The month of May marks the end of the school year. Family vacations are clearly in sight, and the “heat” of summer is beginning to set in.
For those of us who border on the Atlantic or the Gulf, it also means that Hurricane Season is just around the corner.
Summer storms disrupt our personal and business lives, but they can also threaten us financially. We can face financial loss in several areas: 1) Inadequate Policy Limits (the value of the Home or Building listed in the policy); 2) Large Percentage Deductibles (which can be a substantial amount for commercial buildings); and, 3) Penalties from Coinsurance Clauses
First, Property Values.
We need to understand that the limit listed in our policies is most often the MOST we will receive in the event of a total loss. So, for us to be able to rebuild our home or our business, the number MUST be correct. Often, prospective customers hand me their current policies with a request to “match” the limits. Problem with that is, things change.
There’s an old saying: If it was wrong last year, it will be wrong again this year!
None of us are exactly as we were last year; and, neither are our Property Values. Construction costs go up…both in material and labor. Case in point, the 14.5% rate increase in Workers’ Compensation for 2017. Cost of construction went up by at least that factor. The value of our contents also changes as we make purchases or downsize.
It is essential that we ensure our Property Values are accurate. We need to be certain we can live with the amount listed on the policy in the event of a loss.
Second, Deductibles will play a major part in the claim settlement. After the 05-06 years, the insurance industry moved to percentage deductibles for most property coverage. And, while many of those percentages have been reduced with the “soft market,” the amounts can still be substantial.
For Commercial accounts, it’s important to understand how the percentage applies to the values. Is the deductible applicable to the Total Insured Values (TIV) or to each individual unit?
In other words, if my building is damaged but my contents escape unscathed and there was no interruption of business, does the percentage apply to the “Total,” or just the building? If you have a 5M Building, 2M in Contents and 1M in Business Interruption, applying the percentage to the “Total” versus only the Building value would make a considerable difference financially.
This is a very important area to review and negotiate.
Finally, every Insured needs to understand Coinsurance.
Coinsurance is the most misunderstood concept in insurance and is rarely explained by Agents. Simply put, insurance is a contractual agreement in which the Named Insured agrees to carry Property coverage up to a certain percentage of the Actual Value. This percentage is reflected in the Coinsurance Limit listed on the policy. It can be 80%, 90%, 100% or even “waived.” But, it is certainly a part of the policy that requires attention.
A Building insured for 900K under a 90% Coinsurance Clause can be valued at no more than 1M. Insure it for less, and there could be a “penalty” at the time of a partial loss.
Discuss the Coinsurance Clause with your Agent. Look at options or even “waiving” the Coinsurance.
May is a good time to have a solid Property review…both personally and with business property. Understand what you have BEFORE we move into Hurricane Season. Adjust limits, reduce or fund deductibles, and BE SURE you do not endanger yourself with a coinsurance penalty.
Then, enjoy your vacation.