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Archive for the ‘Caveat Emptor’ Category

Examining the Causes of Residential Loss

Posted in Caveat Emptor, Property Risks and Solutions, tagged , , , , , , on May 8, 2008| 1 Comment »

To Hedge, or not to Hedge….

 

An interesting question was recently presented on Terri Cullen’s great WSJ blog for her Fiscally Fit column by someone who labeled themselves a “contrarian”. In essence, the post asked: “since the likelihood of losing a home to fire is remote, why bother insuring the home for the full cost to rebuild?”

 

I don’t think this question is contrarian at all, I think it is fair and logical. Savvy consumers know to beware of insurance “scare mongers”, who would have us believe that the sky is about to fall on all of our homes. Meanwhile, statistics reveal that the risk of a fire totally destroying any single home is remote.  Click here for some good insights, or check this site:  https://www.usfa.dhs.gov/statistics/national/residential.shtm

 

For those who wish to hedge the unlikely risk of a fire consuming their home by partially insuring the cost to rebuild, the insurance industry has erected significant pitfalls. While these can be navigated, doing so requires careful guidance.

 

As both a risk advisor and an insurance consumer, I would also describe myself as a “contrarian”. Meanwhile, knowing a.) fire is but one of the losses that can wreak significant damage to my home ( Click this link for a chart showing the leading losses by cause to homes), and b.) the insurance carriers who “allow” consumers to hedge against total losses do so by inserting numerous contract provisions that greatly reduce the amount they will pay after a loss, I would never elect to hedge the slight risk of a total loss by selecting a policy that offers “partial coverage”.  Others I know consider this a risk worth accepting. Neither approach can be judged “right” or “wrong” until after a lifetime of home ownership.

 

It is always wise to examine risks from different perspectives. In this instance, there is real risk in placing coverage with insurance carriers who so graciously permit you to partially insure your home.

 

 

 

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An Old (and dangerous) Marketing Pitch

Posted in Caveat Emptor, tagged , , , , , on April 6, 2008| Leave a Comment »

“Save Money Now” (and the many variations) has to be the first ever marketing pitch. Most consumers know to ask themselves “how is it that the savings are being achieved?”  Ask yourself: do you think an insurance carrier offering to lower your insurance costs has not first determined how they can reduce the protection provided by their low cost coverage?  If it looks to good to be true……

There are smart ways to reduce the long term cost of insurance coverage without also sacrificing valuable protection. Remarkably, these strategies are often under-utilized, as many consumers are instead lured by the never ending “bargain” advertsing hype. Check this one page primer for an overview on how to make quality insurance more cost efficient.

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Home Renovation & Construction Projects

Posted in Caveat Emptor, Property Risks and Solutions, tagged , , , , , , on April 6, 2008| Leave a Comment »

Recent news reports tell a story that insurance carriers know all too well: residential construction projects involve a number of risks that can create significant damage to your home.  Determining who can be responsible after a loss can be very challenging. While it is  important to have the right insurance coverage, it is just as critical to know the steps that can be taken to avoid or reduce the chances of the most common causes of loss.   

This insightful report explains the risks, as well as the precautions that can be taken to reduce the risk of loss during home renovation and construction projects.

 

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How Much Would it Cost to Rebuild?

Posted in Caveat Emptor, Property Risks and Solutions, tagged , , , , , , , on March 6, 2008| Leave a Comment »

It is alarming how many people confuse the purchase price or appraised value of a residence with the cost to rebuild it.

The common thinking: My house is worth X, the land is probably worth 30 – 40% of that, so I will insure it for 70% of X, since the property won’t burn. Realtors, mortgage lenders, and tax assessors confuse the issue by inserting their own valuation methods. Since you will want your insurance policy to provide the coverage to rebuild your home after a loss, you need to insure it for the cost to rebuild it, and not some other unrelated value. You should also want your insurance carrier to guarantee that they will provide the full costs to rebuild should those costs escalate.

This excellent New York Times article  explains that ariving at the proper cost to rebuild a home (and securing coverage that actually guarantees to do so) is much easier said than done.

Essentially, the insurance industry takes what can be categorized as two very different approaches to valuing and insuring homes (and cooperative apartments and condominiums). Using the most common approach, you and your agent guesstimate the cost to rebuild your home, and the insurance carrier either accepts or modestly adjusts the result. The downside?  Since this is only a guesstimate, your receive no contractual guarantee that the carrier will pay the full costs to rebuild your home after a covered loss. (often referred to as”the fine print”). The article shares the plight of the many who proceeded using this approach.

The second approach is the one we recommend: have the cost to rebuild calculated by a trained professional, and place coverage with a carrier who will provide a contractual guarantee to rebuild, regardless of any future cost surges. Contact me to learn more about how this can be accomplished.

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Getting the right answers, but to the wrong questions

Posted in Caveat Emptor, tagged , , , , on March 6, 2008| Leave a Comment »

Among the common problems I hear from others about their insurance program: “no one ever explained that to me”. The response offered by too many insurance agents: “you never asked”.  Clearly, what you don’t know can hurt you…

Trusted advisors and consumers need to either work with a risk advisor who can help them by providing the right answers to the right questions (me, for example), or know where to find the right questions to ask.

Through the internet I have met an “insurance consultant” in Maine who does a good job helping consumers (mostly business owners) better understand how to make intelligent decisions on managing the risks they face. To generate interest in his fee based consulting services, he offers some of his information for free. With the author’s permission, click this link: “126 Questions to Ask Your Insurance Agent” for your copy of that article

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Bloomberg News: “The Insurance Hoax”

Posted in Caveat Emptor, tagged , , , , , on February 16, 2008| Leave a Comment »

This important Bloomberg News article exposes the strategies used by a few large insurance carriers to pay far less to claimants than their policies and fair claims practices should have obligated them to pay.

Although the article contains several factual errors and miscalculations, it does a great job describing the origins and use of the alarming strategies used by a few large insurance carriers to keep their claims costs low.

The stunning lessons from this story help illustrate why you should follow my best advice on personal risk management: “Let the buyer beAware”. http://www.bloomberg.com/news/marketsmag/mm_0907_story1.html

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