The ABC’s of Insurance

ABCs of Insurance

A B C, It’s easy as 1 2 3, (Go ahead… Sing it… You know you want to… )As simple as Do Re Me, A B C, 123 Baby, you and me girl! The Jackson 5 would be so proud of you right now.  Now that I’ve got you jamming out in your head and completely off of topic, let’s talk about insurance! We find that many people don’t appreciate insurance because they don’t understand it.  If you think you fit under that stereotype then this blog post is for you! Education on any product is important. It can be overwhelming to receive ALL of that information when you are ready to make a purchase. We will be doing a series of blog posts that will help the average consumer better understand the insurance product. I mean, we are talking BA-SIC. If you have follow up questions about any of the topics or would like to see a specific topic discussed please do not hesitate to comment on the blog or shoot me an email at mcherry@bradshawweil.com.

A little snippet to let you get to know me- My name is Monica Cherry. I am a licensed insurance agent and have a background in personal lines insurance since I began at Bradshaw & Weil, Inc. in 2013. My husband, Matt, and I live in Paducah, Kentucky, but neither of us are from here originally! He has a husky named Julie, whom I inherited when we got married. She is definitely his dog and makes me very aware of that on a daily basis. She is a celebrity around downtown Paducah and we are her minions. Matt is a Manager at Hooper’s Outdoor Center in Downtown Paducah. Here we are!

Matt, Monica & Julie Cherry

In order to provide you with the best and most accurate information possible, I will be consulting with other agents in our office that are directly involved in the sales process and have been in the industry much longer than I have. Stephanie Ludovissie is our Small Commercial and Personal Lines Agent. She has completed multiple educational courses above what was required to receive her Insurance License and is our in-house coverage expert! Be on the lookout for her as I am sure she will be a guest blogger fairly often.

I chose the title “The ABC’s of Insurance” because it sounds educational (obviously) and also because today we really are going to look into the ABC(D E & F’s) of your homeowner’s policy. When you pull out your policy declaration page (Note: Declarations means section of an insurance contract that shows who is insured, what property or risk is covered, when and where the coverage is effective and how much coverage applies) you will notice the following:

Part I

A- Dwelling

B- Additional Structures (or Other Structures)

C- Personal Property

D- Additional Expenses (or Loss of Use)

 

Part II

E- Bodily Injury and Property Damage Liability

F- Medical Payments to Others

 

Part I is coverage for things you own (property) while Part II is coverage for what you do to someone else (liability). We see a lot of confusion and disconnect among our clientele regarding the dollar amount assigned by the insurance company to A, B and C verses their idea of the actual value of those line items. More often than not we hear, “They’ve got my house listed as (example) $350,000! It would never sell for that much.” We hear you and we get it. To bridge that gap, we need to understand how the insurance carrier is looking at the policy.

The consumer thinks “sellable value” while the insurance policy is typically “replacement.”  Maybe you have an old house out in the country. The house and the land it is sitting on has been in your family for many, many years. The house is cute but not in an increasingly desirable area so to sell it would only ring in around $150,000 or so. The house is a decent size with ornate crown molding and built-in custom cabinetry. You recently had it redone and put in Brazilian walnut flooring (it sounded expensive, OK?). You installed granite counter tops in the kitchen. Did I mention you have a ton of counter space? You were OK with investing all of this money because well, you obviously have super expensive taste but mostly because your children plan to inherit it from you one day and continue the tradition.  The insurance carrier takes in the square footage, the ornate crown moldings, framing and exterior wall material, custom cabinetry etc. and determines that if your home had a total loss then the cost to rebuild with like kind and quality materials and size of home would be $350,000. Therefore, Coverage A on your policy named ‘Dwelling’ would be $350,000. The “sellable value” may (keyword being MAY) save you a small amount of premium but would not treat you fairly in the scenario above if you had a total loss. We can go further down this rabbit hole in another discussion. I think, for now, you have a good understanding of how Coverage A- the replacement cost of your dwelling– is calculated and what that means for the home owner.  I will quickly wrap up Part I by advising that Coverage B, C, & D are automatically calculated percentages of Coverage A. They can usually be increased but not decreased. Coverage B-Additional Structures refers to structures on the premises that are separated from the dwelling by clear space (think detached garage, in some cases a fence, etc.). Coverage C- Personal Property refers to personal belongings such as clothing or furniture. Coverage D- Additional Expenses refers to expenses related to maintaining the insured’s normal standard of living when their home has become uninhabitable due to a covered loss.

Part II, again, is liability or coverage for what you might do to someone else. Coverage E- Bodily Injury and Property Damage Liability is sold in high limits like $100K, $300K or $500K.  You will notice that Coverage F-Medical Payments to Others (which sounds a lot like Bodily Injury?) is only sold in lower limits like $1K, $3K, or sometimes $10K. What’s that about? The easiest way to put it is: typically for someone to collect payment under Coverage E, the insured would have been negligent  (at fault is a similar idea. Not the same. Similar.) and is legally obligated to pay damages for bodily harm, sickness, disease, or physical injury to or destruction of tangible property. Coverage F pays only necessary medical expenses that caused bodily injury. The insured does not have to have been negligent.

That’s a wrap! Thanks for sticking with me guys! Is your head bobbing yet? I hope you learned something of value and will follow our blog for similar posts in the future!