Material Insurance

1. Homeowner's

2. Renter's/Condominiums/Townhouses

3. Umbrella

4. Auto

5. Other

Homeowner's insurance (not the same as Mortgage Insurance) insures against the risk of damage to your house, property or injury to other people as a result of a wide range of calamities. In addition, your policy will cover various miscellaneous items such as additional living expenses (loss of use) if you are forced to move out while repairs are made. Be aware that the policy terms required by lenders does not always provide adequate protection for the homeowner. Insure that your policy has adequate coverage. 

The factors that determine your homeowner rates are 

• Prior loss experiences of the insurance company
• State Insurance Commission Rate Regulations
• Location, value and type of structure insured
• Amount of coverage purchased
• Premium discounts.

There are basically two sections in all homeowner's policies:

• Section I - Property
• Section II - Liability

• Dwelling
• Personal Property

Dwelling

The dwelling is the house only (land is not insured). For example, if you bought a lot for $25,000 and then built a house on that lot for $125,000, although your house would appraise for $150,000, the dwelling would be valued at $125,000. This would be the coverage needed to rebuild your home in the event that it is completely destroyed (see the 80% rule). There is normally additional coverage included under this section of the policy that covers other structures on your property (garages, gazebos, tool sheds, etc.). This coverage is computed as a percentage of the dwelling coverage (normally 10%). If the dwelling is insured for $125,000, based on 10% of dwelling, the other structures would be insured for $12,500. Trees and shrubbery are normally covered for up to 5% of the dwelling coverage.

Personal property (contents) coverage for a homeowner is computed as a percentage of the dwelling coverage (usually 50% - 75%). If the dwelling is insured for $125,000 and the personal property (contents) are insured for 60% of the dwelling, the contents of the house would be covered up to a limit of $75,000. Payments on claims for damaged personal property will either be paid based on the actual cash value minus depreciation or based on the replacement cost. If replacement cost guarantee is not standard with your policy, you should consider purchasing a replacement cost guarantee rider. All policies define the maximum limits of coverage for each item and for all property within certain categories (jewelry/watches/furs; silver/silverware/goldware; fine arts; golfer's equipment; etc.). If you desire to insure an item that exceeds the limits of your policy, you can do so by increasing the standard policy limits or with a rider often called a "personal article floater". Each item must be appraised and listed separately. It is a good idea to make a list, take pictures or make a video of your personal property. Keep the list updated in case you need it to file a claim. You might also want to keep the receipts for any major purchases. Be sure to keep all of your documentation somewhere besides your home to preclude it being destroyed in a fire or other disaster.

• Personal Liability

• Medical Payments to others

Personal Liability

Liability coverage is to protect you against lawsuits resulting from an injury or death on your property or in your home. At a minimum, your liability limits should be equal to your assets and preferably two times your assets. For example, if your dwelling is insured for $125,000 and you have $75,000 coverage for personal property, your personal liability coverage should be between $200,000 and $400,000 unless you have a liability umbrella or excess liability policy.

Medical Payments to others

If someone is hurt on your property (i.e., dog attack, trampoline, swimming pool, etc.) whether it's a guest, a mailman, or a delivery boy, you may be held responsible for their medical expenses. Don't be too quick to assume a friend would never sue you. More than 40 million Americans don’t have health insurance. If the person who was hurt is uninsured or underinsured, you may be the only source of reimbursement for his or her medical costs. The basic coverage on most homeowner’s policies is $1,000 per person. With adequate personal liability limits and or a liability umbrella, this coverage might be redundant.

Other Considerations

There are several ways to ensure adequate homeowner's insurance coverage while minimizing your premiums. Consider these tips:

Review deductibles.  Review the deductible under the policy. A low deductible usually means that you are paying a significant amount of your premium to insure small claims. Increasing the deductible may allow you to purchase additional coverage.

WARNING: If you increase your deductible, make sure you have enough cash or liquid assets to pay the deductible.

Update home's replacement cost.  Update your home's replacement cost every two years and make sure your coverage matches it. A variety of software programs and videos are available to help you develop a replacement cost inventory.

Determine the replacement cost of home's contents.  Determine the replacement cost of your home's contents and update your records as you make new purchases. Consider videotaping your home and its contents and reviewing the tape with your agent. Review your policy to make sure you have enough coverage for all valuable contents.

Coordinate policies.  Coordinate your liability insurance under your auto and homeowner's policy with an umbrella liability policy. Insurers generally require homeowners to maximize their homeowner's liability insurance before they will issue umbrella liability insurance.

Look for discounts.  Smoke/fire alarms and fire extinguishers make your home a safer place to live. In addition, these items can often earn you a discount on your homeowner's policy. Further discounts may be available if you purchase other types of insurance (auto, umbrella, etc.) from the same carrier or if you store valuables away from home.

Document your claims.  If your home or its contents are damaged, you should carefully document your claim. Photos or a videotape and a summary description of the cause of the damage can help expedite the claims process.

As you review your homeowner's insurance policy, you may need to consider several additional types of coverage:

• Flood Insurance.  This policy covers damage to your home and property caused by flooding. It is a named peril type of coverage and special limitations can apply. The policy only covers flooding and does not include damage caused by water overflow from household appliances. This type of coverage is often required for financing if the property is located in a flood plain.
• Earthquake Insurance.  This policy covers damage to your home and property caused by an earthquake or volcano. This coverage modifies the limitations or exclusions under most homeowner's policies and expands the coverage available.
• Personal Property Rider.  All homeowner's policies have dollar limits for certain personal property items. You can purchase additional insurance (called a rider) to increase the dollar limits on items such as cameras, furs, jewelry, and collections. If you purchase a personal property rider, you must be able to verify the cost of the item and the condition of the item (with photos or a video).

 2.   Renter's/Condominiums/Townhouses

Because the needs of renters, condo owners and townhouse dwellers are different, there are special policies for these situations. As with a homeowner’s policy, these policies cover belongings, provide liability protection and pay for additional living expenses if a fire or other disaster forces you to temporarily move out. With some exceptions and limitations, these policies cover all of the personal property regardless of where the property is when the loss occurs. In most cases, they will also cover your children's property (up to policy limits) while they are away at college. Condominium and townhouse policies will also specify coverage for the dwelling or improvements.

An umbrella insurance policy provides you with added liability coverage on both your home and auto(s).  For example, if someone slips and falls from a crack in your sidewalk and successfully sues you for money damages, your personal liability policy can provide coverage to pay the damages. These policies are called "excess" policies because they insure the "excess liability" over the limits which otherwise may be provided in your homeowner's, auto, or other insurance policies.

Umbrella insurance coverage should be considered if you are building or have already built a significant estate that could be lost through the judicial process. In addition, this coverage is appropriate even if you have little current net worth but you have substantial future earning power. Many financial advisors recommend that you obtain umbrella liability insurance coverage at least equal to your net worth (assets minus liabilities). The cost of the insurance is relatively inexpensive considering the amount of coverage you are obtaining. Some excess liability policies cover the cost of legal defense; others do not. You should determine if your coverage includes this feature and what, if any, limits on legal costs are included in the policy.

For approximately $200 - $300 dollars a year, you can increase your liability coverage by $1,000,000. For example, if your current liability limit on your homeowner's policy is $300,000; a one million-dollar umbrella policy would give you $1,300,000 of total liability coverage. This is a small cost to pay for a lot of protection. An umbrella or excess liability policy can be purchased through your existing homeowner's or auto insurance company.

4.   Auto Insurance 
(be sure to check your individual policy and coverage needs before deciding to adjust your policy coverage)

Auto insurance rates are determined by where you live, type of vehicle, discounts, your driving record and your age. Each is a statistically based risk for a specific population. The higher the risk associated with a person, the more he or she is likely to pay for coverage.  Many states provide rate guides by area. Check out the rate guide for Texas or check out your state).  State laws say that you must either have insurance, or be able to provide evidence that you have the financial resources to pay a judgment against you in the event that you should cause injury or damage to another person. Most state laws (except New Hampshire, Tennessee, Wisconsin) require that you carry a minimum amount of liability insurance. 

There are two basic categories of auto insurance coverage: liability (bodily injury and property damage) and damage to your auto (collision and comprehensive).  A typical auto policy is divided into different parts. (Depending on the coverage you need, not all of the parts will be included on your policy)

• Part A - Liability
• Part B - Medical Payments (MP) and Personal Injury Protection (PIP)
• Part C - Uninsured Underinsured Motorist (UM/UIM)
• Part D - Damage to Your Auto

• Bodily Injury

• Property Damage

Bodily Injury

This section of the auto liability covers you against lawsuits as a result of your being found legally liable for an injury or death that was caused by your vehicle.   It covers such things as medical expenses, lost wages, and pain and suffering.  Bodily injury limits are listed for each person and for each accident. Payments are made up to the first limit for one person and up to the second limit for all persons injured or killed in one accident.  (check your minimum state limits)

This section of the auto liability covers you against lawsuits as a result of your being found legally liable for damages to the property of others (for example, somebody else's car, a telephone pole, or, heaven forbid, somebody's living room window) caused by your vehicle.  (check your minimum state limits)

When it comes to these two third-party coverages (bodily injury and property damage liability), it's not hard to figure out whether you need them. Do you own a car?  If so, you need them. In fact, the law requires that you carry these coverages in all but a few states (not required in Tennessee, Wisconsin and New Hampshire).  Both include legal protection up to the limits of your policy if the claimant files suit against you.

• Medical Payments (MP)

• Personal Injury Protection (PIP)

This section is normally written in addition to Personal Injury Protection (PIP). It covers medical and funeral costs for the driver and passengers in your car, regardless of which driver is at fault. It is most commonly offered in states that do not have no-fault laws.  It is normally reduced by any amounts paid or payable for the same expenses under the liability or UM/UIM portions of your policy.  This coverage might be duplicate coverage to other types of insurance and company benefits such as sick pay, disability, hospitalization and life in addition to your own bodily injury liability coverage.

Personal Injury Protection

Personal Injury Protection (PIP) coverage is an expanded form of medical payment protection that may be required by your state.  Basically, PIP just extends medical payments coverage to include lost wages. Some states allow you to waive PIP coverage for your family (assuming you already have adequate health and disability insurance), but force you to carry some PIP to cover other passengers in your car.  In states with no-fault insurance laws, this coverage is often required. Since these states place the burden of injury coverage on your insurance policy regardless of who's at fault, it's tough to sue the other guy.  This coverage might be duplicate coverage to other types of insurance company benefits such as sick pay, disability, hospitalization and life in addition to your own bodily injury liability coverage.

Uninsured/Underinsured Motorist protection is designed to pay for injuries that you or passengers in your car incur that were caused by someone who should have had bodily injury liability insurance on their policy but didn't.  In the event of an accident, the bodily injury liability protection of your auto insurance policy is designed to be the primary protection in the event of a lawsuit by your passengers no matter whose fault the accident was. If the accident is someone else's fault, insured or not, you are not liable.  

Should you have this protection if you have good health and disability coverage?  UM/UIM coverage can be broader in scope than your health and disability insurance policies .  It can compensate you for pain and suffering, loss of limb, disfigurement, and other ongoing costs that may fall outside the bounds of these other coverages. You need to understand the limits of your particular policy and your risk tolerance and then make and educated decision.  You are the one that is ultimately responsible (you should always check your other policies and understand your risk).  (check to see if it is required by your state)

MP, PIP and UM/UIM are designed to cover the passengers who don't have adequate health and disability coverage of their own without the necessity of a legal claim.  But in most cases these payments are only made after any workers' compensation claims (if applicable), disability benefits and claims paid under the bodily injury liability section of your policy.

This coverage might be duplicate coverage to other types of insurance and company benefits such as sick pay, disability, hospitalization and life in addition to your own bodily injury liability coverages.

Part D - Damage to Your Auto

• Comprehensive

• Collision

Comprehensive coverage insures against damages to your auto that result from other than a collision. This would include things such as theft, fire, vandalism and natural disasters. The payment for claims will not exceed the actual value of the car minus the deductible.

Collision

This is normally the most expensive part of your auto insurance policy. It is designed to cover damages to your vehicle when it is damaged by a collision with another object or by some upset. The payment will not exceed the actual value of the car minus the deductible. The insurance company will often "total" your car if the repairs exceed what the car is worth.

(Since insurance companies will only pay you the current cash value of your auto, there comes a point when you might want to consider eliminating your comprehensive and/or collision coverage altogether. This is a personal decision but will occur when the value of the auto is within your acceptable cash reserve limits).

NOTE: Auto insurers have all kinds of riders that they offer such as rental reimbursement, emergency road service, waivers to deductibles under certain circumstances and more. These items often provide poor value and should be added only after careful consideration.

Premium and Policy Considerations

Insurance companies consider a number of factors when they calculate your auto insurance premiums. The following table illustrates which factors are considered for each type of coverage.

As you review your auto insurance coverage, you should also understand who is covered (generally, your auto policy covers you, your spouse, family members, anyone driving the car with your permission, and anyone who reasonably believes he or she is entitled to drive your car. in your policy) and what vehicles are covered (The vehicles listed in the policy are covered. Autos that you borrow or rent are often covered. New autos are covered if you notify your insurance company within a specified period of time (generally 30 days)).

Tip: Check to see if your policy covers rental cars for personal and business purposes. If so, do not duplicate the coverage when you rent a car.

All 50 states have different requirements when it comes to auto insurance. In some states, motorists can't register a car without showing proof that they have liability insurance, while other states use an "honor system" that doesn't ask for proof of insurance until drivers have accidents or tickets on their records.

Only three states do not require motorists to carry liability coverage, but those that do demand drivers purchase at least the state's minimum. In other words, if you live in a state that requires liability insurance, you can't walk into your insurance agent's office and buy only $2,000 worth of liability coverage. If you're going to buy it, you must purchase at least the minimum amount required.

First number: bodily injury liability maximum for one person injured in an accident.
Second number: bodily injury liability maximum for all injuries in one accident.
Third number: property damage liability maximum for one accident.

So, looking at the table, you find that in Alabama, the minimum liability limits are $20,000 for injury liability for one person in an accident, $40,000 for all injuries in an accident, and $10,000 for property damage in an accident.

What is no-fault?

 

State	Liability required? Liability minimums (in thousands of dollars)	PIP required?	No-fault state?	Uninsured motorist coverage required?
Alabama	Yes, 20/40/10	No	No	No
Alaska	Yes, 50/100/25	No	No	No
Arizona	Yes, 15/30/10	No	No	No
Arkansas	Yes, 25/50/25	No	No	No
California1	Yes, 15/30/5	No	No	No
Colorado	Yes, 25/50/15	Yes	Yes	No
Connecticut	Yes, 20/40/10	No	No	No
Delaware	Yes, 15/30/5	Yes	No	No
Florida2	Yes, 10/20/10	Yes	Yes	No
Georgia	Yes, 25/50/25	No	No	No
Hawaii	Yes, 20/40/10	Yes	Yes	No
Idaho	Yes, 25/50/15	No	No	No
Illinois	Yes, 20/40/15	No	No	Yes
Indiana	Yes, 25/50/10	No	No	No
Iowa	Yes, 20/40/15	No	No	No
Kansas	Yes, 25/50/10	Yes	Yes	Yes
Kentucky	Yes, 25/50/10	Yes	Yes	No
Louisiana	Yes, 10/20/10	No	No	No
Maine	Yes, 50/100/25	No	No	Yes
Maryland	Yes, 20/40/15	Yes	No	Yes
Massachusetts	Yes, 20/40/5	Yes	Yes	Yes
Michigan	Yes, 20/40/10	Yes	Yes	No
Minnesota	Yes, 30/60/10	Yes	Yes	Yes
Mississippi	Yes, 10/20/5	No	No	No
Missouri	Yes, 25/50/10	No	No	Yes
Montana	Yes, 25/50/10	No	No	No
Nebraska	Yes, 25/50/25	No	No	No
Nevada	Yes, 15/30/10	No	No	No
New Hampshire	No, 25/50/25	No	No	Yes
New Jersey3	Yes, 15/30/5	Yes	Yes	Yes
New Mexico	Yes, 25/50/10	No	No	No
New York4	Yes, 25/50/10	Yes	Yes	Yes
North Carolina	Yes, 30/60/25	No	No	No
North Dakota	Yes, 25/50/25	Yes	Yes	Yes
Ohio	Yes, 12.5/25/7.5	No	No	No
Oklahoma	Yes, 10/20/10	No	No	No
Oregon	Yes, 25/50/10	Yes	No	Yes
Pennsylvania	Yes, 15/30/5	No	Yes	No
Rhode Island	Yes, 25/50/25	No	No	Yes
South Carolina	Yes, 15/30/10	No	No	Yes
South Dakota	Yes, 25/50/25	No	No	Yes
Tennessee	No, 25/50/10	No	No	No
Texas	Yes, 20/40/15	No	No	No
Utah	Yes, 25/50/15	Yes	Yes	No
Vermont	Yes, 25/50/10	No	No	Yes
Virginia	Yes, 25/50/20	No	No	Yes
Washington	Yes, 25/50/10	No	No	No
Washington D.C.	Yes, 25/50/10	No	No	Yes
West Virginia	Yes, 20/40/10	No	No	Yes
Wisconsin	No, 25/50/10	No	No	Yes
Wyoming	Yes, 25/50/20	No	No	No

¹ Low-cost policy minimums for Los Angeles and San Francisco for eligible low-income drivers in the California Automobile Assigned Risk Plan are 10/20/3, effective July 1, 2000, to Jan. 1, 2004.
²Only property-damage liability is compulsory.
³Drivers can choose a standard or basic policy. Basic policy limits are 10/10/5; only property-damage liability is mandatory.
⁴Liability rises to 50/100 if injury results in death.

There are many other types of material insurance that are generally a waste of your hard-earned dollars. You should carefully consider whether the risk against what the policy is protecting is worth the money being spent. The goal is to accumulate adequate cash reserves and not rely on these extremely expensive policies. There are several types of material insurance that you should either avoid or carefully consider not buying:

• Extended warranty and repair plans

• Credit card protection

• Home warranty plans

• Insuring packages in the mail

• Contact lens insurance

 

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