Do you have insurance…and do you know why it’s important to obtain and maintain it? For anyone who is unfamiliar with the topic or needs a brief refresher course on the basics of insurance, it will be lightly explored below. As with many specialized financial products and services, it can be quite helpful to do thorough research, gather and compare information, and then get opinions from experienced people who work in financial services before making any decisions or taking any actions regarding insurance. It could be useful to also become familiar with certain insurance principles and terms. Following is a brief introduction to insurance and notably one type of insurance—homeowners insurance—and how it can protect your home and belongings. This overview is intended only as a starting point to help you become familiar with the concept of insurance and how it works. It is not intended to be comprehensive or authoritative, nor is it meant to provide advice about insurance-related decisions.
What does insurance do for you?
A basic purpose of insurance is to anticipate (and help recover from) catastrophic losses of possessions, property and life that could financially impair someone’s finances and life. Insurance is established by a written policy between the insurance company (insurer) and client (policyholder). An insurance policy is a legal contract between the policyholder and the insurer to financially cover losses sustained by the policyholder.
Insurance can assist in protecting you against the effects of a number of risks to property which include, but not limited to personal possessions, vehicles, your home, land, your life and other items of value. Depending on the amount and type of insurance coverage purchased, insurance can provide financial protection against a wide range of covered events. This may include theft, vandalism, fire, weather-related damage from rain, wind or ice, water leaks, falling trees or limbs, floods, natural gas explosions, vehicle accidents and many other situations in which property is damaged or destroyed or a person is injured or killed. These are just a few examples of the many types of losses that insurance may help cover, depending on the policy.
Without insurance, a single unexpected event can result in significant financial loss and dramatically change a person’s life and the lives of people they care about.
What is a good first step to determining your current insurance needs? How can someone determine how much coverage they should have in their policy?
Before purchasing insurance, take time to research your options thoroughly. Depending on your needs and circumstances, it may also be helpful to speak with one or more experienced insurance professionals before making any final decisions about the coverage you purchase.
As you evaluate your insurance needs, start by thinking about how much coverage is appropriate for your situation. Two important questions to ask yourself are:
- What am I risking if I don’t have enough insurance—or if I don’t have any insurance at all?
- What people, property or other assets do I need to protect?
The following steps can help you develop a general idea of how much insurance coverage you may want. Keep in mind that your insurance needs will likely change over time as your life, family, finances and assets change.
- To get only a general idea of how much insurance is needed to help recover from a loss, the most basic first step is to thoroughly determine your inventory of assets and estimates of replacement costs of all your assets. Assets could include retirement plans, real estate, structures, vehicles, all types of possessions—consider everything that you own and what you could lose from an accident or natural disaster—what would it cost to replace it or compensate you for a portion of its value? Insurance is also for your health and life, so consider what others would need as financial compensation and support if something happened to you, such as being disabled or dying.
- Consider how you may be able to potentially eliminate or reduce your risk of loss by properly managing maintenance, repair, training and safety programs for what you own and operate. A few examples of this could include annually replacing home fire alarms, keeping up with vehicle and home heating and air conditioning maintenance, fixing and replacing plumbing-related equipment, taking safe driving courses every few years and getting an annual physical check-up.
- Think about whether you would be willing to assume some of the coverage risk yourself by paying for small losses without activating your insurance at all or by buying high-deductible coverage for some kinds of losses, where you first pay for a non-reimbursable portion of the loss and then insurance is activated to pay for the remaining, larger balance of the loss.
- Decide if you want the bulk (or entirety) of any losses transferred to an insurer by buying coverage amounts of insurance tailored to your specific needs for partial or 100% coverage of any losses incurred.
A few points on homeowners insurance and how it’s used
One of the most important and widespread types of insurance is property insurance, which may also be known as homeowners insurance. Often, this insurance covers both a home and much of what the home contains. According to the State of Georgia’s Office of Commissioner Insurance and Fire Safety; its definition of homeowners insurance is:
“Home Insurance, also called homeowners insurance, covers losses and damages to your private residence and its contents, such as furniture, valuables, clothes, and electronics. The amount of coverage it provides varies depending on the type of policy you buy, its liability limits, your deductible, property value, etc. Most policies do not cover motorized vehicles or losses from natural disasters, like floods or earthquakes. You can usually buy coverage for these things in a separate policy. Generally, a home insurance policy covers:
- Property damage to your home and other detached buildings
- Contents and personal belongings
- Additional costs to live somewhere else if your home is uninhabitable
- Personal liability to protect you from a claim or lawsuit if someone has an accident on your property that causes personal injury or damage to their property”
Because a home may be the single largest asset for some, coverage amounts needed to repair or replace a home can range from hundreds of thousands to several millions of dollars. Since property values can change over time, it could be helpful for homeowners to periodically re-evaluate their level of coverage so that it’s at the level that is personally considered appropriate for the property’s current estimated market (what it could sell for) or replacement value; what it would cost to totally rebuild the home to its pre-loss style and condition.
It’s important to be aware that there are certain types of perils that generally are not covered in some homeowners policies. These situations are excluded from the usual coverage and could require additional, specialized coverage via either another policy or a “rider”, a provision added to a policy, often at an extra cost. Some of these occurrences could occur somewhat regularly, while others are very unlikely to happen. Threats to property that might not be covered in a regular policy could include floods, earthquakes, meteorite strikes, water damage through ground seepage or normal aging and repair needs.
Note that if a loss is incurred, insurers often believe (and it may be stated specifically in a policy) that a policyholder should generally attempt to protect the property from further damage and initiate reasonable repairs under the policy deductible—if there is one—while keeping all records and receipts for reimbursable costs. For the homeowner or renter, this may involve first contacting the police for theft, burglary or vandalism; calling the fire department for fire and smoke damage; hiring a tree service to remove a tree that struck the home, reporting the incident to other government agencies or hiring private damage mitigation companies as needed to manage fire, water, wind, weather and other damage. The insured is expected to promptly contact the insurance company after a loss and fully cooperate with it during the claim process.
Some limited information on personal liability and loss incidents that, depending on the details of a specific policy, could also be covered by property insurance
The Cambridge Dictionary defines personal liability as “the fact of a person, rather than a company or organization, being legally responsible for something.” Property insurance can be configured by the insurer and buyer to include some amount and type of personal liability coverage. This coverage might include a variety of situations, some common and some relatively rare. Following are just a few, very limited examples of personal liability situations that a property policy—again, depending on how the insurer and insured set it up—could insure against:
A brief list of some potential property-related liability situations
- A pet bites a visitor or bystander
- Damage to a guest’s property
- A guest is injured or dies on the property
- Someone incurs lost wages or pain and suffering because of an injury
- Someone is injured by slipping and falling
- Medical expenses for injury recovery
- The legal defense cost due to a lawsuit resulting from injury or other loss happening to someone
A summary of some other possible personal liability situations
- Home accidents
- Damage to someone else’s property
- Automobile accidents
- Recreational vehicles and activities where someone or something is injured
- Public libel / slander directed at someone through social media or through some other medium
- Volunteer work where someone could be accidently injured as a result of your actions
- Domestic help, such as nanny, pet sitter or caregiver injured on your property
- Home-based businesses where someone (such as technician or delivery person) or something is injured or damaged
- Rental property where an incident occurs
- Accidents away from home, such as in a store where property is harmed
- Educational settings, where an incident may happen, such as a child being injured
Insurance and policies can be complicated, and research and professional advice can help make them less complex and more understandable
This post only lightly touches on a few key points of insurance; it is a topic that can become increasingly complicated because of the many types, options and costs for policies. It’s worth repeating that when investigating insurance, be thorough and careful about comparing coverage. Policies that are supposed to cover similar kinds of loss may be very different in their deductibles, what is included and excluded from coverage and the compensation provided for a loss.
Research your insurance needs carefully, and don’t hesitate to reach out to insurance professionals to benefit from their knowledge and experience.
Did you know? Delta Community has a wholly owned subsidiary—Members Insurance Advisors—that helps find several types of insurance to Delta Community members
Delta Community offers access to more than just banking products; it provides through its wholly owned subsidiary, Members Insurance Advisors*, several types of insurance for the Credit Union’s members.
Members Insurance Advisors’ agents use a consultative approach to understand members’ current and future needs to help them find the right type and amount of insurance coverage to protect themselves and their possessions at every stage of their lives. Rather than relying on the policies offered by just one insurance company, Members Insurance Advisors’ agents research and compare multiple A-rated insurance carriers to find the best quote for the appropriate coverage tailored to a member’s unique lifestyle and situation.
Delta Community members can consider the benefits of a range of the most common types of coverage, including:
* Insurance products available through Members Insurance Advisors are not deposits of Delta Community Credit Union and are not protected by the NCUA. They are not an obligation of or guaranteed by Delta Community Credit Union and may be subject to risk. Any insurance required as a condition of an extension of credit by Delta Community Credit Union need not be purchased from Members Insurance Advisors and may be purchased from an agent or an insurance company of the Member's choice. Business conducted with Members Insurance Advisors is separate and distinct from any business conducted with Delta Community Credit Union.
