According to Google, Insurance is defined as:
- a practice or arrangement by which a company or government agency provides a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a premium.
- a thing providing protection against a possible
Why am I talking about insurance today? Well, I will share with you that my family lost our home in the Marshall Fire on December 30, 2021 (along with 1,000 other families) and it seems that everyone whose home was impacted by the fire has their own unique insurance story and their own unique challenges. My family is one of the fortunate ones who had great insurance, and yet we have been battling with our insurance company for the last 16 months to receive payments on different coverages. The good news is that we just broke ground this week and we have finally started to rebuild our home which is extremely exciting for my family, but the insurance battle is still not over. There are many lessons that I have learned throughout this journey so far that I would like to share so that others can be as prepared as possible in the event of a loss.
Let’s talk about homeowner’s insurance specifically because in my experience, many people are under insured and don’t even understand what their insurance policy covers. I am not an insurance agent and I am not an expert in insurance, but I am a homeowner who has had a few major insurance claims and has been forced to learn more about homeowner’s insurance than I ever wanted to know. There are several different coverages of insurance that you are purchasing when you buy a homeowner's insurance policy:
- Dwelling Coverage (also referred to as Replacement cost coverage)
- Other structures (typically covers fences, driveways, walkways and other structures)
- Personal Property
- ALE (Additional Living Expenses)
- Personal Liability
- Medical Payments
- Extended Coverage and Building Ordinance or Code Requirements
Now, these are generally the coverages that you are buying when you purchase an insurance policy but there are certainly other coverages that you can add as well. While many people focus on the Dwelling Coverage because the home itself is typically the most valuable and will cost the most to replace, there are many other coverages that you should review and evaluate very carefully. In fact, in many cases you can increase other coverages substantially with a small increase to your annual premium providing you with a more robust and comprehensive policy. However, the challenge is that when most people are “shopping” for insurance, it is a common practice for insurance agents and brokers to provide you with a quote that might cover the bare minimum simply so that when you look at the total cost, you choose them over someone else. However, you must always remember the saying, you get what you pay for and that holds true with insurance as well.
One of the most important lessons that I have learned so far is that you cannot use coverage from one area to pay for something else. As an example, you cannot use coverage from other structures to pay for added replacement costs on the main structure. These coverages seem to have very clear-cut rules and each coverage must be evaluated individually. Do not simply look at the replacement coverage alone and the total cost when deciding on insurance. Again, each policy should be evaluated on an individual basis and should be personalized to ensure the proper coverages. One of the other very important lessons learned is that your insurance is generally covering your home as it is built today, the age, the size, the condition, the building materials, etc. However, if you need to rebuild your home, you must use today’s building materials, pay today’s costs, and build to today’s building code requirements. Therefore, there is a gap in many insurance coverages because what you are in fact insuring is usually an older home and yet if you need to rebuild your home, you need to build a brand-new home. Do you see why this is a challenge?
In conclusion, The Consumer Protection Bureau states that “Insurance is a way to manage your risk. When you buy insurance, you purchase protection against unexpected financial losses.” Therefore, all insurance comes at a cost, what you need to evaluate is if the cost of insurance outweighs the risk in the event of a loss. In fact, life is about managing risk and we all make hundreds of decisions each day around risk. As we approach retirement and as we get older, our risks change and therefore we must plan differently. We might even utilize different tools and different strategies as we get older which are more appropriate to offset the risks of aging. If you are utilizing the same strategies today as you were 30 years ago, you might want to seek a professional to help you learn what tools are available today to help you manage your new risks.
