Under Insured Explained

Acts of God

Your homeowner fire policy maybe under insured or may not cover what is known as the Acts of God, or may cover some events but not others. The Acts of God or acts of nature are overwhelming events caused by the forces of nature that has no possibility of prevention and intervention by any human agency. These include; earthquakes, floods, tornadoes, a volcanic eruption, or a tidal wave, etc.

Considerations

Homeowner’s insurance policies do not include flood insurance. However, the National Flood Insurance Program is now offering insurance coverage for floods associated with tropical storms, hurricanes, heavy rains and such other conditions that have great impact to our nation. But this coverage is only in communities that participate in the NFIP program. You can contact (888) 379-9531 and know if your area is available for coverage.

High Risk Areas

Residing in areas considered high risk for natural catastrophes natural calamities such as hurricanes or earthquakes, one may need to purchase a separate policy with add-ons that are specific to your protection needs. In California for example, there are earthquake prone areas that are known as high risk areas. Get the proper protection now.

Choosing a Loss Settlement Method for the Policy

Insurance policies have two main loss settlement methods that your insurer can offer. You can choose between a replacement cost and an actual cash value policy for your dwelling insurance.

However, if your property is mortgaged, you will likely be required to purchase a replacement cost policy, to ensure the bank (who still owns the property until fully paid) of rebuilding the asset in the event of a total loss, regardless of its depreciation or appreciation value.

The actual cash value, as discussed in other articles in this site, is calculated based on the depreciation or appreciation value of the property.

Insurance Limits of Coverage

Insurance companies only pay the specific limits of coverage. Most people today are under insured as far as their property limits can go. The people’s desire to have cheaper insurance premiums is a common reason for such predicament. It is but logical to understand that the cheaper the overall premium would be, the lesser coverage you will get. This has proven to be a bad decision in past disasters.

Often, insurance agents persuade their clients to buy lower coverage limit just to win a sale with a lower premium. In the event of a total loss of property, one may lose so much for being under insured. You may not have enough money to rebuild your property, and in some cases, you may incur a coinsurance penalty for being too under insured.

A word of advice to Landlords

Comparing your home’s current market value, the cost to rebuild that structure from scratch can substantially differ a lot. You also have to consider paying the job to have the previous debris removed after the disaster. A study recently revealed that 50%-70% of homes in some states are mostly under insured.

Your overall evaluation of a real estate investment must include the cost of proper insurance. There are several landlords who forget to factor the cost of insurance before making a decision to purchase a particular property.

It begins with finding a property and getting qualified for a loan. The proper insurance coverage will protect you and your asset throughout the life of your investment. But an insufficient coverage for a property can lead to its loss and ruin the entire investment.

You can actually get insurance quotes online and even speak to an independent insurance agent and obtain several quotations. Often, having several quotes can lead to better coverage with lower premiums. Be patient and take the time to get it right, avoid being under insured.