The key to understanding if water damage to your home is covered is based on knowing WHERE the water ORIGINATED. A homeowners policy covers water damage, but with significant exclusions and limitations. Typically a policy will pay for sudden and accidental water damage from inside water sources but will not pay for losses caused by […]
The key to understanding if water damage to your home is covered is based on knowing WHERE the water ORIGINATED.
A homeowners policy covers water damage, but with significant exclusions and limitations. Typically a policy will pay for sudden and accidental water damage from inside water sources but will not pay for losses caused by water that finds its way into your home from the outside.
Examples of inside water sources that cause water damage and that are typically covered are inside water pipe leaks or breaks (like behind a wall or under a sink); or leaks from appliances (like hot water tanks, washing machines, or dishwashers). Your property deductible is deducted from the covered loss.
It is important to note that it is the “damage” to your home from the water loss that is covered; NOT the repair to the actual item that failed. Your policy pays for the necessary costs to access (i.e. cut open an undamaged wall to access a broken pipe and then pay to repair the wall) and repair the damage caused by the water. But, the broken pipe itself, which failed because of wear and tear, decay, defective materials or methods of construction, is not part of the covered loss. The cost to repair the pipe or appliance is your responsibility.
Let’s take a closer look at FOUR types of water damage:
A typical homeowners policy covers water damage caused by an accidental external cause (for example a tree branch falls on it, windstorm blows shingles off, etc.) and coverage is provided for both the roof and any water damage to your walls, ceilings, carpet, personal property, etc., subject to your deductible.
However, if the water damage is not caused by an accidental external cause and simply because the roof is old and worn out, only the damage to the walls, ceilings, carpet, personal property, etc. is covered…..the roof itself isn’t covered.
The reason that the resulting water damage to the inside of your home is a covered loss, even when a roof isn’t damaged but simply old and worn out and allows water to leak in, is because the “wear and tear” exclusion in a homeowners policy says damage first must be from “accidental direct physical loss”…BUT it also goes on to say “however, we do insure for any resulting loss.”
This makes sense when you consider that most other covered water losses result from something that failed because of wear and tear and leaked water causing damage – like a water pipe that rusts and leaks, or a hot water heater that wears out and leaks, or a water connection that gets old, splits and leaks. So, this is why insurance companies monitor and care about the condition of your roof.
Because of this exception to the “wear and tear” exclusion, an insurance company may periodically inspect the roof on a home they insure to make sure it has not worn out. If a roof becomes deteriorated or neglected, the insurance company may insist that the roof be replaced or they will cancel the insurance policy.
For a home owner seeking insurance for the first time from an insurance company on a home they purchase or already own, the insurance company or agent will want to know the age of a roof before a policy can be written…if the roof is too old for it’s type (i.e. comp or tar and gravel roofs have a shorter life span than tile roofs), then the insurance company will refuse to write a policy. A more expensive “non preferred” policy will need to be purchased that likely will include a roof exclusion. Once a new roof is put on, then the exclusion will be removed or a new cheaper preferred policy written.
Water Leaks Through a Foundation
A typical homeowners policy excludes water damage caused by:
Water below the surface of the ground, including that which exerts pressure on, or seeps or leaks through a building, wall, bulkhead, sidewalk, driveway, foundation, swimming pool, hot tub or spa, including their filtration and circulation systems, or other structures.
To keep homeowners policy premiums affordable for everyone, coverage is not provided for losses that can be prevented by sound building practices or as a result of normal wear and tear, rather than sudden and accidental events. So, the main reasons it is necessary to exclude “water below the surface” from a policy are:
Water Backup Through Sewer or Drain
Most homeowners’ policies exclude or restrict water damage caused by the backup of sewers or drains. The provisions vary from company to company, but usually states that water damage is excluded if caused by:
Water or water-borne material which backs up through sewers or drains or which overflows or is discharged from a sump, sump pump or related equipment.
This exclusion is talking about “overflows” of water from sewers (like out of toilet bowls) and “backups” from drains (like floor drains and sinks). The source of the water or sewage may be “off premises” from a plugged public sewer system or caused by water inside the home that is left on or stuck on which overwhelms a drain system that is plugged or restricted.
It is important to mention that almost ALL policies sold by Farallone Pacific Insurance include coverage for sewer or drain water backup. The companies we represent tend to offer policies that are more comprehensive than those sold by our competitors and automatically include coverage. If the company doesn’t include the coverage automatically, we offer our clients the opportunity to purchase coverage via an endorsement.
Water back up from sewers or drains damage can be costly, both the cleanup and repair, so
why does a homeowners policy exclude coverage for sewer or drain water backup?
Flood (Excessive Surface Water, Overflow of a Body of Water, Etc.)
A homeowners policy excludes water damage caused by flooding, more specifically:
a) Flood, surface water, waves, tidal water, tsunami, seiche, overflow of a body of water, storm surge or spray from any of these, whether or not driven by wind, including hurricane or similar storm.
b) Release of water held by a dam, levee, dike or by a water or flood control device or structure.
There are two primary reasons it is necessary to exclude “flood” from a homeowners policy:
If your home is located in a floodplain and your community participates in the National Flood Insurance Program (NFIP), you can purchase flood insurance coverage. Your lender may require flood insurance as a condition of your loan. The NFIP is administered by the Federal Emergency Management Agency (FEMA), which works closely with nearly 90 private insurance companies to offer flood insurance to home owners through authorized property and casualty insurance agents
If you are interested in learning more about water damage coverage, exclusions and limitations or have other insurance related questions, please contact Ramona Johanneson at email@example.com or 415-493-2502.
Live in a condo or home in a HOA? Find out in this article what happens when the master HOA policy runs out of coverage after a loss. If you live in a condo or a home and belong to a HOA – what will you do when the master HOA policy doesn’t pay because […]
Live in a condo or home in a HOA? Find out in this article what happens when the master HOA policy runs out of coverage after a loss.
If you live in a condo or a home and belong to a HOA – what will you do when the master HOA policy doesn’t pay because there isn’t enough coverage after a loss? Hopefully you’ll simply submit a claim to your condo owners (HO6) or homeowners (HO3) individual policy and let your own insurance company pay for the special assessment levied against you, using the “loss assessment” coverage in your policy. You’ll pay nothing other than your policy deductible, typically $1,000 or $2,500 and walk away.
But wait, did you know that most – the majority of condo and home policies sold in the industry – include just $1,000 of loss assessment coverage? Sure, if there is a fire and the master HOA policy runs short of coverage because the repair estimates from the contractor were 40% higher than the master policy limits….maybe an assessment might be $10,000 to each owner and you’re on the hook for just $9,000. The reality is that there are many worse losses than this every year involving condos, homes and the common areas surrounding them. The most common serious losses involve injuries/fatalities at the pool, spa, gym, walking/riding trails and tennis courts. A recent settlement from a slip and fall within the association’s common exercise area resulted in a jury awarding $2 million MORE than the limit on the HOA master association liability policy.
The old axiom is true: there’s safety in numbers. For example, if you live in a 100-unit condominium association or master planned home community and your association is forced to levy a special assessment against unit owners because of a $2 million shortfall in the master policy due to the slip and fall loss just mentioned, this $2 million is split 100 ways for a special assessment of $20,000 per owner. Oh, but what if the same thing happened in a 20-unit condominium or master planned home association? The special assessment would be $100,000 per owner.
If you are wondering what you can do to protect yourself against being on the hook for a large special assessment by a condo or home HOA association, the answer is simple. Purchase a condo owners or homeowners policy that includes an “automatic” loss assessment limit of $50,000 (the maximum typically available). The policies sold by or endorsed by Farallone Pacific Insurance Services include this $50,000 limit for condos or homes belonging to a HOA. Once the special assessment is levied, you’ll contact Farallone Pacific and ask that a claim be submitted to your own condo or home policy and $50,000 is going to go a lot further than the standard $1,000 included in most policies.
I encourage you to take a look at your condo or home policy right away if you belong to a HOA, see exactly what the loss assessment coverage limit is. If the policy states $1,000, you should contact me immediately and I will help you to purchase a better policy, likely for the same or less premium than you are paying now. Our agency represents a number of preferred insurance companies and I’m confident that one of our policies will meet or exceed your expectations.
To learn more about loss assessment coverage, please contact Ramona Johanneson at firstname.lastname@example.org or by calling 415-493-2502.
Knob and Tube wiring was installed in homes up until about 1950. There are a few instances of homes built in the 1960’s and 1970’s with this wiring, but these are the exception. It is now nearly impossible to obtain homeowners insurance if a home has knob and tube wiring. The insurance companies understand the […]
Knob and Tube wiring was installed in homes up until about 1950. There are a few instances of homes built in the 1960’s and 1970’s with this wiring, but these are the exception.
It is now nearly impossible to obtain homeowners insurance if a home has knob and tube wiring. The insurance companies understand the increased risk of fire and the potential for injury or death, based on the limitations of knob and tube wiring.
These limitations are:
Insurers have been updating their guidelines over the years in regards to the type and age of electricity in a home. It used to be that “if” a home was on circuit breakers and not fuses that a preferred insurer would accept knob and tube wiring. More recently, preferred insurers changed their guidelines to say “we don’t care if you have circuit breakers, we don’t want a home with knob and tube wiring”.
This meant that homeowners (those obtaining a new policy either because they were non renewed by their insurance company, had let a policy cancel, were buying insurance for the first time for a house purchase or whatever) were forced to buy insurance from a non preferred company (these are called surplus lines) who charge a significantly higher premium (often 3x’s as much). Lenders accept these policies.
Initially almost all of the non preferred companies (there are really only about four in California…so keep this in mind) were offering a HO3 form homeowners policy for homes with knob and tube wiring. Then, the non preferred companies changed their guidelines to say the same thing as preferred companies, “we don’t care if you have circuit breakers, we don’t want a home with knob and tube wiring”.
Fortunately, one non preferred company of the surplus lines companies, a company called Scottsdale, is still agreeing to insure a home with knob and tube wiring if the amps are 100, if a licensed electrician inspects the wiring and writes a report stating it is safe and if the client (and lender if applicable) will accept a DP1 dwelling fire policy form (this policy form provides a lot less coverage than a homeowners policy form HO3).
What has been a challenge lately is finding an electrician to inspect the wiring and write the favorable report to submit to Scottsdale Insurance Company. Without the 100 amps and the written report, even Scottsdale offering the minimal DP1 dwelling fire policy is not an option.
Knowing that you likely cannot insure a home with knob and tube wiring (well…unless you meet the requirements of Scottsdale, want to pay a great deal for insurance and are fine with the added risk you incur….like self-insuring some of the perils by purchasing a bare bones DP1 policy), then you should consider hiring a licensed electrician to update the electricity in your home. The cost can be considerable, between $8,000 and $20,000 depending upon the square footage and design of the home.
If you are purchasing a home with knob and tube wiring, it will be important that the update to the electricity in the home be completed PRIOR to close of escrow. An insurance company will not agree to insure the home and give you time, say 30 days, to do the updates. The seller’s lack of maintenance on the house of updating the wiring at some point in time over the years makes their problem (old home wiring is very dangerous problem) your problem. You should not attempt to buy a home that is unsafe to live in and, not being able to buy insurance on it, tells you this really clearly. The insurance companies, even the ones that take almost every other big problem of really old roofs that will likely leak, old heating systems that will likely catch the home on fire or leak toxic fumes into the home and such, are saying no to knob and tube…so big red flag. Too many claims and too severe is a good assumption.
It is unfortunate that some insurance agents are not knowledgeable about knob and tube wiring and believe they can insure a home at close of escrow or otherwise. These agents don’t intentionally mean to mislead homeowners and homebuyers and honestly don’t know the guidelines of the company he or she represents, but the outcome is the same. A policy is written and as soon as the knob and tube wiring is discovered, based on an older home questionnaire, an inspection by the insurance company or in some other way, a notice is sent stating the policy is being cancelled. Suddenly finding out a home is likely uninsurable and $8k or more needs to be spent to have the home’s wiring updated is not a surprise anyone wants.
To learn more about insuring a home with knob and tube wiring, please contact Ramona Johanneson at email@example.com or by calling 415-493-2502.
All homeowners policies include Additional Living Expense coverage, also known as ALE or Loss of Use. This coverage is meant to cover the cost of “living elsewhere” if a claim is filed because the home sustains damage and can no longer be lived in. It might only take a few months for the repairs to […]
All homeowners policies include Additional Living Expense coverage, also known as ALE or Loss of Use.
This coverage is meant to cover the cost of “living elsewhere” if a claim is filed because the home sustains damage and can no longer be lived in. It might only take a few months for the repairs to a home to be made, but if the home has significant damage or is a complete loss, it could take a year or two – depending on where the home is located and what repairs are needed.
The typical payments most homeowners receive when they are forced to live elsewhere are for:
As the title of this article states, ALL homeowners insurance polices are NOT created equal in terms of ALE coverage. There are two parts to ALE coverage and these are:
Limitation of Dollar Amount: Many insurance companies “cap” how much they will pay a homeowner to live elsewhere; typically it is 20% of the dwelling limit of a policy. For instance, if the policy insures a home for $500,000, the most an insurance company will pay is $100,000 for all costs associated with living elsewhere (again initially a hotel and then a more permanent residence while the home is being rebuilt).
Limitation of Time: Many insurance companies “cap” how long they will pay for a homeowner to live elsewhere; typically it is 12 or 24 months from the date of loss. The face of the policy may state ALS (Actual Loss Sustained) but the fine print of the policy places a time limit.
Having a “cap” on the dollar amount or the time might not seem like too big of deal, unless you live in CERTAIN cities. Because many parts of California have a higher than average cost of living, especially in terms of rents in places such as San Francisco and surrounding Bay Area cities, buying a policy with a “cap” can be a real problem. In addition, the limitation of time the insurance company will pay for a homeowner to live elsewhere isn’t realistic in many cities; there may be delays in construction beyond the control of the homeowner or insurance company.
Fortunately, there is an alternative. As stated, many insurance companies limit the dollar amount and time that they will pay for ALE. There are a few insurance companies who sell homeowners insurance policies with NO dollar limit/NO time limit coverage for ALE.
Two of the most reputable of these are Encompass Insurance (ELITE policy) and ACE Insurance (Platinum policy). While it’s true that some insurance companies state they are “luxury home specialist”, they fall short by limiting ALE to 50%. This likely won’t be enough coverage in many instances due to the time it takes to rebuild a home being lengthy, such as the case of homes in San Francisco.
A recent conversation with Malcolm Kaufman of Alain Pinel, one of San Francisco’s most knowledgeable and seasoned Realtors with a solid background in economics and finance, confirmed what many people already suspected: the time to rebuild a home in San Francisco often exceeds 24 months.
Malcolm shared that the reason for the delay in San Francisco is the fact that it can take several phone calls and weeks to schedule an appointment with a contractor, engineer, architect and such. These are busy professionals and their expertise in “building in the city” is crucial. Pulling in contractors and other experts from areas outside San Francisco can be a poor decision. San Francisco is unique and being familiar with the rebuilding process, permits, environmental, neighborhood guidelines and more is very important.
If you live in the Bay Area or any city with a higher than average cost of living, purchasing a homeowners policy from Encompass or ACE is recommended. Without an Encompass or ACE policy, you may find yourself paying out-of-pocket expenses to live, possibly for a year or more, while your home is being rebuilt.
Again, ALL homeowners policies are NOT created equal. Knowing ahead of time what your ALE coverage is and possibly changing insurance companies to a company who will better meet your needs, should the unthinkable happen, can give you peace-of-mind and potentially save you tens of thousands of dollars.
For more information about Homeowners Insurance, please contact Ramona Johanneson at firstname.lastname@example.org or by calling415-493-2502.
You’ve likely read a lot of articles about what the most common reasons are for fires at a residence. We’ve also read a lot of these articles and it seems most give the same top few reasons: Unattended cooking, outdated or improperly used heating unit/device, careless smoking, forgotten candles, improperly stored hot ashes and so on. Many of […]
You’ve likely read a lot of articles about what the most common reasons are for fires at a residence. We’ve also read a lot of these articles and it seems most give the same top few reasons: Unattended cooking, outdated or improperly used heating unit/device, careless smoking, forgotten candles, improperly stored hot ashes and so on. Many of these articles are
found in national publications.
We have often wondered, and maybe you have too, what are the common causes of fire locally. When a fire investigation is done after fires in Marin, Sonoma and surrounding areas….what caused them?
We are fortunate to have spoken recently to Steve Walton, Fire Investigator of the Larkspur Fire Dept. Steve is extremely knowledgeable and kindly spent hours answering questions about the origin of fires and providing information we feel you might find helpful.
Like boat and barbecues, lawn-mowing season is back. Just remember that under the right conditions, a lawnmower is a fire waiting to happen. Steve states that lawn-mowing fires are
one of the most common local causes of loss. Often the metal blade of the mower will hit a rock, causing sparks that ignite dried grass.
Ideally grass will have been mowed before it turned from green to tall, dry and brown, but the reality is not everyone has a chance to take care of their grass cutting before they should have and this is a problem.
So what do you do if it’s the middle of summer and you find yourself needing to mow? Steve’s best advice makes perfect sense: only cut grass in the morning when temperatures are lower, humidity is higher and on a day with little to no wind. This might mean spreading your mowing project out over a week’s time; it’s possible you’ll only be able to mow from 7am-
8 am each morning and not on consecutive days.
Another common cause of loss is cooking related fires. Common sense is to never leave cooking food unattended…not even for a second. However, distractions can and do happen – especially when there are kids, pets and elderly in the home. The best rule to follow is, never step out of the kitchen away from the stove without turning off the stove. Seconds away from a stove quickly turn into minutes and this is all it takes for a fire to get started.
Fire Investigator Steve stated also that a number of local fires are a result of improper storage of combustible materials. Often fires occur due to residents of apartments using the water heater or furnace area of the apartment as an overflow storage area. When space is limited, it’s tempting to open the small door and place some items next to the water heater or furnace…thinking nothing will happen. These items are typically brooms, mops, plastic bags with items of clothes, shoes, etc.
Unfortunately malfunctions of water heaters and furnaces occur and a spark leads to a fire starting. This fire quickly spreads and the outcome can be a significant loss of property and even life. The same can occur when homeowners place these same items or other combustible items near the water heater or furnace in a home or garage. Steve advises to keep at least 30 inches of clearance – should a malfunction occur, the chances of a fire starting will be minimal.
Lastly, a common cause of fire that Steve mentioned is one that surprised us the most. Steve states that he is beginning to see surge protector and power strips, purchased by consumers in local retail and home improvement stores, which are inferior. They were manufactured in such a way that the poor quality and reliability result in their failure and a fire ignites.
What we took away from the conversation about fires being started, as a result of the malfunction of surge protectors and power strips, is that consumers should be cautious when
making a purchase of these items. The message is that all surge protections and power strips are not created equal. If you are deciding between buying one made in China that feels light
and less sturdy than a more expensive, heavier power surge or power strip…spend the extra money.
We hope you find this article helpful and wish to thank Steve Walton of the Larkspur Fire Department for his time in providing valuable information. Please feel free to contact our office if you have any questions.
For more information about Homeowner’s Insurance, please contact Ramona Johanneson at email@example.com or by calling415-493-2502.
Most of us have carried the same basic essentials in our car for years – wallet/purse, sunglasses, jacket, and so on. Now, this list of items has grown to include smartphone, tablet, laptop and chargers for each. Often there will be a backpack, briefcase or shopping bags full of other cool, but sometimes expensive items, […]
Most of us have carried the same basic essentials in our car for years – wallet/purse, sunglasses, jacket, and so on. Now, this list of items has grown to include smartphone, tablet, laptop and chargers for each. Often there will be a backpack, briefcase or shopping bags full of other cool, but sometimes expensive items, as well.
If you are like most people, you run many errands throughout the day that include 3-5 minute stops, such as grabbing a cup of coffee, picking up a sandwich, dry cleaning or prescription and chatting with a friend.
In years past, the likelihood of you becoming a victim of a “smash and grab” situation was pretty minimal. You locked your car, parked in a busy area, didn’t leave your possessions in plain site and took other normal precautions to keep your things safe.
Unfortunately, a lot has changed and we are contacted often by our clients who became a victim. The common theme is that they are “shocked” that it happened to them. They did all the right things in taking precautions, but were still a victim.
There are many reasons, but the most obvious is the value of items a thief can quickly steal from a car has increased substantially. A smartphone, iPad or laptop are hot items with a fast sale of $300-$800. Same for designer sunglasses or purse – these can earn the thief $200 within hours of the crime.
Because the value of items are so high, a thief who looks into a car and sees a smartphone or tablet charger plugged in, a Versace sunglass case and a Michael Kors logo poking out from under the seat is going to smash the window a take a chance something of value can be quickly grabbed. Hiding a tablet or laptop under the seat or jacket, for example, doesn’t really deter the thief any longer, essentially “out of plain site” doesn’t mean anything , the smash and grab game has changed.
So what do you do to protect yourself from being a victim of crime? The answer is simple, you remove any items from your car and put them in the trunk, if you have one…replace “hiding” with “removing”. Rarely are the thieves taking the time to find the trunk button after they have broken the side window to open the car door. The glass breakage draws attention and they want to grab and go…not linger in and around the car looking for a way to gain access to the trunk.
As an extra precaution, remove the items of value from your car and place in your trunk prior to parking at your destination. Many thieves are watching people exit their vehicles and when a thief sees you place your laptop, iPad, Nordstrom shopping bags or whatever in the trunk, there is a pretty good chance they will take the extra risk to be in the car longer to gain entry to the trunk where they are certain an item of value is at. If they don’t see you place the item in the trunk, likely your trunk contents remain untouched.
If you are wondering what happens when our clients contact us about filing a claim for items lost in a smash and grab or the damage done to the vehicle, the answer is sadly, nothing. The reason nothing happens is because the items stolen are personal possessions and covered under the contents section of a home, renters or condo policy. This policy will have a deductible of typically $1,000, $2,500 or $5,000. The days of low deductibles are long gone. Because the value of items stolen is below the deductible, no claim can be filed.
In terms of the damage to the vehicle, which is usually just a side window that has been smashed, again while this is covered, not always is the cost to replace a window more than the comprehensive deductible on an auto policy. Often policyholders will purchase a $500 or $1,000 deductible to keep the cost of their auto insurance down and this means that small claims are not covered. Very few policies include the “full glass” or “zero glass deductible” feature anymore, these are starting to disappear from policies or be offered by endorsement for an additional premium.
So, now take an extra minute to stop and place your valuables in your car trunk, knowing that the cost to replace them will be an out-of-pocket expense for you. Never leave “signs” that items of value might be a car, such as chargers, cases, shopping bags from expensive stores, etc. Hopefully the thief will glance in your car and keep walking and you won’t be a victim of a smash and grab.
To learn more about Auto Insurance, please contact Ramona Johanneson at firstname.lastname@example.org or by calling415-493-2502.
The heavy rains in some areas of Northern California in early November have meant panic among many clients. They live near water – mostly within a mile or so of creeks and a few near rivers. Our agency has received a lot of emails and phone calls from clients asking to buy flood policies — […]
The heavy rains in some areas of Northern California in early November have meant panic among many clients. They live near water – mostly within a mile or so of creeks and a few near rivers.
Our agency has received a lot of emails and phone calls from clients asking to buy flood policies — they know El Niño is coming and creeks and rivers that don’t typically fill up are going to and overflow their banks. Their homes are just far enough outside a high risk flood zone that their lender doesn’t make flood insurance mandatory. We have told them for years that much flooding occurred in past El Niño winters and just because homes aren’t “supposed” to flood, doesn’t mean they won’t. The water isn’t going to stop when it reaches a different flood zone – it keeps going.
So why the panic, why not just sell them a policy and lessen their fears, right? The reason for the panic is that our clients are surprised to learn that, even though they are buying a policy now, it won’t begin until December. We complete an application and collect their credit card number for the $450 for a preferred flood policy, but sit and wait for the mandatory 30 day waiting period to expire.
The clients ask us repeatedly if there is anything we can do because November is predicted to be very wet and our answer is no, we can’t…FEMA sets the rules. Of course, the clients are still buying the flood policies, but are worried about the next rainstorm and if it will be too much too fast to cause flooding.
So, if you live near a creek, river, lake or have a home with slope to the rear, side or front and water runs toward the foundation of the home – especially if you’ve had drainage issues before in rainstorms – contact your insurance agent ASAP and spend $450 on a policy. You’ll have piece of mind that, if this winter turns out to be the nightmare it’s predicted to be, that your home will be repaired if damaged by rising water. It’s the “pay now or pay later” school of thought – you can likely easily afford $450 but not $10,000 or more that will be needed to start cleaning up and repairing water damage. Homeowners insurance doesn’t cover damage from rising water.
Here are some FEMA flood insurance facts:
To learn more about Flood Insurance, please contact Ramona Johanneson at email@example.com or by calling415-493-2502.
Most articles about insuring your teen/young adult driver focus on “saving money” by taking specific steps. The most common of which requires them to earn good grades in school, drive an older inexpensive car and be careful not to get tickets/accidents. As I said in the title though, this isn’t your typical article and isn’t […]
Most articles about insuring your teen/young adult driver focus on “saving money” by taking specific steps. The most common of which requires them to earn good grades in school, drive an older inexpensive car and be careful not to get tickets/accidents.
As I said in the title though, this isn’t your typical article and isn’t going to give you advice that is going to SAVE you money. Instead this article is about how to PAY MORE for auto insurance when there is a teen/young driver being added to your policy or already on your policy.
I know you are thinking, are your nuts? The answers is no and if you keep reading, I’ll explain why and how come it is important for you to know what I know.
I’ve been a producer for 30 years, this means I’ve handled the new client business for insurance brokerages forever (well not forever, but a really long time). It also means that I’ve had about a zillion conversations regarding teen/young drivers on auto insurance policies. I’m an expert in rates, discounts, limits and most importantly claims involving these drivers and who they affect the most….but surprise, it isn’t the teen/young driver, instead it’s their parents.
Something important to know right away about claims is that, like me selling insurance forever, there are “forever” claims and “non forever” claims.
A forever claim is one in which you really can’t recover from financially. The most common forever claim happens when you cause a serious accident in which the damages and injuries are extensive. The second most forever claim happens when you cause an accident and there is a fatality.
The reason that you don’t recover financially from a forever claim is because the limits of your auto insurance policy were exhausted. Your insurance company paid out what they were required to pay, based on the limits you bought and stepped out. The responsibility for additional money owed to the injured or deceased (family) shifted to you.
Depending on how much money you had in savings, retirement (i.e. 401k, IRA, etc.) and equity in your home determined how much you could pay. Once all your money and assets were gone and possibly a wage garnishment set up for future payments (if you didn’t have enough to pay the judgment in full), then you try and start over…most people don’t recover and the claim has a “forever” impact. Remember, you can’t file bankruptcy if there is a personal injury judgment against you for money owed; a bankruptcy judge would never allow it.
A non forever claim is one in which, even though serious, the limits of your insurance policy are enough to cover the damages, injuries and even a fatality. How you make certain that you only have non forever type of claims is to purchase adequate limits of liability on your auto policy and for a few hundred dollars, buy an extra policy called an umbrella. The umbrella triggers when your auto limits are reached and pays an additional $1M (or more if you purchased a higher limit). Your insurance company pays what they are required to pay, but it is an amount that doesn’t exceed the limits of your auto and umbrella policy combined. You don’t lose your savings, investments or house and aren’t subject to wage garnishment when you don’t have enough to pay a judgment.
So, now I am back to giving you advice about paying MORE for auto insurance when there is a teen/young driver being added to your policy or already on your policy.
The first thing parents want to do to SAVE money when adding their teen/young driver is to lower the liability limits on their policies when they add the driver to keep costs down. Another thing parents ask to do is to have the teen/young driver buy the car in their name and buy an auto policy with low limits for a cheap premium.
The problem with either of these is that they pretty much guarantee a forever claim. Teen/young drivers statistically have the most frequent and severe accidents and it will be the parents who lose their savings/investments/assets and wages. Parents are responsible for their minor children and even if a non minor, if financial support is provided by the parent….responsibility shifts to them.
Also, having a car and an auto policy in a young driver’s name doesn’t change the outcome, it likely makes it worse. The low limits of liability will quickly become exhausted and the parents, who are providing financial support for the young driver, will now have to reach into their savings, investments and home equity to pay the judgment (or have their wages garnished if not enough money available).
My advice is don’t DECREASE your liability limits on an auto policy or tell your teen/young driver to buy their own cheap policy with low limits. Instead, INCREASE your liability limits and add an umbrella to your insurance program so that any serious accident, which has a high probability of occurring, will not exhaust your limits of liability and forever change your financial future. You’ll pay MORE for insurance, but the amount doesn’t even come close to what you’ll be required to pay in a judgment. Pay NOW or Pay LATER…it is only one of two choices.
To learn more about auto insurance for your teen, please contact Ramona Johanneson at firstname.lastname@example.org or by calling415-493-2502.
An umbrella policy is called an “umbrella” because it provides liability coverage over and above the liability and property damage limits of a home, renters, condominium or auto policy. Think of it as a safety net or additional layer of protection that starts paying losses after the basic policy limits are exhausted. What does it […]
An umbrella policy is called an “umbrella” because it provides liability coverage over and above the liability and property damage limits of a home, renters, condominium or auto policy. Think of it as a safety net or additional layer of protection that starts paying losses after the basic policy limits are exhausted.
What does it cover?
Umbrella coverage protects your assets if you are sued by someone who gets hurt at your home or who is injured in a car accident. It can pay for medical bills, rehabilitation services and lost wages for the injured person, and also cover defense costs from a lawsuit.
Who needs one?
Once you buy a home and have a retirement account or other savings to safeguard, an umbrella policy can make sense. This coverage gives you peace of mind your assets will not take a hit if something catastrophic happens.
You can buy an umbrella as an additional policy or as an endorsement to an existing home, renter, condo or auto policy, depending on the insurance company. There’s also the option to buy an umbrella policy on its own through an insurer who provides the coverage independently.
This extra liability coverage can be quite affordable, considering the protection you gain.
To learn more about Umbrella Policies, please contact Ramona Johanneson at email@example.com or by calling415-493-2502.
After the recent earthquake, many of us had a chance to speak with our Napa homeowners who suffered earthquake damage. Their losses were heartbreaking. Most of the damage our clients experienced was to their possessions. Very few had structural home damage. Clients who hadn’t purchased earthquake insurance expected our response: “Sorry there’s no coverage, all […]
Most of the damage our clients experienced was to their possessions. Very few had structural home damage.
Clients who hadn’t purchased earthquake insurance expected our response: “Sorry there’s no coverage, all homeowners’ policies exclude damage from earthquakes.” Clients who had purchased earthquake insurance were surprised to learn their losses weren’t covered. That’s the valuable lesson learned from this quake.
Most earthquake insurance policies are written through the California Earthquake Authority (CEA), with a 15% deductible to meet before payment applies.
In the early years of CEA policies, there was only one policy available and it requires that the structure of a home incur damages of “at least” the amount of the 15% deductible before payment. A home insured for $700,000 would need a minimum of $105,000 in structural damage before the homeowner could collect for either structural or content loss. Since most Napa homeowners had little or no damage to their home (just contents), this 15% deductible requirement wasn’t met, and clients who purchased earthquake insurance weren’t covered for their losses.
A few years ago, CEA introduced Homeowners Choice. This policy has separate deductibles for the structure and contents. The deductible is still 15%, but damage to the structure doesn’t have to be 15% or more to collect for contents damage. Had Napa homeowners who purchased CEA earthquake insurance purchased the Homeowners Choice policy when it became available, many would have received payment for their contents damage. The 15% deductible would only have applied for the contents limit in the policy. (For a $50,000 contents limit, the 15% deductible is $7,500.)
If you purchased earthquake insurance through the CEA, we suggest you change your policy to Homeowners Choice. The premium difference is minimal (the Choice policy is often less expensive). If you are considering a new CEA policy, we recommend buying Homeowners Choice.