Personal Insurance Is Yours Adequate?
By Jeffrey W. Cavignac, CPCU, ARM, RPLU, CRIS © 2008 Cavignac & Associates—All Rights Reserved
When was the last time you reviewed your personal insurance program? If you are like most of us, your response might be:
- “I’ve never reviewed the coverage, I just pay the premiums,” OR,
- “I don’t worry about it, my agent checks it.”
Unfortunately, it is up to you to make certain your coverage is appropriate. Your broker can and should assist you, but ultimately you need to decide what coverages you want and what limits you need. It is estimated that over half the homes in our country are underinsured by 20% or more. Many people also carry inadequate personal liability limits.
The purpose of this article is to provide you with a format to review your personal insurance program. It is not exhaustive, but it does cover the basics. I will focus on the homeowners policy (property and liability), the personal auto policy, and the personal umbrella policy. I will not touch on personal watercraft, aircraft, or motorcycles, nor will I discuss life insurance, health insurance, or disability.
When you go through the checklist, I suggest you pull out your current insurance policies. If you can’t find them, ask your broker for a copy. It’s a good idea to make an extra copy and store it elsewhere, preferably off-site.
Is it any wonder people don’t read their insurance policies? I’m somewhat of an insurance geek, and I recently reviewed my homeowners policy. The policy itself was 28 pages long, and there were 23 pages of endorsements, not to mention 15 pages of explanatory documentation! You probably won’t read your policy in its entirety, but here are the questions you need to answer.
1. Coverage A – Dwelling
Is my home adequately insured?
If your home is destroyed your insurance company will pay the cost to replace the dwelling up to the limit insured. What is your home insured for? Could you rebuild it for that amount?
Builders’ costs have escalated dramatically in the last five years. Although real estate values have decreased, replacement costs have soared! Even the most basic home in Southern California could not be rebuilt for much less than $175 per square foot, and the cost to rebuild nicer homes with higher quality building materials can run $400 to $500 per square foot or more.
If you are uncertain about the cost to rebuild your home, consider getting a replacement cost appraisal.
Most custom home builders can provide this for you, and some better personal lines insurance companies offer this service as well.
You should also consider the “Guaranteed Replacement Cost” option that some insurance companies offer. There are various forms for these types of endorsements, but basically you and the insurance company agree on an “insured value.” In the event of a loss, the insurance company will repair or replace your home regardless of the policy limits.
Do I need to add Earthquake and Flood insurance?
A standard homeowners policy excludes earthquake and flood coverage. Earthquake can usually be added to your homeowners policy for an additional premium. Flood coverage can be purchased from the National Flood Insurance Program (NFIP).
What are my deductibles?
Most property policies have a deductible. Usually this is $500 to $1,000. If the premium savings are significant, you may want to consider a higher deductible.
2. Coverage B – Other Structures
Do I have structures other than my home on my premises? If so, are they adequately insured?
Most homeowners policies include 10% of the dwelling amount to cover “other structures on the residence premises set apart from the dwelling by clear space.” This set limit is in addition to your dwelling coverage. If you have a large garage, guest house, or pool house, this limit may not be enough, and it should be evaluated.
3. Coverage C – Personal Property
Are the limits on my personal property adequate?
Most homeowners policies automatically extend 50-70% of the Coverage A (Dwelling) limit to cover “personal property owned or used by an ‘insured’ while it is anywhere in the world.” This limit is usually adequate, but it should be eyeballed nonetheless. Remember this is replacement cost. When you start adding up everything you own – furnishings, clothing, flatware, glassware, etc. – the value escalates quickly.
Do I have an inventory or videotape, stored off premises or in a fire-proof safe, of the personal property I have insured?
It would be almost impossible to remember everything that was in your home after it was destroyed. Have you created a personal property inventory or considered videotaping the contents of your home?
4. Property with Limited Coverage
Do I have property that is worth more than the sub-limits provided in my policy?
Certain types of property have sub-limits within the policy. (See the sidebar for a listing of what is typically restricted. Note that every policy is different, so y ou should check y o ur policy specifically.)
If you have property that is worth more than the sub-limits provided in your policy, it should be specifically scheduled. This will probably require an appraisal to establish the insured value.
Special Types of Coverages
Coverage Typical Sub-Limit
- Money, Bank Notes, etc. $ 200
- Securities, Deeds, Evidences of Debt, etc. 1,500
- Watercraft (including their trailers) 1,500
- Other Trailers 1,500
- Jewelry, Watches, Furs (Theft) 1,500
- Firearms 2,500
- Silverware, Gold ware, etc. 2,500
- Business Property 2,500
- Trees, Shrubs (limited perils) 5% of Coverage A
5. Coverage D – Loss of Use
Does my policy provide adequate time to rebuild my home?
In the event your home is damaged or destroyed and you must move out while it is being repaired or rebuilt, your homeowners policy will cover “any necessary increase in living expenses incurred by you so that your household can maintain its normal living standard.”
Typically this coverage is provided on an “Actual Loss Sustained” basis. In other words, it covers whatever the additional costs might be. Unfortunately, this is typically limited to 12 months in the event your home is destroyed, and if you have to rebuild from scratch, 12 months will not be enough. It could take 6-9 months just to design your home and get permits. The actual construction can take an additional 9-18 months.
Make sure your policy provides at least 24 months of coverage.
6. Coverage E – Personal Liability
Could I be held responsible for any of the following situations?
- A neighborhood kid chasing a ball slips on your grass and breaks his arm
- A guest leaving your home after one too many gets involved in an accident
- Your Doberman takes a bite out of a passerby
- Your teenager hosts a part when you are gone, and a party crasher beats up a guest
Personal Insurance Checklist
Is my home adequately insured?
Have I considered the “Guaranteed Replacement Cost” options offered by my insurance company?
Should I consider Earthquake or Flood coverage?
Are my property deductibles appropriate?
Do I have “Other Structures” on my premises? Is the limit adequate?
Is the limit for Personal Property adequate?
Do I have any Property (fine arts, jewelry, etc) that requires separate coverage?
Is my “Additional Living Expense” coverage written on an actual loss sustained basis?
If not, is the “Additional Living Expense” limit adequate?
If the “Additional Living Expense” is written on an “Actual Loss Sustained basis, is the time frame over which the coverage applies long enough?
Are my Personal Liability limits adequate? (see Personal Umbrella)
Do I own property such as watercraft or motorcycles that require separate liability coverage?
Do I need Workers Compensation coverage?
Are my Automobile Liability limits adequate? (see Personal Umbrella)
Are my Uninsured Motorists limits equal to my Auto Liability limits?
Are my Physical Damage deductibles appropriate?
Have I considered deleting Physical Damage coverage on my older vehicles?
Do I have a Personal Umbrella? Are the limits adequate?
Do I have a proactive, service-oriented insurance broker who helps me make sure I have appropriate coverage with the right insurance company at a fair price?
The answer is yes – you could be held responsible in any of these situations. Personal liability will pay for the cost of defense (in addition to the policy limit) and pay any judgments or settlements. Note that personal liability only covers your negligence that results in bodily injury or property damage. It also specifically excludes such things as:
- Motor Vehicle Liability
- Expected or Intended Injury
- Business Liability
- Professional Liability
Most homeowners policies typically provide $100,000 to $500,000 of personal liability coverage.
This is not enough! See the Personal Umbrella section.
Do I have residence employees that either live with me or work for me on a regular basis?
If you do, you should add workers compensation coverage to your homeowners policy.
7. Coverage F – Medical Payments
Are my medical payments limits adequate?
A modest amount of coverage ($2,000 is common) is included on most homeowners policies for what is called “Medical Payments” coverage. Note that this is a “no-fault” type of coverage. If someone is injured on your premises, you can spend up to the policy limit for their medical costs. If someone makes a claim against you or brings a lawsuit, coverage would fall under Coverage E – Personal Liability, and be subject to those limits.
Personal Automobile Insurance
Your personal automobile policy covers you for your legal liability arising out of the use of a covered automobile as well as damage to a covered auto (assuming you purchased comprehensive and collision coverage). If you own a car, legally you must carry auto liability coverage.
1. Part A – Liability Coverage
Are my auto liability limits adequate?
The State of California requires that every registered vehicle in California carry liability limits of at least $15,000 for injury to any one person, $30,000 if more than one person is injured, and $5,000 for property damage (this is known as 15/30/5). These limits are grossly inadequate.
Have you checked your auto liability limits? Make sure they are at least $500,000 and preferably higher (see the Personal Umbrella section).
Most personal auto policies (PAP) will also cover you for your liability arising out of the use of rental cars. In other words, you don’t have to buy the additional liability coverage offered by the rental car company. The PAP will also cover insured drivers if they operate someone else’s car, although the insurance on the other car will be primary.
2. Part B – Medical Payments
Do I have medical payments coverage? What is the limit?
A modest amount of coverage (typically $5,000) is provided for those situations in which you may or may not be at fault, but you choose to pay another’s medical bills if they are injured in your automobile. Note that, unlike the homeowners policy, this also applies to you and other family members.
3. Part C – Uninsured Motorists Coverage
Do I have uninsured and underinsured motorists coverage? What is the limit?
Uninsured (and underinsured) motorist coverage protects you if you or someone in your car is injured by an uninsured (or underinsured) motorist. Let’s say for example that you have $500,000 of uninsured motorists coverage. You are injured by a car insured to the minimum limits in California ($15,000 any one person as mentioned above). Your medical bills are $100,000. The insurance policy for underinsured motorist who hit you would pay its policy limit of $15,000. Your uninsured motorists coverage would pay the balance of $85,000. In many cases uninsured motorists coverage is written with minimal limits ($60,000 is common). Your uninsured motorists limit should be the same as your Liability (Part A) limit.
4. Part D – Coverage Damage to Your Auto
Do I have coverage for damage to my vehicle? What is the limit?
You have the option of insuring your automobile for physical damage, although if your vehicle is leased or financed this will probably be required. There are two types of coverage offered.
- Collision coverage applies when you run into someone or something, or if someone runs into you.
- Comprehensive, also known as “other than collision” damage, covers just about everything else.
Note: If you have Comprehensive and Collision Coverage, it will generally extend to any passenger vehicle or light truck that you rent (make sure you verify this with your broker). Regardless, there are reasons you may still elect to purchase the rental car company’s “over-priced damage waiver.” (See our June 2007 Commercial Insurance Update newsletter.)
- Have you considered deleting comprehensive and collision coverage on your older vehicles?
- Have you evaluated your deductibles?
- Do you know how your physical damage coverage applies if you rent a car?
5. Other Personal Auto Coverages
In addition to the core coverages listed above, most personal auto polices also cover:
- Towing and Labor – This is typically a modest amount of coverage ($50 is common) for the cost to tow your vehicle if it is disabled. Note that if the comprehensive or collision coverage is triggered, the total cost to tow the vehicle would be covered. This is not a substitute for AAA-type towing coverage.
- Rental Reimbursement – This provides coverage for the cost to rent a substitute vehicle while yours is being repaired because it was damaged by a covered loss. The limit is typically $15 a day for up to 30 days ($450 total). You can purchase higher limits if you like.
A personal umbrella policy is also known as an excess liability policy. It provides additional limits of liability coverage over and above your primary liability policies. Typically these primary policies include your Personal Liability (included in your homeowners policy), Auto Liability, and any other underlying liability policies (such a Watercraft policy, for example).
Just about everyone should have a personal umbrella policy. Simply put, the limits offered by primary policies (typically no higher than $500,000) are not enough in today’s litigious society.
If someone is seriously injured at your home, or if you cause an auto accident with major injuries or fatalities, your liability exposure can run well into seven figures.
The positive news is that excess coverage is relatively inexpensive. For a typical household with a home and two cars, the first million dollars of umbrella coverage costs as little as $200 to $300 per year.
There is no formula to tell you what limit of coverage you should have, but the factors you should consider would be your income, net worth, whether or not you have young drivers, and your comfort level.
Realize as well that each additional million dollars of coverage is less expensive than the prior million dollars of coverage
You may own property that is not covered under your Homeowners or Auto policies. This may require separate insurance and might include:
Coverage for these exposures may be available thru your standard homeowners program or a specialty program. Regardless, you should attempt to schedule these policies under your umbrella policy.
Your personal insurance program is critical to your family’s protection and well-being.
You don’t need to become a personal lines insurance expert, but you should understand your coverage so you can make certain you are appropriately insured. I encourage you to complete the “Personal Insurance Checklist” included within this article.
Don’t underestimate the value of a specialist personal insurance broker (Cavignac & Associates doesn’t offer personal lines coverages). The right broker can work with you to make certain you have appropriate insurance with the right company at the lowest realistic cost. ±
Disclaimer: This article is written from an insurance perspective and is meant to be used for informational purposes only. It is not the intent of this article to provide legal advice, or advice for any specific fact, situation or circumstance. Contact legal counsel for specific advice.
Over Half of U.S. Homes Are Underinsured
Despite rising construction costs, Marshall and Swift/Boeckh reported that 58% of U.S. homes are underinsured by an average of 21%.
— Marshall Swift/Boeckh (September 2006)
Reconstruction Costs Include More than Just the Building Being Replaced
The replacement cost for rebuilding a home that suffers a major loss must include the builder’s profit and overhead, which averages 10-20% of the building costs or more for larger, more ornate homes.
An architect’s fee averages 10-15% for new construction or additions and renovations, which must also be considered. Decorating and designer fees might be as much as 20% of the total cost of construction, since custom interior designs have to be replicated.
Extra fees may be included for rebuilding in urban areas or in exotic locations. With reconstruction, there is also a need to work with and match existing materials. Details of construction may also require special skills, which lead to increased costs.
— Chubb Group of Insurance Companies
(Form 02-01-0338 [Rev. 1/07])
- Coverage A – Dwelling
- Coverage B – Other Structures
- Coverage C – Personal Property
-Coverage D – Loss of Use
- Coverage E – Personal Liability
- Coverage F – Medical Payments
2008 FOCUS Seminars Cavignac & Associates’ FOCUS Room
Bank of America Plaza 450 B Street, 18th Floor, San Diego, CA
- Risk Management for Design Professionals
Wednesday, June 18, 2008 — 9:00 AM – 11:00 AM
-Sexual Harassment Prevention Training Satisfies requirements for AB1825 Training
Friday, June 20, 2008 — 9:00 AM – 11:00 AM
All training sessions available to our clients Reserve early — seating is limited!
For more information about upcoming seminars:
- Visit our Web site at http://www.cavignac.com/home.html
- Contact Darcee Nichols at firstname.lastname@example.org or 619-744-0596
Community Bulletin Board
“Neighbors helping neighbors in San Diego”
Meow Madness Adoption Event
Date: Entire Month of June
With kitten season officially in full swing, the San Diego Humane Society and SPCA is launching a month-long initiative to help combat the rising number of cats in the shelter’s care.
The San Diego Humane Society hopes to find homes for 200 cats during the month of June! The “Meow Madness” Adoption Event features special adoption incentives including gift baskets, new lower adoption fees, and waived fees for “buddy” adoptions.
The standard cat adoption fees of $100 for adult cats and $150 for kittens have been lowered to $75 for adult cats and $125 for kittens. Special “Buddy Adoption” incentives will be effective through June 30th. First-time adopters who adopt one cat can adopt a second cat with the “Buddy Adoption” fee waived.
Adopters who took home a cat from the San Diego Humane Society at any time during the past year also qualify for the waived fee.
Visit the Meow Madness Celebration page at www.sdhumane.org for updated information.
Animal Adventure Camp
Ages: 5 to 13
Time: 9 a.m. to 3 p.m., M-F
Optional extended care available
The Animal Adventure Camp offers games, crafts and hands-on animal activities that help children develop respect and a positive attitude toward all living beings. Five week-long sessions begin June 30th-July 3rd and end August
Visit www.sdhumane.org for Animal Adventure
Camp applications and additional information. ±
Monarch School Student Story: Meet Makayla
Makayla was 11 years old when her family moved into a homeless shelter in downtown San Diego.Not long after, Makayla enrolled at Monarch School, where she began to turn her life around thanks largely to the after-school and academic-readiness programs.
Always energetic, Makayla quickly got involved in the dance program and Monarch’s steel drum band. She also signed up for piano lessons and an art program through a local museum.
Brimming with new-found confidence, Makayla was soon singing the national anthem at Qualcomm Stadium, winning prizes at local dance competitions, and singing at school graduations. She even got a job as a teen art docent at the San Diego Museum of Art. In addition to her after-school activities, Makayla excelled academically and assumed a strong leadership role at Monarch.
Since graduating from Monarch last spring, Makayla has continued to follow her passion for the arts. She has served as a teacher’s assistant for Monarch’s steel band program, coaching young children who started just where she did. She is also attending San Diego City College and, with scholarships already in hand, plans to continue her education and ultimately pursue a career in the performing arts.
Makayla’s story is a wonderful example of a life transformed by Monarch School. Monarch’s programs, funded with generous community support, enhance resiliency and teach vital life skills to Monarch’s teenage students. Like Makayla, many other students have experienced significant life changes thanks to Monarch. ±
To learn more about Monarch School and how you can help, visit www.monarchschools.org, or contact Stacy Marshall, Development Associate, at email@example.com or 619-685-8242, Extension 226.
Community Bulletin Board ‘Neighbors helping neighbors in San Diego’
Why Senior Community Centers?
Low-income senior citizens with limited resources often have no voice when it comes to legislation that will improve their stan- dard of living. Many suffer from malnutrition because they can’t afford nutritious food. Others are disabled and confined to their homes, making shopping difficult. Still others face mounting medical bills that eat up their entire monthly income. And some, because of poverty and other issues including mental illness, are homeless and unable to find a way out of the cycle of despair and hopelessness on their own.
Senior Community Centers concentrates its advocacy efforts in each of these areas with a goal to increase the availability of affordable and supportive housing options, maintain federal and state funding for senior nutrition programs, and improve medical and mental health service delivery systems at a reasonable cost for this rapidly growing population.
As catalysts for change, Senior Community Centers is confident that these increased advocacy efforts will raise the awareness of critical issues among legisla- tors, service providers and the general public thereby leading to increased funding for programs which ensure that a greater number of seniors receive quality, uniformly-defined supportive services.
Mission: To provide quality and compassionate services for the survival, health and independence of seniors living in poverty.
Vision: To create an environment where seniors, living in poverty, are respected and live free of fear with pride and dignity.
Values: Senior Community Centers believe in:
• Helping at-risk seniors remain healthy and independent
• Serving as an advocate and “voice” for seniors living in poverty
• Treating our seniors with respect and dignity at all times
• Offering high-quality services that exceed our seniors’ expectations
• Expanding our efforts through aggressive outreach to seniors in need
• Being proactive, growth-oriented and a catalyst for leveraging community resources
• Exceeding our donor’s expectations by thanking and recognizing them for their gifts
• Being a leader among non-profit organizations
• Being fiscally sound
To find out more about Senior Community Centers’
programs, advocacy, and how you can help, visit