Don’t Be Fooled by the Phrases
The most important part of your insurance policy is the agent who puts it together. I say this because insurance can be very technical, and often confusing. Having a knowledgeable professional walk you through your policy can make all the difference at claim time. There is a minefield of insurance lingo and phrases that can give you a false sense of security. Here are a few phrases that come to mind.
All Peril Coverage
Some insurance professionals use phrases that reference “all peril” policies. This is the broadest coverage form out there, but that doesn’t actually mean that all perils will be covered. Rather, it means that everything is covered unless it is specifically excluded in the policy. This essentially means that your insurance policy is just a long list of exclusions. That might sound like a bad thing, but it is actually very good. This means the burden of proof is on the company to prove that the policy excludes a claim. If they can’t, there would be coverage. This is much broader than other policies, which exclude everything except for a few specified types of claims. Be sure to read your policy and discuss the details with your agent, to see what your policy covers.
I’ve heard many under-insured people say something such as, “It doesn’t matter if I have a low limit, because I have replacement cost.” However, they don’t understand the whole picture. Replacement cost means that your property will be replaced, without subjecting the settlement to depreciation. However, if your coverage limit is not high enough, then your settlement won’t be either.
Let’s say you have a cabin that sits on prime real estate but is in poor condition. It’s worth $30,000 but would cost $100,000 to rebuild. Insuring it on an actual cash value coverage form means the most you’d get after a loss is $30,000. This is because value has depreciated over time due to the poor condition. However, using a replacement cost basis, depreciation wouldn’t play a role. You’d receive the amount it would take to replace the property ($100,000), or the coverage limit that you carry on the property, whichever is less. If you insure the property for $80,000 on a replacement cost basis, you will receive $80,000 and will have to pay the extra $20,000 out of pocket. Replacement cost is a good start, but make sure to carry a high enough limit to meet your need, or you could be left with the bill.
Name Your Price
You will often hear insurance companies saying things like, “you tell us what you want to pay, and we will find a coverage option that fits your budget.” This sounds great, but keep in mind that what you are really saying is, “name your coverage (or lack thereof).” Price is always an important consideration, but if you sacrifice sufficient coverage to save a couple bucks, it may end up costing you more when claim time comes. Be sure to purchase the right amount of coverage for your assets. If the coverage is insufficient, it could mean losing your home, income, and possessions in a lawsuit. Insurance policies are generally very important when it comes to peace of mind and protecting our assets, but sometimes they can be confusing and challenging to read. Make sure you always seek the counsel of a trust-worthy insurance professional to help obtain the appropriate protection.