How Big Should Your Umbrella Policy Be?
- At August 31, 2019
- By AvivaGittle
- In Insurance, Personal Finance, Real Estate
0
This is the first of several articles I wrote for this client who manages a website about all things insurance. He likes a lot of facts and figures in his articles.
Your dog is the sweetest puppy on the planet. He’d never hurt a soul. But one day, dear Rover goes on the attack and bites your neighbor’s kid. You’re sure little Tommy provoked him. But Tommy’s parents don’t care. They sue you for $1 million dollars. Your neighbors have a pretty good chance of winning. According to Jury Verdict Research, 13% of personal injury liability payouts are $1 million and up. Better odds than the lottery.
Cheap Protection
A personal umbrella policy is the most cost-effective way to protect your net worth. This insurance coverage kicks in if a judgement against you exceeds your auto or homeowner’s policy limits. Let’s say you have a $500,000 liability limit on your homeowner’s policy. Little Tommy wins a judgment of $1 million. Your homeowner’s insurance company pays the first $500K and your personal umbrella liability company is on the hook for the remaining $500K. All for an average of $150-$300 for the first $1 million of coverage. If you own a business, you’ll need to buy a commercial umbrella policy at an average cost of about $1,200.
The Savvy 10%
Chubb Insurance Group surveyed 200 households with $1 million or more in investable assets. 10% paid out legal judgements of over $100K. Yet, 90% did not have an umbrella policy. Just 10% of them were savvy enough to buy this type of excess liability coverage. They paid a pittance to protect their considerable wealth.
Most of us mere mortals don’t have $1 million to invest. However, umbrella policies are not just for the rich. For many Americans, their house is their largest asset. Yet only about 15% of homeowners have a personal umbrella policy. In part, because insurance agents are not educating their clients about the importance of excess liability coverage. Some people don’t understand what an umbrella policy covers. Or, believe they don’t have enough to lose. Unfortunately, even a renter without a large savings account can have their future wages garnished in order to pay a judgement.
Risk is Everywhere
You don’t have to be a bungee jumper or a racecar driver to have increased risk in your life. Teenaged drivers, pools, and dogs in your home increase your risk of being sued. According to the CDC, car crashes are the leading cause of death for teens in the U.S. Lest you think your dog is more responsible, 4.7 million dog bites happen each year. Be sure to check your umbrella policy – some breeds are not covered.
Umbrella policies also cover slander and libel suits. If you’re job includes reviewing people and companies on social media, you are at risk for these types of lawsuits.
It’s Crazy Out There
The reasons people sue each other range from the absurd to the understandable. One family settled for $475K for a child who removed her headgear during a paintball game in their backyard. In adherence to Murphy’s Law, she was hit in the eye by a paintball at that exact moment. In another case, a student made false statements about her math teacher online. The teacher sued the parents and received a $750K payout. On a much more serious and expensive note, a teenaged babysitter left a 5-month-old unattended in a walker. The baby fell over, hit her head on the floor, and suffered brain damage. The baby girl’s parents were awarded $11 million dollars.
How much can you afford to lose?
Calculating how big your personal umbrella limits should be involves three key considerations:
Value of Assets
It may not be enough to cover your net worth. If you own a $500K home, the mortgage against it doesn’t matter if you’re forced to sell it to get at the equity. It’s better to include the full value of your assets in your calculation.
Risk Assessment
Pools, kids, dogs, and anything else that increases the premium on your homeowners and auto policies should be part of your assessment. While you’re evaluating your risk level, consider what you can do to reduce it. You can’t get rid of your kids, but you could take down that trampoline in your backyard.
Risk Aversion
Some people would rather err on the side of being over-insured. Adding 50% to the value of your assets is a good guideline. Since another million in umbrella coverage will cost just $50-$75 dollars a year, it’s not a hard decision to make.
Can You Scrape Together 82 Cents a Day?
Folks will fork over big bucks to their accountants to reduce their tax liability, but won’t buy an umbrella policy. Yet, for just 82 cents a day you can protect a million dollars’ worth of assets from the little Tommies of the world. Order a tall instead of a venti latte once a week to cover it. Peace of mind in exchange for a little less caffeine. Seems worth it.
Resources:
https://www.insurance.com/auto-insurance/coverage/umbrella-insurance-policy-guide.html
https://www.cnbc.com/2018/03/26/this-hidden-threat-can-devour-more-than-100000-of-your-wealth.html
https://www.insureon.com/small-business-insurance/umbrella-liability/cost
https://www.cdc.gov/motorvehiclesafety/teen_drivers/teendrivers_factsheet.html
http://www.galleninsurance.com/wp-content/uploads/2011/08/10-Actual-Claims-On-a-Personal-Umbrella-Policy.pdf
What You Need to Know Before You Buy or Build a Tiny Home
- At August 31, 2019
- By AvivaGittle
- In Insurance, Real Estate, Writing Sample
0
This article was posted on a website dedicated to all things insurance. The client likes a lot of facts and figures in his articles.
The average home size in the United States has increased over 50% in the span of three decades. From 1,725 square feet in 1983 to 2,598 square feet in 2013. Which is why realtors use the word “cozy” as a euphemism for “small.” That’s changing. More buyers are embracing scaled-down living and buying tiny homes. However, there are some big obstacles to owning one. Here’s what you need to know before you build or buy a tiny home.
Teeny Tiny
Tiny homes are 100-400 square feet. They are usually built on wheels, although some are built on temporary or permanent foundations. Why would anyone want to squeeze their life into a space the size of a walk-in closet? Some want to reduce their environmental footprint. Others want to simplify their lives. For many, it’s about finances:
- 68% of tiny house homeowners don’t have a mortgage.
- 60% have no credit card debt.
- 55% have more savings in the bank than the average homeowner.
Who Wants to Live Tiny?
According to a National Association of Home Builders (NAHB) survey, more than half of Americans would consider living in a home under 600 square feet. 63% of millennials say they would consider living in a tiny home. According to the Tiny House Society, 2 out of 5 people over the age of 50 actually do live in them.
Where Do I Sign?
Before you run out and buy or build a tiny home, there are barriers to tiny home living you’ll need to overcome.
Building Codes
Tiny homes need to meet local building codes. Until recently, there was no standardization. The International Residential Code (IRC) just established specific guidelines. States base their local building codes on the IRC. This should help the tiny home sector moving forward.
Where to park it
Living in a tiny home can be a nomadic life. Finding a place to legally park your tiny home can be challenging. It’s considered an RV by most local ordinances. You can hang out in an RV park – but typically for just 2-30 days. Some owners park their tiny home on the lot of a friend or family member, but this can also be against local laws. Owners report that keeping a low-profile is usually enough to avoid eviction.
It’s easier to park your tiny home in a community that allows accessory dwelling units (ADUs). ADUs are permitted structures on the same lot as an individual home. Homeowners find a tiny home is perfect for aging parents, adult children who return home, offices, and even Airbnbs.
Insurance
Insurance companies aren’t quite sure how to classify a tiny home. Is it a mobile home? A house?
You may be able to get Recreation Vehicle (RV) coverage for your tiny home. This insures the house and property while traveling and while parked. The catch is that most insurance companies require that the home is professionally constructed and certified by the Recreation Vehicle Industry Association (RVIA). This can leave DIYers out of luck.
If your tiny home is permanently installed in one location, you may qualify for mobile home insurance. Once you hit the road, you’ll need to get a temporary policy to insure the home while it’s in transit. Once you’ve parked, remember to let your insurance company know your new location.
ValuePenguin got quotes from Progressive Insurance for both RV and mobile home coverage in Colorado Springs, CO. Quotes were based on tiny homes between 150 and 300 square feet. The average annual cost overall was $852. RV coverage was more expensive than mobile home coverage – by 59%. Mobile home insurance was about $650 annually. RV insurance about $1,000.
Another option is to get coverage from insurance companies that specialize in policies for tiny homes. You want to ensure that you are dealing with a reputable company.
Tiny Movements
There are more communities embracing — and making allowances for — tiny homes:
- Spur, Texas no longer has a minimum size requirement for tiny homes on foundations.
- Fresno, California will consider tiny homes parked on a property with an existing home a permanent residence.
- Lake Dallas, Texas, now hosts a tiny home village. Owners can park their tiny home on a lot of about 800-1000 square feet for a monthly fee.
A Big, Tiny Life
Tiny living can give you big benefits. Financial security, flexibility, and simplicity. Take the time to research local laws, building codes, and the cost and availability of homeowners insurance before you buy or build. Then take just a few of your worldy possessions and move right in.
Resources:
https://www.tinysociety.co/articles/tiny-house-laws-united-states/
https://www.tinysociety.co/articles/tiny-house-statistics/
https://www.nytimes.com/2017/10/06/realestate/where-can-you-park-a-tiny-home.html
https://www.aarp.org/home-family/your-home/info-2018/tiny-home-laws.html
https://www.valuepenguin.com/tiny-home-insurance
8 Facts Every Homebuyer Needs to Know About Title Insurance
- At August 30, 2019
- By AvivaGittle
- In Insurance, Real Estate, Writing Sample
0
This Upwork client manages a website that is all about insurance.
Nearly every homebuyer has purchased title insurance – whether they know it or not. Given that 63% of homeowners have a mortgage, there’s a good chance that if you own a home, you have a lender’s title insurance policy. That protects the lender – not you. Here are 8 facts about title insurance you need to know before you buy a home.
#1 – It’s Not Like Homeowners Insurance
Homeowners insurance protects you from losses that may happen in the future. Title insurance covers losses that may result from title defects discovered after you purchase a property. There are many things than can “cloud” a title. For example, a mechanic’s or tax lien. The title company researches public records to ensure the title is “clear” before you purchase the property. They are indemnifying you for future losses due to defects they may have missed in their research. Or defects that are unknown and arise later, such as an heir who makes a claim on the property.
#2 – A Lender’s Title Policy Doesn’t Cover You
If you are taking out a mortgage on the home, the lender requires that either you or the seller purchase a lender’s title insurance policy. This covers your lender up to the amount of the loan. It will handle legal expenses they will incur defending against a claim. It will also cover losses that result from a successful claim. It does not cover your legal expenses or your losses.
#3 – Title Insurance Is Paid Once
You pay for title insurance at closing. That’s it. It covers you for as long as you – or your heirs – have an ownership interest in the property. According to ValuePenguin, the average cost is $544 for a lender’s policy and $830 for an owner’s policy. Don’t feel bad for the title insurance companies. They only pay out 4-5% of the premiums they collect in claims. (It’s 100% or more for car insurance.) However, since a successful claim could force you to relinquish the property, it’s not a risk you want to take.
#4 – All Title Companies Are Not the Same
Title insurance is a $15 billion-dollar industry. Most of that money is collected by just four companies: First American, Fidelity, Stewart, and Old Republic. (They issue an estimated 85-90% of the policies.) It is safer to buy a policy from a company that is likely to still be in business during the time you own the property. Which is why the Big Four continue to dominate the industry.
#5 – You Are Not Required to Pay for Title Insurance
Typically, the buyer pays for the lender’s title policy and the seller pays for the owner’s title policy. These are courtesies – not laws. Who pays for title insurance is negotiable.
#6 – You Don’t Have to Use the Seller’s Title Company
A property listing will sometimes specify that you use a particular title company. You want to ensure it is reputable. If the title insurance company goes under while you still own the property, your policy is worthless. Typically, if the seller is paying for the title policy, they get to select the company. If you feel uncomfortable with their choice, you may be able to negotiate to use the title company of your choice.
#7 – Title and Escrow Are Not the Same
Although realtors will often use “title” and “escrow” interchangeably, they are not the same thing. An escrow company is a neutral third-party who holds funds, records the deed, and manages the real estate transaction to completion. It just so happens that many title companies also handle escrow.
#8 – A Basic Policy May Not Be Sufficient
The basic title policy does not cover all possible title defects. There are several endorsements that can be purchased to extend coverage. Future issues related to zoning, property access, right-of-way issues, and much more can arise. Talk to the title company about which endorsements may apply to your property and situation.
Protect Yourself
Buying a home is a huge investment. The risk of a title defect is low, but the consequences are high. Protect yourself with an owner’s title policy. Hopefully, you’ll never need to use it.
Resources:
https://smartasset.com/mortgage/buying-a-home-do-you-need-title-insurance
https://www.magnifymoney.com/blog/mortgage/u-s-mortgage-market-statistics-2018/
https://www.gentrylawgroup.com/title-policy-endorsements-get/
https://www.valuepenguin.com/title-insurance/average-cost-of-title-insurance
https://www.valuepenguin.com/2017/05/auto-insurance-rate-hikes-also-likely-2018
When You Should Not Submit a Homeowners Claim
- At February 08, 2019
- By AvivaGittle
- In Insurance, Writing Sample
0
You buy homeowners insurance to cover possible future losses. You want to reduce your risk. But submitting a claim – any claim – is a risk. The insurance companies will punish you for daring to use the policy you paid for.
Once in a Decade
Homeowners submit a claim once every 9-10 years. According to the Insurance Information Institute (iii), wind and hail account for the largest share of claims (2.4%). However, fire and lightening caused the most damage. From 2012 to 2016, the average incurred losses were $50,315. Wind and hail average incurred losses were $8,625. Nearly 83% less paid out in claims.
Drop You Like a Bad Habit
On average, homeowners and renters pay $1,192 a year for insurance. (Based on 2016 numbers.) That does not include flood insurance and any additional riders you may have for, say, jewelry. You are justified in believing that you should be able to submit a claim for any loss. Unfortunately, if you submit too many claims, your insurance company will drop you like a bad habit. In fact, some insurers will drop you after one claim.
We Don’t Want You
Insurance companies, obviously, want to provide insurance to people who have the lowest risk of submitting a claim. If you have filed more than one claim in the last decade, they don’t want you. If the previous owner of your home filed several claims, they don’t want your house. Why? All those claims add up to poor maintenance. If they believe your home is “accident-prone” – due to an old roof or a bad plumbing system – they don’t want to insure it. Or, they will happily insure it for a much higher premium.
How Do They Know?
When you’re getting a quote for homeowners insurance, the agent will ask how many claims you’ve submitted in the past. They already know. Insurance companies use one of two databases to track claims: The Comprehensive Loss Underwriting Exchange (CLUE) and the Automated Property Loss Underwriting System (A-PLUS). The database goes back five years. Most insurance companies purge older records.
Get A Clue
If you’re buying a home, insist that the seller provide you with a CLUE report. Protect yourself further by having an insurance contingency. This allows you to get out of the contract if you find you can’t insure the property or the premiums are very high.
Is It Worth It?
Filing one claim can raise your premium by about 10%. A liability claim is more expensive with a premium increase of 14%. File a second claim within that 9- to 10-year period and you could see your premium jump 20%. The size of the claim has little to do with the premium increase. It’s the act of filing a claim that the insurance company objects to. So, if you’re going to file a claim, make sure it’s worth it. Let’s look at two scenarios:
- You pay $1,200 a year for homeowners. You have a water damage claim for $2,000. You have a $500 deductible. The most you’ll get is $1500. Your premium could go up 10% costing $120 more per year. Let’s assume the insurance company doesn’t drop you after one claim. That means you can’t submit another claim for 10 years. Not adjusting for inflation, the additional premium is $1,200. You would net $300 for this claim.
- You have a fire that causes $50,000 in damage. This one’s a no-brainer. Of course you file a claim. However, if you had filed the above claim, your insurance company will drop you and it will be hard to find affordable coverage with two claims on your record.
Aim High
You should get the highest possible deductible you can afford to lower the premium. Unfortunately, some companies put a cap on the deductible. That’s just one variable that impacts the premium, so shop around. It’s possible that the company with the $1,000 max deductible costs less than the one that allows a $5,000 deductible.
Independence
If you are dropped for filing too many claims, work with an independent insurance agent to find affordable coverage. They have access to many different companies. This is more efficient than your calling several companies separately. It helps if you can show that you fixed problems that led to the claims you filed.
Think Twice
Think twice before you file small claims on your homeowners policy. It may cost you more in the long run by having to pay higher premiums. Consider your homeowners policy risk mitigation for big events – like a fire. Then, adjust your coverage to reduce your premium. This way you’re not paying for protection you’ll never use.
Resources:
https://finance.zacks.com/average-homeowner-file-insurance-claims-8387.html
https://www.uphelp.org/pubs/claim-or-not-claim%E2%80%A6that-question-david-shaffer
https://claimsmate.com/how-does-filing-a-homeowners-insurance-claim-affect-insurance-policy-rates/
https://www.iii.org/fact-statistic/facts-statistics-homeowners-and-renters-insurance
https://www.nerdwallet.com/blog/insurance/auto-home-insurance-claims-reports/
https://www.thebalancesmb.com/clue-report-real-estate-2866520
This Florida Home Inspection Could Save You Thousands
- At December 28, 2018
- By AvivaGittle
- In Insurance, Writing Sample
0
This client likes articles with a lot of facts and figures weaved in.
Just Another Hurricane
She’d lived through Florida hurricanes before. The news always made a bigger deal out of it than it really was. Bev, her husband, and the kids hunkered down and waited for Irma to pass them by. Not this time. With the hurricane bearing down on them, they high-tailed it out of there. Irma smashed the Florida Keys as a category 4 and sustained 185 MPH winds for 37 hours. Irma caused $50 billion in damage and claimed the lives of nearly 100 souls. Amazingly, they came home to a house with no damage. Bev and her family were indeed lucky.
Major Savings
When Bev refinanced her home this year, the lender insisted upon a Wind Mitigation Inspection. Good thing. The inspection was a major factor in saving $3K a year on her home insurance. Coverage for wind damage is the most expensive part of a Florida homeowners policy. After the devastating 2004 hurricane season, insurance companies raised premiums considerably. The largest hurricanes that year ― Charlie , Frances, Ivan, and Jeanne ― resulted in thousands of deaths and tens of billions of dollars in damage. The Florida legislature recognized the impact this was going to have on families. In response, they required insurance companies to give discounts for home features that minimize wind damage. Homeowners who complete a Wind Mitigation Inspection could receive discounts up to 89% on the wind damage portion of their policy. For $70-$100, a homeowner could potentially save thousands. At the very least, they would save enough to cover the cost of the inspection. The inspection and subsequent savings are good for five years.
Form Matters
It is important that the licensed inspector use the right form. The 01/12 update to the OIR-B1-1802 Uniform Wind Mitigation Inspection form went into effect February 1, 2012. It supersedes the original 2012 form. The new version is much more comprehensive and gives homeowners the opportunity to realize more savings. For example, high impact windows are now separated out from other building entrances (like your garage) and may provide additional discounts. You’ll want to give the inspector as much documentation as possible, such as permits for shutters and Notice of Acceptance (NOA) for Exterior Opening Protection. These show that you have installed these items and had them approved.
Risk Reduction
A licensed Wind Mitigation Inspector must perform the inspection. They are looking for building features that reduce the risk of wind damage. The 01/12 form requires them to provide detailed information about your roof, doors, and windows.
First, they want to know if your roof was built in compliance with the Florida Building Code. The specific code requirement is based on the age of the house and location.
Most of the inspection is related to your roof. The shape of the roof matters. A “hip” roof (sloped inward on all four sides) is the most wind-resistant. They care about the material that covers your roof, but how it is attached is critical. Is the roof decking attached to the rafters or trusses below? They also inspect how the trusses or rafters are attached to the walls. The inspector must identify the weakest points in the roof-to-deck and roof-to-wall attachments.
The Details Matter
The discounts are definitely in the details. How a roof is attached to the rafters is just one example. The type of nail and the spacing between them determines uplift resistance strength. This minor detail can double the chances of your roof staying on during a hurricane.
The Wind Mitigation Inspection also examines secondary water resistance (such as a foam barrier) and opening protection. The addition of hurricane shutters and impact-resistant windows and doors can result in higher discounts, depending on the type.
The one thing you never want to do is list a building feature that you don’t have in order to get a discount. It’s a class one misdemeanor. The state of Florida takes this seriously.
Worth More Than Discounts
No doubt that potentially saving thousands is an incentive to get a Wind Mitigation Inspection. But finding ways to protect your property from getting destroyed in a hurricane is even more important. Bev is no longer counting on luck to get her and her family through the next hurricane. Risk mitigation and a full tank of gas go a long way.