental income for that property or unit. This could be a big hit to the bottom line and it can be insured. There’s no reason to go without it.

The third and final big ticket coverage item you want to make sure to obtain is liability coverage. This is typically pretty inexpensive, so get as much as you can. The last thing you want to happen is for something to happen on your property and for you to foot the bill for lawsuit defense or even a large judgement against you. It could mean the difference between keeping your property and having a new partner or even losing it. So, even if a lawsuit is frivolous, if it could even potentially involve your liability policy, the insurance company has a right and duty to defend you. Most good policies provide defense coverage outside of the policy limits.

The final important coverage is for building ordinance or building codes. It comes into play in two ways. First, if the damaged area has to be brought up to code and doing so costs more than repairing or replacing to the existing standard, this coverage comes into play. Second, if there’s enough damage, some local ordinances could require you to bring the whole structure up to code, potentially even demolishing and starting over. So it’s a good idea to consider what the local ordinances are in regards to this. The last thing anyone wants is to have a damaged building that can’t be permitted, no repairs made, basically stuck, or huge amounts of money out of your own pocket.

To recap:

  1. Correct Property Coverage
  2. Loss of Rent or Business Income Coverage
  3. Liability Coverage
  4. Building Ordinance / Building Code Coverage.

Everything else is going to be for very small, and highly unlikely things. A couple of examples would be  equipment breakdown or service line coverage. They are going to be optional.

If you have the right sets of coverage with deductibles that are not too high for the amount of cash reserves you have on hand, your property will get put back, probably better than it was before, you won’t lose out on revenue and your business will continue on nearly unscathed.

If you want to talk more about it with an agent who is also an investor, I’d be glad to do that. Call me at 281-320-9292 or email me.

Happy Investing!

Interior of a home that's been burned by fire.

Home Insurance: Know What You’re Buying

by wesleyani

The call typically goes something like this: “Hey Wes. I have a question for you about my home insurance. Does my policy cover damage to …..?”

My answer is usually something along the lines of “Well, it depends…”

If you’ve ever wondered if a particular part of your home, personal belongings or property is covered under your insurance, you’re not alone. Your agent should be a great place to start. They should be willing to discuss the policy and how you are covered in a way that is easy to understand. However, the agent is never the final decision maker in what is covered versus what is not covered. They are different jobs requiring different licenses for legitimate reasons. But, agents are able to answer in general terms and should be knowledgeable about the policies they are selling you.

Let’s dive in.

There are two primary questions that have to be answered. #1 – what was damaged? #2 – what caused the damage?

For more details, keep reading.

First, let’s go back to question one. There are three sections that deal with what property is covered in your policy. First is the dwelling – the main home structure on the property. This would include a garage that is a separate structure but is connected by a covered breezeway. If the garage is only connected by a fence, utility line or something similar it’s not a part of the dwelling coverage. Instead it would be considered an “other structure.” Which brings us to the second section: other structures. These are any structure that is on that same property but set apart by a clear space. This is typically something like a completely detached garage, storage shed, fence, guest house, etc. They have a separate limit of coverage from the main structure. The third section is personal property. This is anything you would take with you if you moved out. Some categories have specific limits of coverage for certain types of damage or loss. For example, if you tried to claim you had $200,000 of cash in a particular bedroom that was stolen in a robbery or burned in a small fire, the insurance company is going to limit the amount you can claim for that cash to something like $200, not $200,000. Or maybe you have a ring with a center diamond worth around $10,000. If that ring or even the stone was lost, it would be limited to probably $1,500. However, you can insure that specific piece of jewelry for it’s total value by scheduling it at an additional cost.

Now for question two.  Some policies (called Named Peril Policies) have a specific list of things that can happen (called perils) which are covered. The most basic policies cover damage caused by fire and lighting (very cheap policies). The next level of coverage may add about 6 other types of damage (peril) such as windstorm, hail and smoke. A level above that might add another 6 perils such as certain types of water damage.  The best type of policies (called Open Peril Policies) will say something like “we insure against direct physical loss to your property unless we have specifically excluded it.” The difference here is that in the Named Peril types of policies, you have to prove damage was caused by something that is covered, versus the Open Peril type where the insurance company would have to prove it was damaged by something they have specifically excluded. The most common type of policy out there, the HO-3, is a combination. It covers structures with Open Peril and personal property Named Peril coverage.

On a side note, those policies that list specific perils that are covered are generally known as HO-A policies. They are going to be less expensive, but for a reason. It’s easy to deny those claims when many times, you may not know exactly how something was damaged. The best type is an HO-B. They are hard, but not impossible, to find and are generally going to be the most expensive. The most common, HO-3, is widely available and can vary in price significantly from one company to another.

Okay, now that we know what was damaged and how it was damaged, we can figure out the answer to your question. The next question is “how much will it cost to repair or replace?” We ask this because of deductibles. If you have a $3,000 deductible but the damage will only cost you $1,000, does it make sense to file a claim?

Well, that too depends on what’s happening around the claim. Is the house livable? That may bring in a whole other set of coverage called Loss of Use. And it could come into play big time. But that’s a topic for another article.

In the meantime, if you’re still here and found this useful and would like to talk to us more about your insurance coverage, you can reach out to us by email here. Or if you know you want a quote, but are short on time, you can click this link and be taken to our program that will take 2 minutes or less to complete. It asks a few questions then asks you to log into your current insurance account and will securely scrape the rest of the details from your current policy so we can get you an accurate quote.

cars on road

Auto Insurance: Be an Informed Buyer

by wesleyani

No matter if you are buying your first car insurance policy or you’ve been doing it for decades, it’s good to know the different parts of your car insurance policy and some basic terminology. I don’t expect you to be an expert, but I you understand a few basic concepts you’ll be well informed and able to make good decisions for you and your family or organization.

Car insurance has three main coverage parts: other people, you and your passengers, and your vehicles. I’m laying it out this way because people throw around the terms “liability only” and “full coverage” a lot. These often mean different things to different people. Truthfully, it’s a sliding scale from very basic to extremely broad.

Let’s dive in.

Part 1 – Liability Coverage – Other People/Property

This is what the State of Texas says you must have to legally drive a vehicle on a public road. It covers damage or injuries that you cause to other vehicles or people.

You own a vehicle that weighs somewhere between 2 and 4 tons and has the capability of traveling at high rates of speed. Such a large piece of equipment moving at even low speeds has the potential to do a large amount of damage if not controlled properly. As the owner of that vehicle, it’s your responsibility to make sure it does not cause damage to anyone or anything else. But the fact is we’re humans and we’re less than perfect and carry the potential to have momentary lapses of attention or judgement. We try to do the best we can. Some of us are more experienced or proficient than others, but the potential is still there. So, when someone has that momentary lapse of attention or mistakenly misjudges a situation on the road, causing physical and/or bodily injury, they are financially responsible for making that other person whole – you break it, you buy it.

The costs to fix injuries to people and damage to other vehicles can add up quickly. Liability insurance steps in and does two things. First, it covers those costs for you – up to your policy limits. Second, if you are being sued for the injuries or damage, the insurance company stands in to defend you but doesn’t charge you for the cost of the defense.

It’s generally sold in what is called “split limits.” That means it will cover up to a particular amount of injury costs per person, with a higher limit for all people you injured, then a specific limit for damage caused to property (cars, signs, buildings, whatever you run into). (Some personal and commercial policies have a single limit for everything.) For example, if you purchase limits of 100/300/100, your policy will cover up to $100,000 for injuries to any single person. If you injure multiple people, it would cover up to $300,000 for all people, but still no more than $100,000 for any individual, this could include your passengers. As for property damage, no matter how many cars you cause to pile up, your policy will only pay up to $100,000 to fix all of them. This does not cover your injuries or damage to your vehicle.

So if you call your insurance agent and ask for “liability only,” this is what you are getting. No coverage for injuries to you or damage to your vehicle.

Part 2 – Medical / Personal Injury, Uninsured Motorist Bodily Injury

When car accidents happen, people can be injured. The costs to cover those injuries could come from a number of different sources. It may or may not depend on who was at fault.

In part 1, we talked about how liability covers other people if you are at fault. In part 2, we have three different coverages that come into play in different ways and are triggered differently.

Let’s start with Medical Payments coverage. This is very straight forward. It does not matter who causes the accident. If you are injured in an accident and you have this coverage, you can claim against it. The amount of coverage here is typically fairly low – generally a few thousand dollars.

Personal Injury Protection (PIP) coverage is next. Most companies do not allow you to carry both Medical and PIP, because PIP works the same way as Medical, with one additional factor. It also has a lost wages component. So, if you’re out of work and lose pay for a period of time, you can claim that against your PIP coverage. The amount of coverage here is typically between $2,500 and $10,000. The State of Texas requires that if you do not purchase this coverage, that you sign a waiver stating you reject it. Always understand what you are signing. If it’s not clear, ask.

The last portion of this is Uninsured Motorist – Bodily Injury (UMBI) Coverage. To trigger this coverage, one of a few things must happen. Either you are injured in a car accident by someone who is not carrying any liability coverage, or you are injured by someone who does not have enough liability coverage. The first one is pretty straightforward. They hit you and send you to the hospital. They don’t have insurance. If you have this coverage, you can claim against it. If they have coverage, but it gets maxed out due to low limits or injuring many people, this gets a little messy. Their liability coverage will pay out until it hits either the individual limit or the group limit. If you still have more uncovered costs, you then go to your policy which will take over from there. Many times, a person’s health or medical insurance will get involved. If this is the case, they will coordinate with the liability coverage and the UMBI coverage until both of these are completely exhausted, at which point the medical insurance would kick in. It’s sold in limits just like liability coverage – usually split limits.

Part 3 – Your Vehicle

There are several parts to this coverage and two of them are the basis for the most basic formation of “full coverage.”

We’ll start with Comprehensive (aka Other Than Collision) Coverage. This covers your vehicle if it is stolen or physically damaged from something other than a collision. Things that can be covered here could be theft, vandalism, falling or flying objects, fire, flood, collision with animals, hail, etc. There’s usually a deductible associated with this, meaning you cover the first portion of damage, then the insurance company covers above and beyond that.

Once you have Comprehensive, then you can add Collision Coverage. This is pretty specific, meaning your vehicle collides with something else. This is typically another car, but it could also be trees, houses, curbs, fire hydrants and parking blocks. People run into all kinds of things. One thing to note here is that a collision with an animal or a flying object would not by covered here. Those would be covered by your Comprehensive coverage. Also important here is that this will cover your vehicle regardless of who is at fault. You can have your collision insurance cover damage to your car, even if the other person was at fault and has liability insurance. In this case, you’ll be responsible for your deductible and it will go on your loss record as a not-at-fault accident, but you can do it. It will take a little time, but you’ll probably get your deductible refunded through a process called subrogation where your insurance company claims against the other person’s policy and recovers your deductible and their cost to repair your vehicle.

If you purchase liability, comprehensive and collision coverages, you have the most basic form of “full coverage” you can buy. To go beyond this, you can add Uninsured Motorist Property Damage (UMPD), Rental Reimbursement and Roadside coverages.

Uninsured Motorist Property Damage Coverage is very much like UMBI in part two but applies to damage to your car. It comes into play either if your car is damaged by another driver who doesn’t have insurance or doesn’t have enough for the damage they cause. This acts like the other person’s liability coverage, so it would fix your car and provide a rental if needed. You may be wondering why you would carry this if you also have collision coverage. First, it probably has a lower deductible. The deductible here is $250 – always – and most people carry higher deductibles on their collision. Second, you must buy this to get the UMBI coverage in part 2.

Rental Reimbursement is the next optional coverage. It gets triggered only if your comprehensive or collision coverage is paying to repair your car. It will cover a set amount per day, usually $30 – $75 per day, up to 30 days. It’s one of those coverages you may never use, but will make your claims experience much more pleasant. Rental car costs can add up quickly and combined with your deductible can be costly.

The final optional coverage is Roadside Coverage. Most people use this for towing a vehicle that has broken down, but can also be used to get a jump start, cover a locksmith if you lock your keys inside your car, pay the delivery fee for gas if you run out, or change a flat tire on the side of the road. Different companies work this differently. Some have a maximum per event. Others have a mileage range they will pay for. It’s pretty cheap and it’s handy to have.

I put all of this out here so that you can be educated on your options. Insurance prices are rising. Knowing what you are buying could prevent you from overpaying because you bought something you didn’t really want or need. Many people go into the buying process blind and just buy what the agent shows them without understanding what they are getting. This could be expensive if you buy something you don’t need. Or it could be even more expensive if you don’t buy something that you do need.

You don’t need to be an expert, but having a basic understanding of the different parts of the coverage makes you an informed buyer.

If you’ve read this far and want to get a quote from me, follow this link to the home page, scroll down to the “hassle-free insurance quote” section and click the picture. We’ll be glad to help you compare.