Figuring out what to insure your home for can pose a challenge, especially when market values, taxable values, and construction costs all seem to differ. We’ve provided answers to some of your commonly received questions below:
What is my home worth? Market value versus reconstruction costs.
Many homeowners equate the “worth” of a home to its market value, especially if the home was a recent purchase. While market value is a valid calculation of a home’s worth for buying and selling, it has little to do with the cost of rebuilding. The estimate you are providing is the amount to reconstruct the home at today’s costs.
Why is reconstruction cost more expensive than new construction?
Rebuilding a home includes many factors and expenses not considered in new construction.
It’s after the wind blows or the fire burns. The insured is sifting through the rubble of what used to be his commercial building, looking for any savable scraps of what used to be.
The good news is that the loss is covered and the insured will be getting a check for the cost to replace the building. The better news is that the policy limit was adequate and the insured will not suffer the consequence of coinsurance. But it’s not over.
The insured discovers that, due to increased demand resulting from widespread damage, hiring a contractor to remove the debris will be more expensive than anticipated. But that shouldn’t be a problem because the policy limit is adequate…right?
Most commercial property policies will cover the cost to remove debris resulting from a covered cause of loss. However, coverage may be limited or excluded depending on a few important factors addressed in the policy.
Factor #1 – How much is enough?
First, consider that it is not cheap to remove certain types of debris. For example, removing debris of an old frame building may be less labor-intensive than debris of a building with substantial masonry or steel. Removing such items will likely require the use of a contractor and heavy equipment. Also consider that high demand brought on by widespread damage will likely increase the contractor’s fee for service.
Second, consider how the policy calculates coverage to remove debris. Most policies say that the insured will have access to a stated amount—typically $10,000—plus the lesser of:
For example, consider a loss to a building valued at $1 million. If the loss amount is $100,000 and the deductible is $5,000, coverage would be determined as follows:
In this claim, the insured has access to $25,000 plus the stated amount of $10,000 to clean up the mess.
Now consider the same building, only this time it is a much greater loss of $900,000. Coverage would be determined as follows:
In this claim, the insured has access to $105,000 plus the stated amount of $10,000 to clean up the mess. In the event of a total loss, it’s likely the policy won’t pay more than the stated amount of $10,000. The purpose of these examples is to show that the more severe the loss, the less money the policy includes for cleanup.
Factor #2 – What is ‘covered property?
Most commercial property policies will pay only the cost to remove debris of “covered property.” This definition includes items specifically listed as such in the policy. The policy also lists items that are defined as “property not covered.” Items meeting this definition may also require cleanup, and the cost associated will not be paid by the insurance company. Examples of these items include pieces of the parking lot, building foundation, landscaping, and items that end up on your property from somewhere else.
Factor #3 – Pollutants
If a building is damaged and the site must be cleared, items defined in the policy as “pollutants” may require special care. For example, consider a print shop that catches fire, releasing highly toxic inks and dyes into the ground. Local engineers may require you to extract those pollutants from the site. If so, the cost may be substantial and is typically not covered by a commercial property policy or is limited to a specified dollar amount that may not be enough, such as $10,000.
What’s the Solution?
The best solution to this potentially large gap in coverage is to call Jon Jepsen at SentryWest Insurance (your Trusted Choice® insurance professional). We can help you amend your existing policy to offer more coverage for the cost to clean up debris. We can also help you minimize your exposure by amending the policy to cover items that are currently excluded, such as those examples listed above. Further, we can help you understand the meaning of “pollutants” in your policy and determine if your property contains items that may require special care to remove.
You have a computer. So who doesn’t? According to the latest reports, the vast majority of Americans have at lest one personal computer at home. And many count themselves among the “multi-wired” households, with one or more PCs, handlhelds (such as Palms or Pocket PCs), set-top boxes, Internet access, and a fast-growing minority have enough equipment to have installed home networks to tie everything together. Add in a few beepers and cell phones and we are talking significant value!
With this much money tied up in such items, can you count on your homeowners insurance to step in if you suffer a loss?
Looking at a standard policy, the answer is affected by several factors.
Perhaps the major question is how much do you use these devices for business purposes? A typical homeowners policy limits coverage to $2,500 total for items used primarily for business purposes. Note the key word is “primarily.”
Doing your taxes or bringing home some work is not enough to make your PC subject to the business property limit. But for the many people that have set up a home-based office, either for regular telecommuting or for an in-home business, the $2,500 limit will kick in. And also note the limit applies to ALL such property. Include your filing cabinets, office furniture, printer, fax machine, bookshelves or whatever else makes up your business at home and the $2,500 limit is usually met rather easily.
But here’s the REAL kicker – if you use that business notebook (or “laptop”) computer while away from your home, the business property limit drops to $1,500 (if you have a car accessory to power the device). That limit also includes any accessories to be used with the computer, such as a portable printer, projector, external drive or zip disks.
A second consideration is what causes of damage are covered?
In a standard policy, first see what specific covered causes (known as “perils”) are listed. Simple breakage is not included. Anyone who has ever accidentally dropped their laptop knows that sinking feeling of wondering if they have seen the last spark of life from their trusted companion. It’s the one time many folks actually look forward to seeing the Windows logo appear on start-up!
Another possibility not typically covered is power surges or spikes. If one of these occurs and fries your computer’s circuits, there will be no payment for the damage under your policy.
So how CAN you be sure to get the best coverage for your computer? First, talk to me, your local Trusted Choice® insurance professional, about what options are available under your current coverage to tailor it to best fit your particular equipment and needs. The answers are different depending upon whether business is involved or if all of your computing power is for personal use and entertainment. Standard endorsements to your policy are available to raise the internal limits (such as the $2,500 and $1,500), and/or broaden the perils provided by the policy (either for all your property or just the computer and accessories).
Also don’t overlook the good habits of computer usage that have nothing to do with your insurance, but might either prevent the loss or make it less painful.
For more ideas, read through the documents that came with your computer, log onto the manufacturer’s Web site, and check with many of the other help sites pertaining to computers or your type of business. And don’t forget to Jon Jepsen, your Trusted Choice® insurance professional. While I have expertise in helping you arrange coverage for your potential claims, you might be surprised how much I know about preventing them!
After all, the best possible claim is the one that never happens!
Jon Jepsen, CIC