Posts Tagged ‘property’

Know your Rights: Unfair Claims Practices

Monday, June 24th, 2013

The idea behind insurance is pretty simple. In exchange for paying premiums, an insurance customer is granted protection from certain risks by an insurance provider.

However, an insurance provider exists first and foremost to earn a profit and stay in business. While there is certainly nothing wrong with this mindset, some unscrupulous insurers go too far in their quest to earn money by outright denying or making it unreasonably difficult for their customers when they are affected by perils.

Typically, when an insured is hit with a peril (hail damage to a roof, an unexpected illness, etc.), he submits a claim to his insurer. The insurer examines the claim to make sure it is legitimate; if it is, the claim is approved and the insurers provides monetary benefits to the insured in order to pay for the relevant damage. However, the aforementioned unscrupulous insurers can sometimes interrupt this process by making claim submission unreasonably difficult.

While every state has its own specific list of what constitutes unfair claims practices, the following claims-related actions are generally prohibited everywhere:

Misrepresenting coverage terms – for example, a producer telling a customer that her health insurance policy covers a particular illness, when it in fact does not. Altering an application for insurance to make it appear that a particular claim is not covered by the policy is also considered a misrepresentation of coverage terms, and is also illegal.

Failing to take prompt action after a claim is filed – this pertains to recording, investigating, or settling the claim. For example, an insurer who takes an unreasonably long time to investigate a claim, in hopes that the insured will give up on the process, is acting unethically. Requiring an insured to fill out unnecessary paperwork or perform other excessive requirements is also considered an unfair delay in the claims process.

Refusing to pay a claim without taking all reasonable measures to investigate the relevant

circumstances – for example, an insurer who denies an auto insurance claim following an accident without reviewing police reports or witness statements has committed an unfair claims practice.

Intentionally offering a low settlement amount – some insurers offer artificially low claim settlements in hopes that the insured will not notice, or will take it over pursuing costly and time-consuming litigation. This too is unethical.

Paying a claim without informing the insured which coverage applies – insurance policies often carry certain benefit limits for the various coverages they provide; for example, an auto insurance policy usually offers separate coverages and limits for property damage and bodily injuries caused during an accident. An insured has the right to know which coverage applies to a specific claim so he can remain aware of the relevant policy limits.

Discouraging an insured from appealing an arbitration ruling – when a claim dispute arises between an insurer and insured, an insurance policy provides for an arbitration process to determine a final judgment regarding a claim. Insurers who discourage customers from appealing an arbitration ruling are acting unethically, as an insured has every right to do so.

Failing to settle simultaneous claims promptly – some insurers attempt to influence the settlement of one claim by withholding another. For example, an insurer cannot withhold policy benefits for a collision claim under an auto policy in order to bully a policyholder into accepting a lower settlement for a claim which applies to a separate coverage, such as bodily injuries.

Failing to provide a clear and reasonable explanation for a claim denial – if an insurer elects not to pay a claim, it must provide a detailed reasoning for the claim denial. Simply denying a claim and offering no explanation is considered an unfair claims practice.

Each state determines its own penalties for insurers who commit these unfair claims practices. To find out more about how these situations are handled in a particular state, contact your local insurance department.

Find out How to Get Your Insurance License here.

About The Author: Nathan Rothwell serves as the lead instructor and subject matter for Insurance License Express, a division of Express Schools, LLC. Since 1996, Express Schools has offered online insurance licensing courses and online real estate courses, as well as online real estate exam prep and insurance license exam prep.

Hazards, Perils, and Losses

Monday, June 10th, 2013

In the world of insurance, the terms hazard and peril are often used interchangeably when describing the various risks faced by insureds and insurers. However, while these ideas are interconnected, both terms have specific applications and can be further broken down into various subcategories.

HAZARDS
First, a hazard describes anything that increases the potential of a loss (an unintended, unforeseen event that causes injury to an insured or damage to property).
For insurance purposes, hazards are classified as one of four types:
• Physical hazards
• Legal hazards
• Moral hazards
• Morale hazards

A physical hazard increases the likelihood of a loss occurring due to inadequacies in the condition, structure, or operation of an insured or insured property. For example, a roof covered with heavy snow might be considered a physical hazard when it comes to homeowner’s insurance, while a health insurance policy might consider an insured’s heart condition to be a physical hazard.

A legal hazard, meanwhile, increases the likelihood and severity of a loss due to a condition imposed by the legal process that forces an insurer to cover a risk that it would otherwise deem uninsurable. For example, the American legal system motivates many people to bring litigation suits in order to realize the potential lucrative profits in doing so. Anything that might prompt a lawsuit involving an insurer can be considered a legal hazard.

A moral hazard, as the name might suggest, results from fraudulent acts committed by an insured. Examples of moral hazards include filing false insurance claims, or misrepresenting oneself on a life insurance application in order to obtain coverage or more favorable coverage terms.

Not to be confused with moral hazards, a morale hazard results from a lack of reasonable care put forth by an insured. For example, consider an insured whose wallet is stolen from his car because the doors were left unlocked. This would be considered a morale hazard, as the insured did not take the necessary care to prevent his valuables from being stolen.

The difference between a moral hazard and a morale hazard is based on intent. A moral hazard arises out an individual’s deliberate intent to deceive. A morale hazard, on the other hand, results from unintentional carelessness or laziness.

PERILS
When used in the insurance industry, the term peril applies only to property insurance. While perils and hazards sound similar, a peril actually results from a hazard. A hazard merely increases the likelihood of a loss, while a peril is the specific event that causes a loss.

For example:
• A roof covered with snow could be considered a physical hazard. If the amount of snow is so great that the roof ultimately collapses, then the snow is considered a peril.
• A fire breaks out in an office building, which causes the sprinkler system to activate and cause considerable water damage. Even though the fire caused the problem, the water damage itself is considered the peril.
• A burglar breaks into a restaurant safe and steals a great deal of money. The act of theft is considered the peril in this case.

Property insurance often covers many different types of perils. However, certain perils (such as floods or earthquakes) are often excluded from coverage due to the catastrophic amount of havoc they can wreak.

Those who wish to know more about common perils covered (or excluded) under a property insurance policy should contact a property insurer or their local insurance department.

Find out How to Get Your Insurance License here.

About The Author: Nathan Rothwell serves as the lead instructor and subject matter for Insurance License Express, a division of Express Schools, LLC. Since 1996, Express Schools has offered online insurance licensing courses and online real estate courses, as well as online real estate exam prep and insurance license exam prep.

Insurance Defined: Customized Coverage for any Age

Friday, April 12th, 2013

When was the last time you thought about your walls? What are they made out of? What’s inside them? It’s not something that comes up very often, but for some homeowners it can make a big difference in insurance coverage and cost.

There is a big difference in insurance for old houses and insurance for newer ones. Old houses, like 100 year old or older houses, no matter how modest or grand, can be called “historic” homes for their age and longevity. Historic homes can pose some very big challenges to repair. Not only are historic homes constructed differently from modern ones, they often contain unique details, hand-craftsmanship, non-standard measurements, and high quality materials. Many of the materials and techniques used in historic homes are no longer employed today, making them even more expensive for their rarity.

Consider this: today’s frame construction uses 2×4 spaced no greater than 16 inches apart for a load-bearing wall. The open space between the studs is utilized for running wired and pipes, but is mostly just hollow space. When the walls are closed in with drywall, those open spaces are typically filled in with an insulation material such as fiberglass. The 2x4s themselves are almost exclusively southern pine; a soft, fast-growing wood easy to mass-produce and distribute.

Historic homes are neither uniform nor mass-produced. They can have a wide range of wall types, including solid stone, but one of the most commonly seen methods in the US is a solid stick “wattle and daub.” These walls are basically filled with layers of sawn boards – usually hardwood -  with a mud or plaster packed in between and covered by a smooth layer of finished plaster. The load-bearing support beams are also typically hardwood – old solid hardwood. 2x4s of this type (common before the 1930s) have been tested to be more than 3x stronger than modern pine!

Other details of old homes, like custom sized windows and leaded glass, hardwood moldings and panel,  and artisan ceiling tiles, not to mention thinks like the horsehair plaster itself, are increasingly pricy to repair or replace. Even basic repair work is more time-consuming when the measurements are not uniform throughout and the alignment not exact.

Whenever something is more expensive, time-consuming, and labor-intensive, it’s going to cost more, and that definitely holds true for insurance. Insurance totals and premiums on older houses are higher than comparably-sized and outfitted modern homes. Homeowners can decrease their totals by agreeing to “modern materials and methods” clauses for insurance-covered repairs (allowing walls to be repaired with frame and drywall rather than stick and plaster, for instance) or increase them by insisting that the quality of their historic home be preserved with period-appropriate craftsmanship.

It is up to homeowners to make sure that their homes are insured at the proper level for their needs and concerns. Check with your insurance agent to see if your home is covered at the level that best suits your needs.

Find out How to Get Your Insurance License here.

About The Author: Nathan Rothwell serves as the lead instructor and subject matter for Insurance License Express, a division of Express Schools, LLC. Since 1996, Express Schools has offered online insurance licensing courses and online real estate courses, as well as online real estate exam prep and insurance license exam prep.

The Financial Responsibilities of an Insured

Monday, April 8th, 2013

If you watch much television, it’s likely you’ve seen a variety of “vanishing deductible” commercials aired by numerous property insurance companies. The idea behind a vanishing deductible is simple, and sounds attractive for consumers; for every year of “safe driving” (presumably, this means going a full calendar year without submitting any losses to the insurer), the insured’s deductible will decrease, and eventually “vanish” altogether once enough years of safe driving have been accumulated.

However, before anyone starts contacting their insurance agents and demanding to make their deductibles disappear, it’s important to understand the multitude of financial responsibilities an insured must uphold after purchasing property insurance, and how they relate to one another.

For starters, there is of course the premium. A premium is a fee paid periodically (monthly, yearly, etc.) to an insurer in order to receive the benefits of an insurance policy. Almost every insurance policy one can think of requires premium payments from an insured, with only a few exceptions (more on this later).

Insurers also commonly impose coinsurance requirements on their policyholders. Coinsurance refers to a system in which the insurer agrees to pay a percentage of any loss according to an established ratio, leaving the insured on the hook for the remaining percentage. For example, if an “80/20” ratio is established, the insurer promises to cover 80% of the financial damages following a loss, and the insured pays the remaining 20%.

While coinsurance is more common in the health industry, property insurers typically want to forego utilizing such a system. Thus, property insurance policies often carry coinsurance clauses, which imposes a coinsurance ratio only in the event that a policyholder has not purchased enough coverage to insure an item of property at its full value. As long as an insured has enough coverage (typically 80% of the property’s value), the policy will disregard the coinsurance ratio and pay benefits in full.

Finally, as mentioned earlier, insurance policies often carry deductible requirements as well. A deductible is an additional financial obligation that an insured must meet when submitting every claim before benefits of an insurance policy can kick in. This is designed to limit the amount of claims an insured will submit, which in turn lowers an insurer’s operating costs.

For example, let’s say that an insured (we’ll call him Trevor) has an auto insurance policy with a $500 deductible. This means that following any loss, Trevor must first pay $500 out-of-pocket before his insurer will pay any benefits. A $500 deductible would thus discourage Trevor from submitting the claim if total damages are less than $500.

What does this have to do with “vanishing” deductibles, you might ask? The answer may be clear already – each of the financial responsibilities of a policyholder within an insurance contract is related to one another. So as one decreases, another is likely to increase.

For example, an insurer might pledge to reduce or completely eliminate your deductible if you submit no claims, but the fine print is likely to reveal an above-average or increased premium. Conversely, a policy marketed with below-average premium amounts is likely to try and recoup that money by imposing high deductibles. An insurer could even manage to keep both deductibles and premiums low by getting creative with the coinsurance ratio, if it were so inclined.

For more information on the financial responsibilities of an insured, it would be helpful to contact an insurance broker. Brokers help negotiate contracts with an insurer on behalf of an insured, and are duty-bound to help consumers achieve their insurance goals. They are likely to agree that, if not properly understood, a “vanishing” deductible can help the contents of your wallet vanish as well.

Find out How to Get Your Insurance License here.

About The Author: Nathan Rothwell serves as the lead instructor and subject matter for Insurance License Express, a division of Express Schools, LLC. Since 1996, Express Schools has offered online insurance licensing courses and online real estate courses, as well as online real estate exam prep and insurance license exam prep.

Crash Course: Umbrella and Excess Liability Policies

Friday, March 8th, 2013

Insurance is incredibly helpful in helping people meet financial perils that they would otherwise be unable to pay for out of pocket. However, the protection of normal insurance policies only extends so far.

Most personal and commercial insurance contracts carry limits of liability. This means that if the insured incurs liability for damages beyond a certain amount, the insurer can refuse to cover any of the costs beyond the liability limit, leaving the insured to pay these costs alone. To further illustrate this concept, consider the following example:

Kyra owns a home, which is covered by a property insurance policy with a $300,000 limit of liability. One of Kyra’s neighbors comes to visit and slips on the front porch, resulting in serious injury. Kyra’s injured neighbor decides to sue and is awarded $1 million in damages. Because Kyra’s homeowners insurance has a $300,000 limit of liability, Kyra must find some other means to pay her neighbor’s remaining damages.

This is where the concept of an umbrella policy comes in. An umbrella insurance policy is offered by some insurers to cover excess liabilities that an insured’s other policies do not. In addition, umbrella policies can also cover certain perils which are excluded under an insured’s normal policy. In the latter case, the insured is required to pay a retention amount (usually between $250 and $10,000), which functions much like a deductible under normal insurance.

Insurers who offer umbrella policies usually require the insured to first purchase and maintain a more traditional insurance policy with smaller limits of liability. These are referred to as underlying policies by the insurance industry. An insured must first exhaust the liability limit of the underlying policy before the umbrella policy will pay any benefits. For example:

Cory has an automobile insurance policy with a $300,000 liability limit, and also holds an umbrella policy to cover his excess liabilities. One day Cory causes a car accident that results in several fatalities. The families of the deceased victims file suit against Cory and are awarded $800,000. Once Cory’s underlying policy (the auto policy) exhausts its $300,000 limit of liability, his umbrella policy will “kick in” and cover the remaining $500,000 he must pay.

Commercial versions of umbrella policies also exist, and can be purchased by businesses to protect themselves against lawsuits or substantial damages. As with personal umbrella policies, businesses must already hold underlying policies and exhaust their limits of liability before the umbrella policies will offer any protection. Specifically, commercial umbrella insurance is designed to provide coverage for a business when:
• A loss exceeds the underlying policy’s liability limits
• A loss is excluded under the underlying policy, but not the umbrella policy (both personal and commercial umbrella policies carry their own lists of exclusions, and do not pay benefits when a loss is caused by an excluded peril)

Finally, umbrella policies are not to be confused with excess liability policies. While they function similarly to umbrella policies, excess liability policies only increase the liability limits of insurance that an individual already owns. Excess liability policies do not impose retention amounts on the insured, nor do they cover additional perils excluded under an underlying policy.

Find out How to Get Your Insurance License here.

About The Author: Nathan Rothwell serves as the lead instructor and subject matter for Insurance License Express, a division of Express Schools, LLC. Since 1996, Express Schools has offered online insurance licensing courses and online real estate courses, as well as online real estate exam prep and insurance license exam prep.

Tornados, Hurricanes and Earthquakes, Pick Your Poison

Wednesday, February 20th, 2013

With Spring right around the corner its the perfect time to talk about natural disasters. Natural disasters can be devastating, and they seem to be all over the news. Tornados, hurricanes, and earthquakes can cause unimaginable damage and loss of life, but of the three, which is worst?

One does not have look far to see the devastation of a tornado. They can have enough power to take out entire towns, like the incredible destruction of Joplin, Missouri experienced recently. Although the property damage can be great, when the loss of life is compared to that of other natural disasters, the loss is far less. In the entire year of 2010, there were 45 fatalities reported in the United States because of a tornado, and only another five worldwide. The price tag for damages caused by tornadoes in 2010 is quite high, roughly 11.4 billion dollars in the US alone.

Historically, hurricanes cause much less damage and loss of life than a tornado. On average hurricanes will cost about 5.1 billion dollars and cause 20 deaths each year according to the NOAA, but the potential for devastation by a powerful hurricane increases as the infrastructure meant to offer protection from them ages and loses its effectiveness. When the levies failed in New Orleans, the cost and loss of life was catastrophic and although it happened in 2005, the effects of Hurricane Katrina are still felt to this day. With 1500 fatalities and 40.6 billion dollars in insured damages reported, it was the most devastating hurricane since 1928.

If you are comparing statistical data, then earthquake are hands down the worst of these natural disasters. The US Geological Survey reports more than 21,500 earthquakes worldwide in 2010 with 226,729 deaths. The damage in countries like Chile and Haiti is evidence of the destructive force of an earthquake. So far, for 2011, the death toll from worldwide earthquakes is well over 28,000 people, and we have only just reached the end of the second quarter. However, of all of the earthquakes reported, only 1556 earthquakes happened in the United States and there were no deaths reported. In fact, there have only been three deaths from an earthquake reported in the US since collectively since 60 deaths reported in 1994.

Ultimately, whether a tornado, hurricane, or an earthquake is worst depends upon where you are. If you are a homeowner in Southern California, the potential for damage from an earthquake is far worse than the potential for damage from a tornado. Homeowners in Oklahoma would have a much different opinion of which is worst, as would homeowners in Florida. What is important is to be aware of the potential for disaster and protect yourself, your family, and insure your property against damages to the best of your ability.

Find out How to Get Your Insurance License here.

About The Author: Nathan Rothwell serves as the lead instructor and subject matter for Insurance License Express, a division of Express Schools, LLC. Since 1996, Express Schools has offered online insurance licensing courses and online real estate courses, as well as online real estate exam prep and insurance license exam prep.

Oh, Deer!

Friday, November 9th, 2012

It’s late at night. You’re driving down the road towards home, just as you’ve done countless times. You’ve traveled this route so many times that you can practically do it with your eyes closed… or, at least, with your brain on autopilot.

You don’t know it yet, but this ride home will be different. For when you come around that last turn, a four-legged road hazard is waiting for you in the middle of the road; his eyes reflecting your headlights straight back at you. In a split second, this creature could very well lose his life… but not before wreaking havoc on your car, and possibly changing your life forever.

A deer/vehicle collision, referred to commonly by auto insurance and safety agencies as a “DVC,” occurs when one or more deer collide with a human-operated vehicle on the road. A DVC can result in major injuries and/or fatalities for both the deer and humans involved, not to mention the certain likelihood of remarkable property damage.

Even if you manage to avoid major injuries or fatalities, there could still be bad news. The Insurance Services Office (ISO) estimates that as many as 20% of insured drivers across the nation have only minimum liability insurance, which only covers their liability for accidents involving other people. Those drivers with comprehensive (also known as “other than collision” or OTC) automobile insurance would be protected in the event of a DVC, but those with only minimum liability coverage would be out of luck.
No matter what kind of coverage you have, all drivers can be better prepared by learning more about the factors contributing to DVCs.

WHAT ARE THE FACTS?
The following is a quick rundown of some interesting statistics concerning DVCs, courtesy of State Farm Insurance:

• 1.23 million DVCs were reported between July 2011 and June 2012; this is an increase of 7.7% in DVCs since last year.
• West Virginia is the most likely state for deer strikes, as drivers have a 1 in 40 chance of being involved in a DVC.
• Other high-ranking states for DVCs are South Dakota (1 in 68), Iowa (1 in 71.9), Michigan (1 in 72.4), and Pennsylvania (1 in 76).
• The least likely state for DVCS is – you guessed it – Hawaii. Hawaii drivers have only a 1 in 6,801 chance of encountering a DVC.
• November is the most likely month for DVCs to occur – drivers are three times as likely to experience one in November than anytime between February and August. October and December are the second- and third-most likely months for DVCs, respectively.
• DVCs are most likely to occur in the early morning and early evening hours of a given day; deer are commonly active at these times, as are rush-hour drivers.

HOW CAN I PROTECT MYSELF?
While some companies manufacture products designed to monitor deer or reduce the chances of a DVC, such devices are hardly foolproof. An example of one such device is a deer whistle – a small, bullet-shaped object that can be attached to a vehicle’s front bumper, which allegedly emits ultrasound when air passes through it to ward off deer. However, the effectiveness of these devices is disputed among insurance and safety agencies, as no conclusive studies have been undertaken to prove or disprove the reliability of deer whistles.
So for those who do not have such whistles or dispute their effectiveness, following some of these tips may better serve you for avoiding DVCs:

• Using high-beam headlights when driving at night can help drivers spot deer from farther away.
• Deer-crossing signs are put in place for a reason – drivers should take extra precaution when driving in these areas.
• As previously stated, deer are most active in the early morning and early evening hours – drivers would be prudent to take extra precaution during these times as well.
• Deer often travel in herds – if you see one, it is likely more are nearby.
• If all else fails and a deer collision seems inevitable, it is best to stay the course – frantic swerving could take the car off the road or into another driver, producing even more disastrous results.

As more roads are being constructed across the country every day, combined with the disappearance of more and more deer habitats, it seems likely that the number of DVCs will increase into the future. No matter what kind of insurance you have, it’s always wise to keep an eye out for these walking, breathing road hazards… especially this month, when they are most likely to wreak havoc on the roadways.

Find out How to Get Your Insurance License here.

About The Author: Nathan Rothwell serves as the lead instructor and subject matter for Insurance License Express, a division of Express Schools, LLC. Since 1996, Express Schools has offered online insurance licensing courses and online real estate courses, as well as online real estate exam prep and insurance license exam prep.

Insurance Defined: Fraud

Friday, March 16th, 2012

Insurance fraud is an illegal activity where someone tries to make money off of an insurer under false pretences. Fraud is basically defined as the things policyholders do to get insurance money they don’t deserve. This can be as simple as lying on an insurance application or slightly exaggerating a claim to deliberately destroying property for the insurance benefit. However it is committed fraud is a form of theft, stealing money from the insurer, and theft is a crime.

Insurance fraud is a big deal; large portions of insurance law and regulation are designed to address it, entire sections of each state’s department of insurance are devoted to finding and prosecuting it. Insurers invest money in nonprofit organizations dedicated to preventing to prosecuting fraud. Why? Money, time, and legal actions are spent on fraud because fraud costs money, a lot of money. People who would never steal gum might consider padding an insurance claim, or omitting an ‘unimportant detail’ from a disclosure form. Other people might consider going quite a lot further to get insurance money. Too often insurers can be seen as big, bad business hoarding money, and fraud perpetrators might seem themselves more like Robin Hoods if they think they can get away with it. The truth is that though bad guys can pop up anywhere, insurance is just a business seeking to fulfill its function, to cover contracted claims in return for premiums, and most people in the business are regular folks doing their jobs and trying to do the right thing by their clients. Insurance fraud hurts everyone by messing up that system and raising rates for everyone.

The consequences of insurance fraud range from civil to criminal. Civil consequences are financial in nature. A person found guilty of insurance fraud will be required to pay back the insurer any money they received, including fees, court costs, and additional fines. Some fines also go to the state department of insurance and the amounts always increase as the amount of money involved in the fraud increases. If the fraud is divided by different fraudulent actions (multiple counts of fraud), a single fraud case could multiply fines for each action, making the final tally a very heavy sum. Someone guilty of insurance fraud may never live it down, especially if the fraud was deliberate or involved a large dollar amount, making that person completely uninsurable, even in areas of the insurance industry unrelated to the fraud (for example, a property fraud could affect potential life insurance, as insurers may see that person as too big a risk).

Criminal consequences of fraud vary from state to state, and increase depending on the amount of money involved in the fraud. Minor fraud may get off with only fines and warnings, but more significant cases are classified through different levels of misdemeanors or even felonies. These criminal cases could result in community service, probation, or jail time. Insurance fraud is typically a ‘white collar’ crime, but additional charges like conspiracy or arson related to the fraud can pile up on top of it, making criminal convictions much harsher. Criminal conviction for insurance fraud has lasting consequences on a person’s permanent record, affecting future credit, employment, and applications for civil service.

Fraud is an ugly word, with very ugly consequences. Policyholders should be aware of these consequences and do everything in their power to protect themselves. The first step is to be honest about insurance matters and on insurance applications. For most people, it really is as simple as that. If a policyholder, particularly a joint holder or beneficiary, suspects someone else of fraud, they should report it, otherwise they might risk implication in the case (being considered involved or an accomplice to the fraud). When it comes to insurance, misleading an insurer to save money or get money just isn’t worth it.

Find out How to Get Your Insurance License here.

About The Author: Rose Newport is Vice President of Insurance License Express, a division of Express Schools, LLC. Since 1996, Express Schools has offered online insurance licensing courses and online real estate courses, as well as online real estate exam prep and insurance license exam prep.

Rental Property Insurance: Coverage for Landlords

Friday, March 2nd, 2012

Since the housing crash, one area of significant growth in the housing industry has been in rental property. Many homeowners unable to sell quickly have shifted their properties to rental homes to reduce costs or prevent foreclosure, while investors have taken advantage of undervalued home pricing and record-low lending rates to purchase income properties. Meanwhile, many potential homeowners are choosing to ride out the low economy in lower-cost rentals rather than undergo the financial risk, responsibility, and stress of home ownership. Others find the tighter lending restrictions and re-shaped credit landscape encourage then to wait longer and save before entering the housing market. The combination of great rental inventory and more interested renters have made rental property a hot market, with many new landlords entering the business.

When a property is rented, regular homeowner’s insurance is not enough. That is why there is Rental Property Insurance (also called Landlord’s insurance) to help property owners protect their investment.
The greatest risk factor in renting a property is the tenants themselves. Any contact limitations aside, property owners have no real control over what tenants do on a daily basis, and that uncertainty translates into risk. Meanwhile, having tenants on your property opens you up to potential liability and lawsuits.

The first part of rental property insurance is similar to homeowner’s insurance, but it is specifically written to cover rental situations. Even good tenants don’t often care for a property as well as owners would, so maintenance-related damages are more common. Coverage to protect against typical dwelling damage may also covers vandalism and other damage from tenants, and has an increased loss of use element to protect your lost income during repairs or rebuilding. Unlike a homeowner’s policy, rental property insurance does not typically cover contents, (except when specifically written for furnished rentals); tenants are responsible for their own property.

The second part of a rental property insurance policy deals with liability. There is a significant risk that a landlord could find themselves in court. If a tenant or visitor is injured on the property, if there is a dispute over the contract, if there is a dispute over repairs or maintenance, if there is a need to evict a tenant, or any other potential situation, proper insurance coverage can cover court costs and help handle settlements. In the case of property damage, liability matters. If a tenant is found responsible for causing the damage (such as the case of an unmonitored cigarette), then they, or their renter’s insurance, will be expected to compensate, not the landlord’s insurance.

Landlords can also protect themselves with detailed rental interviews and contracts, requiring tenants to purchase renter’s insurance, conducting quarterly compliance and maintenance inspections, and maintaining a good property owner/tenant relationship. Providing additional safety items such as fire extinguishers, alarms, deadbolts and other locks, fencing, monitored security systems, and other items, and educating tenants on safety procedures and necessities, such as how to turn off the water main, can reduce both insurance costs and damage claims.

Rental property insurance comes at all levels and each policy has its own covered list, limits, and exclusions. The increased risk of a rental translates to higher insurance costs, so expect to pay up to 20% more than a homeowner’s policy. Short-term rentals will cost a lot more to insure than long-term contracts. Landlords with multiple properties may need an umbrella policy to help protect their increased net worth from lawsuit. Whatever policy you purchase, make sure you read and understand it before you sign, and ask questions to make sure you have the most appropriate coverage.

Find out How to Get Your Insurance License here.

About The Author: Rose Newport is Vice President of Insurance License Express, a division of Express Schools, LLC. Since 1996, Express Schools has offered online insurance licensing courses and online real estate courses, as well as online real estate exam prep and insurance license exam prep.

Insurance Defined: Home Inventory

Monday, February 20th, 2012

We’ve mentioned many times the importance and benefit of creating a home inventory. This detailed list of possessions is an invaluable tool to help you get and maintain the correct amount of homeowner’s insurance, keeping your property protected at full value. Creating a home inventory is not difficult, but it is a little time-consuming.

Step 1: List
To begin with, go room by room (and then outside as necessary) and write down every major item in the room: this means every item of value or significant importance (don’t feel the need to write “tissue box” or “throw pillow”). Write down when the item was purchased, and what it cost. For antiques, write down the age and approximate value. If you don’t know or remember the cost or value, leave it blank to begin with. Later, when you begin Step 3, you can take the time to figure that out. At first, just focus on listing items and everything you do know about their age and value. Also record details such as size, color, internal features (like if the sofa is really a sofa-bed or if the TV is 3D), and other pertinent details (such as if the item is part of a collection and therefore worth more as a set).

Step 2: Photograph
Take pictures of each item. You may want to take multiple pictures of some items to show what condition the item is in, and other important details such as model numbers, authenticating marks, accessories, and upgrades. You should make sure to have images that show the item in your home, you may even want to get pictures of yourself with the item, to prove possession. Record the image number (digital cameras automatically assign them; for film camera, number the roll of film and image order, ex: Kodak1, 3/24) next to the written description of the item. This will help you stay organized. Print your images to keep in your records, making sure that the appropriate image number is written on each. Thumbnails and other small images are ok, as long as they are clear and the details visible. If you have digital copies, you can also put them on a CD or portable drive as a back-up.

Step 3: Authenticate
Now you need to prove the value of the items. Collect any receipts you have for the items you purchased. If you lost or tossed the receipt, try contacting the retailer for another copy; if you bought with check or credit card or purchased a warranty, chances are good they will have a record of your item, even years later. A cheap option is to research the value of an item online, from the model number of your refrigerator to more unique items (such as a baseball card or a set of limited edition Pez dispensers), and print the results. For items such as antiques, collections, or jewelry, you may need to get a professional appraisal. As some items get more valuable over time, your appraisal should include the item details that prove the item is genuine and a signature of the certified professional. This will authenticate the item (such as an original painting) for future evaluation.

Once you have completed a detailed home inventory of your valuable property, make copies. Make sure you put a copy in a safe place, such as a locked fire-safe box, a bank vault box, or a secure place outside the home. Then, take a copy to your insurance agent. Have the agent go over the inventory with you to make sure your homeowner’s policy covers the correct value of the items. If it doesn’t, you may want to purchase extended coverage under your policy, or purchase a unique policy for the specific item. Have the agent file the home inventory copy with your policy documents. It may be extra work, but creating a detailed home inventory can save you significant hassle and battle while filing a claim and save you significant money by protecting the full replacement value of your property.

Find out How to Get Your Insurance License here.

About The Author: Rose Newport is Vice President of Insurance License Express, a division of Express Schools, LLC. Since 1996, Express Schools has offered online insurance licensing courses and online real estate courses, as well as online real estate exam prep and insurance license exam prep.