How Much Insurance Do I Have?

December 8, 2008

How many times have you heard someone say "read your policy"?

The problem is, you can do just that (read the policy) and still be left with a problem.

In the last year, we have assisted several people who know how to read and, after a loss, are still in a lurch. After a loss, they have discovered that they have little to no insurance.

Every policy has what is called, the "Dec Page". This term stands for "Declarations of Coverage" and these declarations can take more than a page. To confirm what they are insured for, insureds will read their policy and see words like "fire legal liability" or just "liability". They often think that this means that this is the amount they are insured for in the case of a property loss. That is not the case. "Liability" is the coverage for what an insured would be liable to another party or individual. It has nothing to do the amount that would be collected from an insurer in say, a fire loss.

For the life of me I can't understand how policies can be written by insurers that have low policy limits for property. Insurance companies enjoy receiving premium payments and the higher the policy limit, the higher the premium collected. Still, we encounter policies in which those premiums could be collected but, for some reason or another, were never calculated for a realistic property policy limit.

Consider the case of a bright, articulate Sound Production Studio Engineer who operated out of his home. He was insured by American Family to whom he went to their agent and asked for a rider to cover his studio. American Family added the endorsement, or rider, sometime before he had a serious water loss. As it turns out, he was insured all right but only for $5,000.00 for his very expensive equipment.

Another intelligent individual, for whom I have a great deal of respect, thought her American Family policy would cover a cabinet-making shop she jointly owned with her husband. A fire took away this family business and American Family tendered the policy limit for the shop and its equipment: $10,000.00. It is outrageous. Their agent gave strong assurance they were "covered in case of loss". Shamefully the shop was not. The "liability" limit was not the amount for which this substantial small business was insured for the equipment, tools and manufacturing materials.

Consider the case of a State Farm claim in which the insured explained to me that he had approached his agent and told his agent that he had recently built a cabinet-making shop next to his home in a somewhat rural area in his county. He is firm in telling me that the agent told him that he could not insure him for the business equipment and materials -- he would have to go to another insurer for that—but he could add the shop building to his home owner's policy, which he did. The insured paid premiums for six years on that building until he had a fire that destroyed the shop. He collected on the building equipment and materials from the OTHER insurance company but the State Farm Claim Representative dutifully explained that State Farm does not insure such business buildings by adding them to the home owner's policy. The building is insured but only as a non-business entity. Using the building for business voids that coverage.

Finally, the "Can you top this?" story of someone who thought he was insured concerns the apartment complex owner who had seven buildings on his property. He insured those buildings as his mortgagee required and the agent sent confirmation of coverage to the lender. A fire took away the Administrative Office to the Apartment Complex that included the game room and laundry facilities for the apartment tenants. As it turns out, the agent had itemized all of the buildings as being covered except the Admin/Laundry building. If it wasn't so tragic, it would be funny.

In two of the above cases, the insured is marching to court to ask a judge for a little fairness. However, if you have to go to court, you have already lost. Have you ever seen people exiting a courtroom? There are two people smiling: the attorneys.

So, how do we get around these kind of things? How do we keep these kinds of things from happening?

Communicate with your agent. Tell your agent what your expectations are and if your agent nods his or her head in agreement, ask that agent to kindly put in writing what your beliefs are in regards to your insurance. The agent will get serious real fast when you have a $10,000 policy limit on your $250,000.00 business.