Sunday, May 21, 2017

Is Your Home Under-Insured?

Recent research shows that 60% of the respondents never shopped around or checked on the adequacy of their homeowner’s insurance when the policy was up for renewal. 75% of them said that cost was a major influence on the amount and type of coverage they had. While the cost of insurance cannot be ignored, it should not be the deciding factor in the amount of coverage that is taken. The coverage should be based on what it will cost to rebuild a home that has been destroyed by natural calamity.

Market Value vs. Replacement Cost

The real estate market is yet to recover from the mortgage crisis of a few years ago. Many homeowner’s look at the current market value of their home and, on finding that the value has dropped over the last few years, reduce their insurance accordingly. However, that is a major mistake. A home’s value may have come down by 30% but if it is destroyed, the cost of rebuilding it may be 30% higher. That is the kind of gap that could ruin a family financially. What you need to do is base your coverage on what it will cost you to rebuild a home that has been lost. There are 2 types of insurance options to consider.


  • Actual Cost Value (ACV):This is the less expensive of the options. It covers the “as is” or depreciated cost of the house. Coverage is limited to what is known as “like kind and like quality.” In other words, if a roof of a 12 year old house has to be replaced, the insurance payout will be for the cost of a 12 year old roof. The difference(the current market cost of a new roof) will have to be paid by the homeowner. Since depreciation happens quickly, it is easy to miscalculate the coverage that is available and find that a major part of the repair or replacement cost is not covered by the policy.
  • Replacement Cost: These policies cover the actual repair or replacement cost at the time the work is to be done. In other words, if the 12 year old roof is to be replaced, the policy will cover the cost that is prevalent today. Obviously, this is more expensive than the ACV coverage, but it offers complete protection.

Finding the Right Coverage

Thinking about worst case scenarios can be depressing. Finding your way through the complexities of insurance can be dull and boring. The cost of insurance can lead to efforts to reduce the premiums.  All these factors conspire to create a situation where it is easy to use ballpark estimates to decide on a policy without considering what you really need. You cannot afford to make mistakes or take risks when it comes to protecting your biggest investment. Balancing the cost of insurance and the coverage that is required requires professional expertise. An insurance broker will be able to guide you to the right choices – those that will not waste money on excessive premiums but at the same time give your family and your home the protection it needs. Procrastinate no longer and contact the insurance broker, today.

Monday, May 15, 2017

Why Don’t Californians Have Enough Earthquake Insurance?

One of the reasons why disaster movies are so popular is that watching something terrible happen while sitting safe and comfortable in a movie theater is that it allows people to see what could happen while they remain secure. The movie San Andreas showed how a massive series of earthquakes wiped out most of California. Yes, there was a lot of exaggeration in the storyline and some questionable science. But it was not complete fiction. The 800 mile long San Andreas Fault runs through the state and is one of the most dangerous fault lines in the world.

The Next Major Earthquake Could Happen Soon

Scientists say that the general rule of plate tectonic movement is that 16 feet of accumulated plate movement is relieved by a quake every 100 years. There has been no stress relief on the San Andreas Fault for over a century. The director of the Southern California Earthquake Center says that the fault is “locked, loaded and ready to roll.”

The science of earthquake is improving but it is still in its infancy. Even if a quake could be predicted, the benefit would be in terms of getting people out of the danger zone, not in saving property. A house cannot be moved overnight. The Bay area has 3 major fault lines – the San Andreas, the Hayward and the Calaveras. The U.S. Geological Survey predicts that a major quake will hit the Bay Area in the next 30 years along any of these faults.

A major quake in the Bay Area sometime in the not too distant future appears to be inevitable. The right insurance coverage is the only way to secure a family’s financial future when (not if) it happens.

Earthquake Insurance Is Not Cheap

A 2016 survey found that less than 15% of Bay Area homes have earthquake coverage. It’s not that people are unaware of the danger – everyone knows that this is an earthquake hot zone. The problem is the high premiums and deductibles that can make the cost of insurance appear to be excessively high. Premiums are determined by a home’s replacement value and how high the risk of quakes are in a specific area. Both of these conspire to push up Bay Area insurance costs. According to the California Earthquake Authority(CEA), the average premium for earthquake insurance in San Francisco County was $2,156 in 2014. That is a major reason why less than only 1 million of the almost 7 million single-family homes in the state have earthquake insurance. The issue that homeowners seem to miss is that the premiums are high because the risk is high. If a home is seriously damaged or destroyed in a quake, the cost of restoring it, could wipe out a family financially. Federal and state emergency assistance is only for survival, not for rebuilding lives. Earthquake insurance is the only way to protect a home and a family’s future.

Contacting an insurance broker to find the right coverage, as that is also essential. An insurance professional can help you to work out the coverage you need within the budget you have. It may not, afterall be as expensive as you think it is.