There is no insurance policy in existence today that will pay for everything.
You might have heard the term “full coverage”? It’s a unicorn. It doesn’t exist.
Actually, it’s a marketing ploy to make people feel like they have more coverage than they actually do.
You can absolutely be adequately covered, but to do that, you need to know what you are buying. What the insurance company will or will not pay for is all lined out in your insurance policy in black and white. But who reads those things anyways?
Actually, you should.
Yes, insurance policies read like the Webster’s dictionary, so maybe you can’t stomach reading all of it, but you should at least look at some key portions of your policy.
Things like policy limits, deductible amounts and exclusions. The reason I say this is because these are the three common areas people think they are “fully covered,” but in fact, they are not.
What are Policy Limits?
That’s exactly how much (in dollars) your insurance company will pay for a claim.
Each coverage section will have individual limits. Let’s take your car insurance for example.
You’ll see numbers like 100/300/100. Those are the limits to your liability insurance.
So should you have a wreck that is your fault, your insurance company will pay out a MAXIMUM of $100,000 per person you hurt in the wreck (that’s the first number), $300,000 total per incident for people who are hurt (that’s the second number) and $100,000 in property damage (that’s the last number).
“But what if I totaled a Bugatti?”
Well your insurance company will say, “Oh my! We are so sorry to hear about that. We will pay the first $100,000, and you will owe the remainder of about $1.4 million.”
Obviously, I am using obscene numbers to make a point. Your limits are your limits. No insurance company will go above those limits.
That’s why the limits are listed in your policy. You need to know your limits, so you know how exposed you are on your auto insurance, homeowners, and business insurance.
See now why it might be MORE beneficial for insurance companies to talk you into lower limits?
They’re on the hook for less that way!
What are Policy Valuations?
Another factor that comes into play here is how your insurance company values the insured item.
Is it insured at replacement cost or actual cash value?
What are Deductibles?
Deductibles are the amount of risk on the front end you retain.
In car insurance, they are usually in dollar amounts like $250, $500 or $1000, and in homeowners insurance or business insurance, they can be in dollar amounts or a percentage of the value of your property.
For example, if your house is valued at $400,000 and you carry a 1.5% deductible, you will owe the FIRST $6,000 on any claim.
If your roof was totaled in the last hailstorm and it’s a $20,000 roof, your insurance company will pay you $14,000 ,and you will have to pay $6,000. What happens if the cost of damage is less than your deductible?
Well, that comes out-of-pocket. The insurance company will not pay anything because you retained that amount of the risk. Want to lower your deductibles so you have less risk on the front end?
Any insurance company can do that, but just remember that deductibles and premiums have an inverse relationship.
Deductibles go down, premiums go up.
Deductibles go up, premiums go down.
It’s a pay me now, pay me later game. There’s a balance, but you have to find what’s right for you.
What are Exclusions?
Did you know there is no homeowners policy out there that will cover you for a flood?
You can get flood coverage, but that’s a separate policy or endorsement that’s added.
Earthquake or earth movement insurance?
Not covered, unless you’ve specifically added it as well.
I’ll go into more detail on each of these in a later post, but how about riots or civil unrest?
Not covered either.
So if the zombie apocalypse breaks out, don’t expect your insurance company to pay for the broken windows and doors.
Here’s a big one: my air conditioning unit just went kaput! Insurance will cover that right?
Nope.
That’s considered a maintenance issue.
How about my roof is leaking like a colander, is that covered? Maybe.
It depends on if the cause is a storm-created opening or if caulking that’s eroded over time from lack of maintenance caused it.
Storm-created openings are covered; a leaky roof from lack of maintenance is not.
One more: the sewer pipe just backed up into your house, is that covered?
Usually not unless you’ve added it to your policy.
This is all laid out in your insurance policy, so if you want to know your limits pick it up and give it a look.
Also feel free to give me a call as well!
