Household Insurance Policy – What Is Covered and Where Are the Gaps

There is a lot of confusion about what an ordinary householders policy covers – all the things people think that they are covered for and are not and on the other hand, all the things they can claim for, and often do not realize they can.

Buy a householders policy which includes the building as well as the contents – otherwise a household fire could cripple your family finances for years.

Gone are the days of fine print exclusions, public opinion has persuaded insurance companies to have print no smaller than normally used in a newspaper. This has now made household insurance companies competing for the consumer dollar never more competitive.

Because of the wide variation in policies, this article is to be taken as a general guide only, raising points to check against your policy where applicable.

Do not take for granted the following points to be covered in your new policy, check first before you sign.

It is wise to check your policy’s renewal cost with what you paid last year, because the insurance company may have increased the premium “to take account of inflation”. Some companies do not make it clear that they have done this.

What is Covered?

Items people can claim for under their normal householder’s policy often do not realize they can! Your householders’ policy not only covers your home – but the entire property including the front garden and the backyard.

This means that you can claim for the theft of everything from the pot plants to the clothes hoist. Many people living in apartments, where clothing has been stolen from washing lines, do not realize that they are also covered for the clothing stolen (whether it is the depreciated or the replacement value depends on the policy).

Your car, companies consider this a different class of risk. Whether you are an apartment dweller or live in a house, you’re not covered for the theft of the car itself. Your car insurance has to be a separate policy.

Boats are also excluded from the theft protection of a normal householder’s policy. For example, you may have a dinghy stolen from the top of your garaged car at home, and not be able to claim – but, you can claim for the swimming costume, towels and beach gear which have also been stolen.

Even if the damage to household property is your fault, most policies accept this. For example, a housewife forgets about food cooking in fat which boils over and resulting in fire, damages the stove, walls, ceiling and curtains.

Important point, you are moving house and you have shifted an amount of the furniture and your belongings. If a housebreaking occurs at either your existing home, or your intended one, then you are not covered by many policies if a legalistic interpretation has been taken by the insurer. Such policies stipulate that the home is to be sufficiently furnished for full habitation. Because many insurers regard this as a “grey area”, it would pay you to notify the insurers to find out exactly how they interpret the situation. Better to find out before, rather that after a theft.

Motors.Your washing machine motor burns out. Most policies pay for the replacement motor. This also applies in the case of your household dish washing machines, refrigerator, and air conditioner even the motor of your swimming pool filtration system. Most cover electric motors in various domestic appliances.

The electronic parts of your TV, radio or stereo equipment burning out are not covered in most policies. A subtle distinction is the motor of stereo equipment, but not components such as the baffle or tweeters.

“All risks”policy usually does not cover any damage by vermin, such as moths in a fur coat, or mildew, or wear and tear. It also does not cover mechanical failure, such as over-winding a watch, or a TV or radio breaking down. Although you are able to insure separately against a TV breakdown.

The typical “all risks” policy may not cover damage occurring during, or as a result of riots or war – or any process of repair or renovation.

Some policies also exclude the breaking of glass in a watch or a scientific instrument. Whilst a wall barometer will be covered under most policies, an alarm clock isn’t for the breaking of its glass face.

“All risks” is possibly one of the greatest areas of variation, and it particularly pays to read this section of your policy’s terms and conditions before signing.

If a spark from your incinerator starts a fire which gets out of control and burns down your neighbor’s home, you’re covered under the personal liability section of most policies.

If your car hand-brake does not hold on a steep driveway and the car rolls back into the wrought-iron front gate, the insurance cover only relates to what the car hits. The damage to your car is covered under your motor vehicle’s policy.

Damage to your fence, wall or gate, you are covered virtually against anything falling from the sky. Insurers even regard disintegrating satellites as “aircraft”. Fireballs, meteorites, and other such phenomena are also usually covered.

If someone steals your fence, or a runaway truck flattens it, you’re usually covered. You are covered against theft or damage, but it’s too bad if a “fire-bug” decides to take out his pyromania on your hedge – it’s not covered.

“Storm and tempest”. People commonly believe their householders’ policy covers them for – and it does not. Storm and tempest cover does not include flood, of which is defined as, the violent and temporary escape of a large body of water from the normal confines of any natural or artificial water course such as a river, lake, canal or dam. Insurance companies look upon flood as a separate risk, and require an extra premium to specifically insure against it.

The usual exclusions in a householders’ policy include loss or damage by the sea, tidal waves, or high water. Many policies also exclude damage by rainwater – unless it enters the building through an opening in a wall or roof, caused directly by the storm.

Many policies pay if the rain water damage was caused by your down-pipe or guttering becoming blocked by leaves blown down during a storm. This is because the policy usually includes the overflowing of water tanks, apparatuses or pipes – guttering and down-pipes are normally treated as “water apparatus”.

Storm and tempest includes damage done by wind and wind-driven rain. Damage caused by a landslide due to torrential rain is not covered by many policies. Your gates, fences or retaining walls if blown down or washed away? Excluded!

Not the contents of a home freezer, should the unit itself break down, or should there be a power failure such as a blackout caused by a lightning strike on the local sub-station, or a car knocking down a power pole. However, many companies provide this cover for a few dollars a year more dollars a year.

“Crack trap”,you are shaving and you drop the razor on the ceramic basin it cracks – but not all the way through. Your claim would be rejected. Insurance companies stipulate that a fracture has to go clean through the entire thickness. In other words, it has to be a complete break. This also applies to toilet bowls, baths and fixed glass which are normally part of the furniture. For example, a dressing table mirrors.

Livestock, such as hens, are excluded. Somewhat surprisingly, so is the family dog or cat – even if they have a pedigree. They are technically “livestock” and a special “livestock” policy is required.

If you forget to lock your home when you go out, and you have been robbed, you may find you are not covered. Some policies stipulate that theft has to result from “breaking and entering”. Paradoxically, if you lock the house and then leave the front door key under the mat or in the flower-pot (as many people still do despite warnings from the police), most policies will still cover you. This is because someone who turns the key in the lock is technically regarded as just as much a thief breaking and entering as someone using a jemmy bar on the lock.

Accidental breakages of the glass in a hand mirror or the glass in a radio or TV set are not usually covered.

Light fittings, curtains and carpets are often not included in mortgage insurance policies on buildings only. Check your policy’s terms and conditions – or to remove any doubt, insure both your buildings and contents.

Insurers will not cover damage to goods caused by the normal application of heat such as an iron, blow torch or any other process – but they will cover fire that results from this heat. For example, you’re not covered if you scorch a shirt you’re ironing but if the scorched shirt sets fire to the house, you’re covered.

A burst water pipe; you are not covered for the repairs to the defective part of the pipe – only the exploratory costs to locate the leakage, plus any damage to the ceiling, carpets or wallpaper, Plus the replacement of rest of the pipe. The same situation applies to a leaking pipe from an oil heater

You finally get around to lopping that overhanging tree in your front garden unfortunately a branch falls and crashes through your roof. A claim would be rejected by most insurance companies. Policies generally stipulate that damage from falling trees, or branches,will be covered only if it is from natural causes, such-as wind.

Works of art, curios and other valuable items; generally the cover on each item is limited to only five per cent of the total cover, according to many policies, unless specifically mentioned. It’s important to read your policy to see if its limitations affect any valuable item you have.

A man knocks at your door and offers to clean your windows for a charge. He falls off his ladder and breaks a leg. Are you covered for his medical expenses and loss of earning power during convalescence? No, you need a separate workers’ compensation policy such a policy covers you virtually for an unlimited amount for your liability as an employer. Alternatively, before he commences work, you check with him whether he had taken out a personal accident policy

Your home has been robbed or damaged by fire, storm or tempest – and you haven’t notified the insurance company that you have been away from home for 30 consecutive days for example, on holiday. Your insurance protection will be void under many policies at the discretion of the insurer. (A few policies offer notification time of up to 60 days).

The contents of your home will not be covered by some policies if you rent out your home and do not notify the insurance company in writing.

You rent your home while you are on holiday. You return to find that the tenants have damaged the property, for example, a wild party. By renting, you have automatically cancelled the malicious damage protection of your householder’s policy.

It pays to do due diligence on all Insurance policies, if not you may find it very expensive.

Is the “Never Pay” Insurance Policy Making a Comeback? How to Fight It (Part II)

“In your policy it states quite clearly that no claim that you make will be paid. You unfortunately plucked for our Never-Pay Policy, which if you never claim is very worthwhile – but, uh, you had to claim – and there it is.”

-Mr. Devious to Reverend Morrison about the letter from the insurance company refusing to pay the Reverend’s claim for damage to his car that was hit by a lorry while standing in a garage. Monty Python and the Flying Circus, circa 1971.

In the last article, I focused on the business and societal ills that can result from insurance carriers acting as if they were selling Monty Python’s proverbial “Never Pay” policies. I also mused about a Utopian carrier that would write clear and easily understandable policies, and that would actually pay claims instead of paying claims adjusters to write reservation of rights and denial letters and a legion of lawyers to fly around the country litigating with the insurer’s own customers.

Now, I do not mean to suggest that carriers never pay claims. In many instances, they act responsibly. Unfortunately, it seems that some carriers (or certain claims adjusters) act as if they sold you a Never Pay Policy, and this attitude, at least based on observations from my little part of the legal world, seems to be increasing. Equally unfortunately, our Utopian carrier, at least to my knowledge, does not exist.

This article will begin to explore how the real world works and some tips for navigating the confusing world of insurance. I must, however, begin with this caveat. There is no way to make sure that claims that arise in the future will be covered, and there is no way to assure that your carrier will be reasonable. I am often truly astonished at the positions taken and incredibly creative arguments that insurance adjusters make to try to deny claims. There are some tips that may, however, increase your chances of success. This article will cover some of the basics. The next article will discuss when you probably need to consult with coverage counsel.

1. Find a good broker. Most insurance is bought through brokers or agents. Find an experienced broker, preferably one with experience in writing insurance in your industry. The broker should take the time to meet with you and develop an understanding of your business. The broker should know what you do and how you work in considerable detail. You may have particular risks that raise concerns. These risks should be discussed in detail. A good broker will likely raise other issues that may never have occurred to you. If a broker does not want to take the time to understand your business and review the risks, find another broker.

How do you find a good broker? Ask around. Do some research on the broker. Find out how many people the broker employs. It is probably not necessary to use a giant like Aon or Marsh, but be sure that your broker is well established. It is also helpful if the broker has a little size. Why? If a carrier is balking regarding a claim, a broker can sometimes step in and act as your advocate. It does not always work, but sometimes it helps. If the carrier views the broker as an important source of business, it may be more likely to pay the claim.

It may be helpful if you put in writing to the broker the risks that you want to make sure are covered. This will make sure that the broker has focused on the issues. Ask the broker to review any exclusions to coverage or endorsements that the insurer will require. Endorsements can include additional exclusions. Go over all exclusions and endorsements with the broker, and try to make sure that they do not create a hole in the coverage for potential risks of your business. If the broker makes a mistake and advises you improperly regarding coverage, the broker may be liable to you if the carrier fails to cover a claim.

A necessary implication of using a broker is that you will not be purchasing insurance online. Many carriers, particularly personal lines carriers (home and auto) are selling insurance online in an effort to cut out broker or agency fees and commissions. I would not advise buying business insurance online and would advise you to exercise extreme caution in buying even personal lines insurance online. A good broker is well worth having.

2. Check out the carrier. A broker may propose one carrier or several. Check out any proposed carrier’s financial strength. The broker can usually provide financial strength ratings, such as by A.M. Best, and explain them to you.

Any broker or policyholder’s coverage lawyer knows that some carriers are better about paying claims than others. Ask the broker about this issue. Ask the broker whether the broker would be comfortable relying on this carrier for its own insurance. Do some of your own research. “Google” the carrier online. You will probably begin to get a feel for the carrier’s reputation.

3. Do not buy based solely on price. It is tempting, particularly in the current economic environment, to take the cheapest quote that is offered. If your choice, however, is between buying a cheap policy from a carrier with a bad reputation and buying a somewhat more expensive policy from a carrier that has a good reputation, think very carefully before taking the “bargain.”

It is also worth noting that you should make every effort to make sure that you are comparing “apples to apples.” Make sure that your broker outlines any substantive differences between the cheaper policy and the more expensive policy. The cheaper price may be partially explained by higher deductibles or self-insured retentions (the part of the loss you must pay), lower policy limits, or endorsements that eliminate coverage for particular risks that may be important to your business.

4. Get copies of your policies and keep them with other important papers. I am often asked to evaluate insurance coverage issues. Of course, the first thing I need is a copy of the insurance policy. It amazes me how difficult it is in many instances simply to get a copy of the policy.

It also is clear to me that many business people do not even have a clear understanding of what an insurance policy is. Often, when I ask for a copy of the policy, I am provided with a one page copy of what is known as the “dec page.” This provides almost no help in evaluating coverage, other than determining the policy limits.

Just so the issue is clear, an insurance policy typically consists of three components. First, there is the previously mentioned declarations page, or “dec page.” This is usually one page (sometimes two) and it summarizes the types of coverage and the policy limits. The policy limits establish the maximum amount the carrier will pay. Limits are typically stated as “per occurrence,” meaning the maximum the carrier will pay for one event. Sometimes, the limits are stated to be “per claim” or “per accident,” which will establish the maximum amount the carrier will pay for a single claim or accident. There are also “aggregate” limits. Aggregate limits establish the total maximum amount the carrier will pay in a given period (typically a year) regardless of the number of “occurrences” or “claims.”

Note: There are important differences between “occurrence” based coverage and claims made coverage. These differences are beyond the scope of this article, and should be discussed with the broker. Most general liability coverages are “occurrence” based. Much professional liability coverage (for architects, engineers, attorneys) is written as “claims made” coverage.

The second part of the policy is the “body” or “policy form.” This is the main part of the policy, and includes the insuring agreement (what the policy will cover), exclusions to coverage (types of events that are not covered), conditions to coverage, and definitions. This, in essence, is the insurance contract, and is what a coverage lawyer or insurance professional will need to begin evaluating any coverage question.

The third part of the policy consists of any endorsements. Endorsements are amendments to the policy. Endorsements can be very important and they can substantially alter the rights of the insured. Endorsements can include, for example, additional exclusions to coverage. For example, one now often sees endorsements with “fungus” exclusions. These exclusions were added by many carriers after many claims were reported several years ago for alleged mold-based property damage or bodily injury.

The policy will usually be delivered after it is purchased, sometimes long after it is purchased. The policy should include the declarations, policy form and any endorsements. Typically, it will be stapled together.

It is a good idea to keep a copy of the policy stored away from your place of business. Why? If there is a loss (a fire, for example) at your place of business, the policy will probably be destroyed. Copies can be maintained in a safe deposit box, or a copy could also be stored in an electronic form where it will be remotely backed up.

The important thing is to have ready access to the policy. Yes, your broker should have a copy. Yes, it should be possible to get a copy from the insurer. However, you would be surprised how tedious this process is. If you have a catastrophic claim and need to consult with a coverage attorney, it is vastly preferable to have a copy of the policy readily available.

5. When you get the policy, review it. Take a careful look at the policy. Does it appear to be what you and the broker discussed? Do there appear to be exclusions or endorsements that affect coverage that were not discussed? If so, call your broker and go over these issues immediately.

One of the practical problems with the way insurance is sold in the U.S. is that the policies are not written in a readily understandable way. Unfortunately, even a careful reading of the policy is not likely to identify every possible issue that may arise. However, it does not hurt to go over the policy and to bring any possible issues that jump out to your broker’s attention.

6. Make inventories and take pictures. A big problem that exists for many property claims is documenting the property that was destroyed. It is a good idea to make lists of property (including, if known, the purchase price), and to take photos or videotapes of property. There are many cheap and easy to use video cameras, such as those by Flip video, that will fit in a shirt pocket. Many digital cameras, even ones that are quite inexpensive, now have video capability. Lists and videos can help eliminate disputes in the event of a claim. Electronic copies of lists and videos should be stored remotely or so they are backed up remotely.

7. If there is an event that may lead to a claim, take pictures. If there is an unusual event that may lead to a claim – such as, for example, a large hail storm – take pictures of the event. Take photographs of the hail or the weather event. If you have a video camera, take video.

It is unfortunate, but some insurance claim adjusters will try to deny that a weather event was substantial enough to cause damage. They may argue that generalized weather information, or even damage to surrounding buildings, is not enough. Although I do not think that many courts would agree with this approach, having photos or a video can end the debate.

Note that some policies require that particular types of property be separately scheduled. This can be true for personal and business lines of insurance. Ask your broker whether this should apply to you, particularly if you have unique and highly valuable property (jewelry, artwork, unique business machinery, etc.).

Conclusion. If you follow these basic steps, you will be more ready to deal with a claim than the average insured. In the next article, I will get into some of the details that may arise if there is a claim and if you need to consult with an insurance coverage attorney.

Types Of Life Insurance Policies – Which Is Right For You?

Term Life by definition is a life insurance policy which provides a stated benefit upon the holder’s death, provided that the death occurs within a certain specified time period. However, the policy does not provide any returns beyond the stated benefit, unlike an insurance policy which allows investors to share in returns from the insurance company’s investment portfolio.

Annually renewable term life.

Historically, a term life rate increased each year as the risk of death became greater. While unpopular, this type of life policy is still available and is commonly referred to as annually renewable term life (ART).

Guaranteed level term life.

Many companies now also offer level term life. This type of insurance policy has premiums that are designed to remain level for a period of 5, 10, 15, 20, 25 or even 30 years. Level term life policies have become extremely popular because they are very inexpensive and can provide relatively long term coverage. But, be careful! Most level term life insurance policies contain a guarantee of level premiums. However some policies don’t provide such guarantees. Without a guarantee, the insurance company can surprise you by raising your life insurance rate, even during the time in which you expected your premiums to remain level. Needless to say, it is important to make sure that you understand the terms of any life insurance policy you are considering.
Return of premium term life insurance

Return of premium term insurance (ROP) is a relatively new type of insurance policy that offers a guaranteed refund of the life insurance premiums at the end of the term period assuming the insured is still living. This type of term life insurance policy is a bit more expensive than regular term life insurance, but the premiums are designed to remain level. These returns of premium term life insurance policies are available in 15, 20, or 30-year term versions. Consumer interest in these plans has continued to grow each year, as they are often significantly less expensive than permanent types of life insurance, yet, like many permanent plans, they still may offer cash surrender values if the insured doesn’t die.

Types of Permanent Life Insurance Policies

A permanent life insurance policy by definition is a policy that provides life insurance coverage throughout the insured’s lifetime ñ the policy never ends as long as the premiums are paid. In addition, a permanent life insurance policy provides a savings element that builds cash value.
Universal Life

Life insurance which combines the low-cost protection of term life with a savings component that is invested in a tax-deferred account, the cash value of which may be available for a loan to the policyholder. Universal life was created to provide more flexibility than whole life by allowing the holder to shift money between the insurance and savings components of the policy. Additionally, the inner workings of the investment process are openly displayed to the holder, whereas details of whole life investments tend to be quite scarce. Premiums, which are variable, are broken down by the insurance company into insurance and savings. Therefore, the holder can adjust the proportions of the policy based on external conditions. If the savings are earning a poor return, they can be used to pay the premiums instead of injecting more money. If the holder remains insurable, more of the premium can be applied to insurance, increasing the death benefit. Unlike with whole life, the cash value investments grow at a variable rate that is adjusted monthly. There is usually a minimum rate of return. These changes to the interest scheme allow the holder to take advantage of rising interest rates. The danger is that falling interest rates may cause premiums to increase and even cause the policy to lapse if interest can no longer pay a portion of the insurance costs.

To age 100 level guaranteed life insurance

This type of life policy offers a guaranteed level premium to age 100, along with a guaranteed level death benefit to age 100. Most often, this is accomplished within a Universal Life policy, with the addition of a feature commonly known as a “no-lapse rider”. Some, but not all, of these plans also include an “extension of maturity” feature, which provides that if the insured lives to age 100, having paid the “no-lapse” premiums each year, the full face amount of coverage will continue on a guaranteed basis at no charge thereafter.

Survivorship or 2nd-to-die life insurance

A survivorship life policy, also called 2nd-to-die life, is a type of coverage that is generally offered either as universal or whole life and pays a death benefit at the later death of two insured individuals, usually a husband and wife. It has become extremely popular with wealthy individuals since the mid-1980’s as a method of discounting their inevitable future estate tax liabilities which can, in effect, confiscate an amount to over half of a family’s entire net worth!

Congress instituted an unlimited marital deduction in 1981. As a result, most individuals arrange their affairs in a manner such that they delay the payment of any estate taxes until the second insured’s death. A “2nd-to-die” life policy allows the insurance company to delay the payment of the death benefit until the second insured’s death, thereby creating the necessary dollars to pay the taxes exactly when they are needed! This coverage is widely used because it is generally much less expensive than individual permanent life coverage on either spouse.

Variable Universal Life

A form of whole life which combines some features of universal life, such as premium and death benefit flexibility, with some features of variable life, such as more investment choices. Variable universal life adds to the flexibility of universal life by allowing the holder to choose among investment vehicles for the savings portion of the account. The differences between this arrangement and investing individually are the tax advantages and fees that accompany the insurance policy.

Whole Life

Insurance which provides coverage for an individual’s whole life, rather than a specified term. A savings component, called cash value or loan value, builds over time and can be used for wealth accumulation. Whole life is the most basic form of cash value insurance. The insurance company essentially makes all of the decisions regarding the policy. Regular premiums both pay insurance costs and cause equity to accrue in a savings account. A fixed death benefit is paid to the beneficiary along with the balance of the savings account. Premiums are fixed throughout the life of the policy even though the breakdown between insurance and savings swings toward the insurance over time. Management fees also eat up a portion of the premiums. The insurance company will invest money primarily in fixed-income securities, meaning that the savings investment will be subject to interest rate and inflation risk.