Homeowners insurance is dissected in today's episode. What does it cover, what doesn't it cover? How much your policy should be worth and more!
Below is a transcript of the episode, modified for your reading pleasure. For more information on the topics discussed in the episode, see the links at the bottom of this post.
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Grant FINLEY: Welcome to another edition of Your Insurance Connection Podcast. I'm your host, Grant Finley and joining me again today - President of CLH Insurance, Chuck Hembree. Chuck, how are you today?
Chuck HEMBREE: Doing good. Here we are, it's September, we're transitioning to Fall, it's a little rainy out today when we're recording this and we're not out and running around and so I saw the topic that you wanted to discuss today being homeowners and hey, we're going to move more into our homes and be concentrating there so, good timing.
FINLEY: Absolutely right, with the change in weather you want to make sure your home is ready to go and you might have some questions about if something were to happen, weather-wise, what's going to be covered. Let's just start from the beginning and talk exactly about what homeowners insurance is.
HEMBREE: Well, that's a great one here because you think that's one of those "duh" questions but, no. The homeowners policy is probably one of the broadest policies that's available to us. We think of it kind of in a commodity way because everybody has a homeowners or a renters but it's really a very complex, a very comprehensive policy for the value that you get out of the premium. It's not just the structures that we normally think about, it also covers our contents, it covers our additional living expense if we have damage to the building and probably as important as any of these that we don't think about is our personal liability even when we're away from the home - when we're at the grocery store. So, it's a great package full of the good coverages that we need and all of it without any kind of territory prevision that we see in most policies. Most policies only cover in the United States, its territories, possessions, Puerto Rico and Canada. The homeowners is the one policy that covers us anywhere in the world.
FINLEY: So, dive into that grocery store scenario a little bit. What exactly - can you just unpack that a little bit for us?
HEMBREE: So, Grant, you're at the grocery store and you're getting your weekly supply and you just say, "Hey, I've got have some beans," so you go down the bean aisle and there's a little old lady who is grabbing a can of beans off the bottom shelf and you accidentally hit her, she falls over, she breaks her hip and she is going to ask you to take care of her because you caused that bodily injury, and you would be responsible. Your homeowners responds to that type of claim, bodily injury or property damage that you cause. I was very thankful that my parents had homeowners. I remember, I wasn't a cantankerous kid, but I loved sling-shots and I lived out in West Texas when I grew up and I was constantly using my sling-shot. Most of the time I was pretty good, but sometimes I wasn't as thoughtful and I can remember launching a rock that went right through the dining room window of a neighbor's house across the street. My parents were not very happy with me because of that, obviously, but our homeowners paid for the liability we owed to that neighbor across the street because I smashed their beautiful picture-window in the dining room with my rock. Our homeowners responded to it, not their homeowners.
FINLEY: So, then, I've also heard that if your car is broken into and there's been theft from your vehicle, that's also covered under homeowners? Is that accurate?
HEMBREE: Absolutely, the car covers the car and it's operation but the contents inside of it that you bring from your home and put in there, and we all do that, we pack everything in there that we can - anything that's not part of the car is not covered by the auto policy. That's contents underneath the homeowners and so theft of our satchels or our backpack or our computer out of there is covered underneath our homeowners, if we have the proper coverage.
FINLEY: Sounds like there's a lot that is covered, but then there's probably some things that we think would be covered that probably isn't. What are some of those that might trip some people up?
HEMBREE: Well, I'll tell you, the norms are - and it doesn't matter, it seems, how many times they're on the television or how many times we put out blurbs and so forth, for some reason our mindset is with the homeowners that it covers things like flood, or earthquake, or wear and tear that happens to our roofs on our houses and those are some of the things that are not covered. They can be covered, but not always underneath the homeowners or they have to be added on. So, a good agent's going to probably make you aware that some of these are available. You can't just assume it. And, here's where I probably have my biggest knock against consumers who go out and secure their insurance on the internet. Great tool, super efficient, you can work at it in your own time, so I'm not against that, but you don't know what questions not to ask and you don't have someone advising you most of the time when you purchase it. So, you may not know earthquake was available as an endorsement. You may not know that you have to schedule your jewelry or you only have a certain amount because you're just working on there and the internet is not going to ask you. An agent, hopefully, if he's a good agent or if she is a good agent, is going to ask you some of those questions and try to find out what your needs are.
FINLEY: So, let's say something happens. Say there's mold or a fire or something where I had to take my family out of my home for an extended period of time while it was being repaired. Would the cost of the hotel or wherever I was able to put us up for that short term be covered under my homeowners insurance.
HEMBREE: Yeah, there's a great coverage under there called additional living expense and policies deal with it in all kinds of different ways. Some will say, "it's 20% to the value of the home", and other ones say, "unlimited additional expense". That sounds much better doesn't it? But when you realistically get down to it, these are the extra expenses that you incur because you had a fire and you had to live in a hotel while it's being repaired, well all of those are going to ask you to present receipts for and generally most of us are not going to be able to afford to hold up at the Ritz-Carlton for these things. But, it does cover that living outside of the home so it may be a motel, or hotel, or extended stay facility like Marriots, Residence Inns - those types of things, where it's more long term. And, it does include the extra, extra expense that we would have for food. Now, let's think about that. So, if I normally grocery shop every week and now my home is destroyed by fire and I'm in a Residence Inn, well I may still have to do the same amount of grocery shopping, so we're not going to receive a big, "Oh!", this is not going to be a big windfall. Insurance companies have been around for a while, so they've figured those things out, but you are going to have expenses. You may have to eat out a little bit more. You may have to go purchase some clothes because these are destroyed and on an interim basis until things are brought back to replacement cost - paid out of replacement cost on the homeowners. So, it's a great coverage that everyone needs and most policies provide a good amount, whether it says, "10 or 20% of the building value", or it says, "unlimited for 12 months."
FINLEY: So, let's talk about the value. What would the limit on my home be? Would it make more sense for it to be market value - what the home is worth on the market, or replacement cost - what it would cost for me to rebuild my home if it was damaged?
HEMBREE: Probably the best question you can ask, Grant, because in our minds, why would we insure it for more than we paid for it? Doesn't make any sense in our minds. Except that when we start to realize what insurance does and what market value does. I can take a 2,000 square foot home in out-state, country area where they don't have much of a market and their land is cheap and it's market value may be $134,000. I can take that exact same 2,000 square foot home and put it in Ladue or Town & Country and it may be worth 1.2 million. Well, what's driving that? Well, part of that is the land and the area that you're on, how much acreage that is there, and that's the market value. So, when we think about insurance, we want to put market value to the side, we don't even want to think about that. It's a valid way to value homes but it is not something that we want to think about insurance. We want replacement cost. What would it cost for a contractor to come back in and build our home back the way we had it before? There is another option, we can go with what is called actual cash value, which is something closer to market value but it's going to bring some unsatisfactory results if we have a claim because they're going to depreciate that claim, the insurance company is, for how old the house is. So, let's think about a scenario, there. This is where the thinking comes from consumers, "Well, I'll just insure it for $125,000 even though my insurance agency is telling me it's $250,000, because I could buy another house for $125,000", well, that's great, if the house is completely destroyed, the insurance company hands you a check for $125,000 and you go buy a house for whatever the market value is at the time. That's wonderful, but total losses are probably the very smallest percentage of losses. So, what happens when we have a partial loss? So, one-quarter of our house is damaged or destroyed or a tree falls and destroys ten percent of our house. Now, the damage is going to be $30,000 and the insurance company hands us a check for $15,000 and we've got to come up with $15,000 more to get us back to where we were. That's where actual cash value doesn't work so well. Replacement cost, if we can do it, is the very best way to do it because, it's going to give you the dollars back that you need to get you back where you were before the loss.
FINLEY: That makes a ton of sense. There's a lot of stuff in here that I think we could really dive into further, but I certainly appreciate your insight and your thoughts on this matter and I look forward to getting back together with you again and discussing our next topic.
HEMBREE: Absolutely. Thanks, Grant.
Your Insurance Connection podcast can be heard on iTunes and Stitcher or by visiting clhins.com/content/podcast. If you like what you’ve heard you can support this podcast by rating and/or sharing it on your social platforms. CLH Insurance is a “Trusted Choice”, independent agency servicing Missouri, Kansas and Illinois. For more information on CLH Insurance, visit clhins.com or call 636.391.0700 to speak with an agent. Until we connect again, thanks for listening.
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Show Notes - Where you can learn more about the people and ideas discussed in this episode.