Friday, May 2, 2014

Earthquake & Flood Insurance are not included in Your Homeowners Insurance – Part 2

In our last blog we discussed earthquake insurance and noted that it is not part of your homeowner’s insurance policy. Earthquake insurance is readily available in the marketplace and there are many insurance carriers that provide the coverage. Today we are going to discuss flood insurance which is also not included in your homeowner’s insurance policy. In the United States flood insurance is a separate policy from the homeowners policy either purchased directly through the National Flood Insurance Program (NFIP) or through a write your own program whereby you purchase flood insurance through an agent who works with an insurance company that receives backing from the NFIP. Either way, all flood insurance in these two options is backed by the United States Government. Just recently, private flood insurance has become available in the South Eastern United States. This private insurance is not backed by the United States but is financially strong and has competitive rates. We should see more private flood insurance become available over the next few years as competition for flood insurance becomes more viable.

Every year, the news shows a tragedy from flooding. News crews descend into a community that has experienced flooding and the topic ends up with a homeowner who has just been informed by his insurance company that his homeowners insurance will not cover the flood. This is just terrible not only because of the extreme suffering of this family and others just like them but because we can’t seem to get the word out to everyone that flooding is not covered by homeowners insurance. There are so many myths and distortions that it is important that we get the truth out to the consumer:

1.      Flood is never covered by a homeowners policy.

2.      You must buy flood insurance to be covered for flooding.

3.      “I don’t need flood insurance because the government will buy me out or help me to rebuild.” NOT TRUE! The government may help you with temporary housing, food, clothing and medical assistance and they may assist you with a low interest loan so you can rebuild but they are not going to rebuild for you.

4.      “If my home is damaged or destroyed my mortgage will be forgiven by the lender.” NOT TRUE!

5.      “I don’t need flood insurance because I am not in a flood zone.” NOT TRUE! Everyone everywhere is in a flood zone. The difference among flood zones is the amount of risk for flooding.

6.      “Flood Insurance is too expensive” MAYBE – MAYBE NOT! If your home was built according to standards for flooding within its flood zone the cost can be very reasonable. If your home is located in a “preferred risk flood zone” the government will subsidize your insurance rates. However, if your home was built before flood standards or built without regard to flood rules the cost can be very expensive.

7.      “I’m going to shop around for the best rate” All federally backed flood insurance is the same premium whether you buy direct or through an agent. The NFIP sets the annual premium.

The decision to buy flood insurance should be up to you to decide unless you have a mortgage and your lender requires you to have flood insurance. If you don’t buy flood insurance and your home is destroyed by a flood that was a calculated risk that you took. What is important is that you know that flood insurance is not included in your homeowners insurance. Flood insurance is readily available for purchase. If you have questions about flood insurance you can go directly to the NFIP website at www.floodsmart.govthis is a terrific site with loads of information about flooding. However, if you want real information specific to your home talk to your insurance agent. Your agent can get your exact flood zone and determine the amount of insurance needed and the cost. If you would like more information you can contact me at (805)238-1818.


Friday, April 18, 2014

Earthquake & Flood Insurance are not included in Your Homeowners Insurance – Part 1

In the past two months the west coast of the United States was rattled with several small earthquakes. This reminded me to share with my clients and friends that earthquake insurance and flood insurance is not included in your homeowners insurance policy.

Earthquake insurance can be purchased through private insurance markets either individually or through the same insurance carrier that provides your homeowners insurance. Specifically on the west coast some large insurance companies have gotten out of earthquake insurance all together in the last decade. However, as an insurance agent I find the coverage readily available in the marketplace. In California there is an organization that helps place the consumer with affordable earthquake insurance called the California Earthquake Authority (CEA). The insurance companies that participate in the CEA provide earthquake insurance in partnership with the CEA generally at a reduced premium  compared to coverage offered by carriers that do not participate.

The deductibles are much higher than your homeowner’s insurance policy. This was a result of changes in the industry to keep earthquake private, available to the consumer and relatively affordable. So the deductibles can range from 5% / 10% / 15% / 20% / 25% depending on the carrier. So, if you chose a 10% deductible and the replacement cost value of your home is $354,000 you would be responsible for the first $35,400 before insurance would step in and pay up to the replacement cost value of your home. That may seem like a lot of money for a deductible but if you keep in mind the potential loss to your home it is easier to finance $35,400 than it is $354,000. The lower the deductible the higher the insurance premium and consequently the higher the deductible the lower the insurance premium.

The decision to buy earthquake insurance is a calculated risk. For some it is just not an option because they cannot afford to. For those who can afford the coverage but do not buy it is a strategic decision based on how much equity you have in your home, the likely hood that an earthquake will damage your home and whether you have the resources to make the repairs.

There is a myth that in the event of a disaster the government will step in and pay for you to rebuild. You should not base the value of your investment in your home on the assumption that the government will pay. Using the last four natural disasters as an example the government will help provide you with temporary living arrangements feed and clothe you and provide a low interest loan so you can rebuild.

What is most important regarding earthquake insurance is to have a conversation. Now that you know that your homeowners insurance will not provide coverage for earthquake you can decide whether to buy earthquake insurance or not and if you do buy what deductible to choose. Talk to your insurance agent for examples of coverage and shop the insurance markets for the best premium.

Friday, January 31, 2014

A Health Insurance Horror Story

We can send men to the moon. We can drop rovers on Mars with pinpoint accuracy. We created a national highway system that is the envy of the world. We can send emergency aid around the world immediately when it is needed and we can fight two wars at the same time and our public is barely aware. It is proven that government can do big things successfully so how is it with three years of planning before rolling out that the Affordable Care Act (ACA) also known as Obama Care is such a bungled mess? Seriously, this isn’t some rant against the ACA or how it should have never been placed. That part is over, it is the law of the land and we need to live with it. However, I am responsible for protecting my clients and taking care of them and I do not know how to do that right now. I am ticked off at how poorly this whole plan was put in place and the total lack of follow through.

We have clients that we represent that paid their premium in November and December and still do not have their insurance ID cards! A telephone call to the insurance company is a two to three hour ordeal and if you get through it is generally someone who can’t answer your question and refers you to the website. We have clients who need service but we can’t find doctors who will perform the procedure because contracts with physicians, clinics and hospitals are still not settled!

The insurance carriers in our area of California get a (C) grade point for preparation. They certainly could have done better and the number one issue is staffing. The carriers are way behind in processing new applications and do not have the resources to answer the phones. They knew that there was going to be a huge surge last minute – what were they thinking? However, as hard as it is to believe I am going to defend these insurance carriers because what most people do not know is that right up until the middle of December the government was still changing the requirements of the carriers with regard to the ACA.

I know that my mom would tell me “Son, this too shall pass” (one of her favorite sayings when I was growing up) and I know that she is right. Eventually the insurance carriers will get caught up, they will answer their phone calls, our clients will get their ID cards, find doctors who can help them and I will be able to help my clients.

I hope that when this mess is over that someone creates a business case study that examines the steps that led to this fiasco. The only way forward is to learn from our mistakes and not make the same mistakes again.