Personal Insurance

By Cale Pickford
Originally submitted to Maine Realtor Magazine | Summer 2021

Independent insurance agents tend to field questions that follow a familiar pattern. Just as real estate agents with a few years experience under their belt can probably anticipate and questions from buyers and sellers before they are even asked, so it is with insurance. As sales and service professionals, we welcome our client’s questions as they show that the client is engaged and working through the details of selling or buying a home.

We are advisors and our ability to carefully listen and respond is the value of our service, especially when considered against the back-drop of the click-bait, lead-capture mine field that is the modern search engine.  (Have you ever clicked to see what mortgage rate you’re eligible for?)

Here  are a few excellent questions that independent insurance agents frequently hear.

How do I insure property in self-storage units?
People accumulate an extraordinary amount of property after they have lived in the same home for an extended period of time. Children move out of the nest and leave behind all manner of treasures, things too precious to allow their parents to give or throw away but not quite important enough to bring along as they begin their own personal quest to accumulate way more than they will ever need. On the other side, prized possessions of late parents and relatives also tend to trickle down to the next generation. It seems people cannot quite bring themselves to throw away that moth-eaten mink stole or home videos that should be converted to digital copies, someday. In response to this mountain of loved but unneeded property are acres and acres of self-storage facilities and pods. In some cases, homeowners’ insurance policies will provide world-wide coverage for personal property, including those items held in storage units, but with a limit of 10% of the total amount of coverage on the policy. With some carriers, you need to modify the existing homeowners policy to include property held in storage facilities with a specific limit of coverage. As with most personal property coverage, there are caps for certain high value categories of possessions, such as jewelry, watches, furs and firearms. If someone is between homes. having sold their home and figuring out what is next, they should look to the storage facility or specialized insurers who specifically provide insurance for this category of property. Bottom line: Ask your agent, as each insurer treats this category of property a little differently and never make the assumption that it is insured automatically.

Does my homeowners policy cover outbuildings (garage/sauna/yoga studio/shed) on my property? Almost all homeowners policies automatically provide a certain level of coverage for “other structures.” The coverage, generally set at 10% of the dwelling value, insures structures and things that are not attached to your house. Some examples of property that would be repaired or replaced if damaged by a covered peril are garages, guest houses, patios, dining areas, mailboxes and walkways. Limitations and exclusions to this automatic coverage do apply. For example, piers and wharves are covered but most insurers exclude marine-related loss such as wave action and the lifting and crushing of ice. Also, if a detached structure is tenant-occupied or used to conduct business, the policy will need to be modified to make sure the homeowner is properly insured. If the built-in coverage is not enough, you may have the option to increase the other structures limits. Also, if there is a lot of value in these detached structures, it is wise to have a discussion with your insurance agent to see if guaranteed replacement cost coverage applies, as this coverage mandates that the insurer replace or repair the damaged structure even if the cost to rebuild exceeds the limit of coverage. Depending on the insurer, pools can either be covered under the dwelling or other structures coverage. Above-ground pools are usually considered personal property.

Does bundling insurance really save money?
The quick answer is yes. Insurers hire legions of actuaries to keep a very close eye on the characteristics of the most profitable accounts. The goal is to avoid or charge more for accounts that are predicted to lose money, and be more aggressive with pricing on the accounts where a profit is expected. One of the principles of insurance is spread of risk: Insurers know that if they insure both a home and vehicles they’re more likely to turn a profit than if they insured just one aspect of their client’s life. The insurers also know that accounts with multiple policies have better retention, which is driven by savings, familiarity of doing business, and convenience (or hassle to switch everything!). From the client’s coverage perspective, bundling insurance can also create a more efficient solution, with the potential to close gaps in coverage and eliminate redundancies.

What about deductibles?
With most insurers, the deductible can have a significant impact on both home and auto insurance premiums. Whether you are shopping for insurance or reviewing your current policies it is a great idea to price deductibles within a range so you can make a cost benefit decision with actual numbers. Often insurers who specialize in covering high value homes will greatly incentivize high deductibles, with some offering deductibles as high as $100,000. For insurers focused on more typical homes, deductibles ranging from $500 to $2,500 are most common. Another benefit of higher deductibles is that they impose some discipline on filing claims. Claims history is a very important part of insurance underwriting and even very small homeowners claims can have a significant impact on insurance eligibility and pricing. If you have a $1,000 deductible and an $1,800 loss it might be wise to self-insure (pay out of pocket)  the cost of the repair rather than file the claim and risk your loss-free status. Furthermore, there’s always a chance that a more significant loss would occur in the near future, and having two claims in a short time span can have a major impact on access to insurance.

Flood Insurance: What’s new?
Flood insurance is always top of mind in a state like Maine with vast numbers of fresh and salt water adjacent real estate. York and Cumberland counties still have yet to adopt the new FEMA flood maps so be sure to be looking at both the current and future maps in these counties so your client can be proactive in mitigating the risk of being remapped into a special hazard flood zone. In positive news, the market has come up with some compelling and well-priced private flood insurance options as well as improved diagnostic software and third party websites which more easily allow real estate agents and their clients to determine the impact of the flood plain on a particular property. As always, get out ahead of the question of flood insurance because it takes some time to navigate the process of securing the best priced flood policy available. Also, if you need to have an elevation certificate done, expect delays greater than you have seen in the past. Like so many real estate tied professions, surveyors are busier than ever.

Socrates is credited with saying “the only true wisdom is knowing you know nothing.” In the world of insurance, this is very good advice. So often there are nuances and variables with in insurance coverage. The best advice is to work with an independent agent you trust and never hesitate to pick up the phone or send an email when you have a question about coverage.

By Cale Pickford
Originally submitted to Maine Realtor Magazine | Winter 2021

The U.S. is unique in the developed world in that we rely heavily on employers to provide many of the benefits and social safety nets which would otherwise be provided to all citizens on a national basis. The merits of the U.S. system are frequently debated but one clear issue with this system is that independent contractors have to research and purchase their own insurance policies which would otherwise be provided by an employer.

Because of the high cost and difficulty in understanding the products and options available to protect one’s assets and income from risk, many real estate agents, as independent contractors, are at risk − a serious accident or event can have a major impact or their financial well being.

A sound insurance strategy can help protect a family from the financial consequences of loss events. Use the following as an outline for the various insurance products real estate agents should review.

Life Insurance: Your investment advisor may tell you that life insurance is a critical component of a sound financial plan. Anyone who has dependents or a spouse – loved ones who would suffer financially should you die − should seriously consider life insurance because it will allow surviving family members to meet obligations that would have otherwise been funded by your (now missing) income.

Cale Pickford

Disability Income Insurance: In order to maintain your standard of living, it is important to protect your ability to earn an income. Individual disability income insurance helps preserve a portion of your income and provides financial protection if you become disabled for a period of time.

Long-Term Care Insurance: You’re not too young to think about this now. A long-term care insurance policy reimburses a preselected daily amount to cover the cost of skilled nursing care, speech, physical and rehabilitation therapy and services used to assist them with activities of daily living

Health Insurance: Studies suggest that as many as 12% of Americans are without health insurance. Even if you have health insurance or are eligible for Medicare, you should regularly review your plan to make sure that it is the best fit for you and your family’s needs. If you’re on Medicare, talk with an insurance specialist about the best Medicare Supplement Plan for you, to close gaps and reduce out-of-pocket costs.

Homeowners Insurance: Most people who own homes have homeowners insurance. However, a very high percentage of people are underinsured and lack the coverage they will need to make them whole following a loss. Review your policy with an agent, keeping in mind the increasing costs of both construction and to defend and settle bodily injury lawsuits. Also, coverage is very limited for certain types of personal property such as jewelry, firearms, fine arts and so forth, so I recommend insuring items of unique value on a separate valuable articles policy.

Automobile Insurance: Automobile coverage is mandatory in Maine, but just because you have a policy does not mean it will react in the way you expect or need it to. New cars depreciate quickly; make sure you consider gap coverage if you have a loan, or better yet, new car replacement coverage. Learn what coverage you have for towing, roadside assistance, rental cars and glass repair and consider the cost and benefit of having these on your policy. Most importantly, make certain that you have high liability limits and that your vehicle is rated for work use as opposed to pleasure or commuting. It does not matter what coverage you have if a claim is denied for being improperly rated.

An Umbrella Policy: This is perhaps the best value in the insurance industry. Umbrella policies provide protection, in increments of $1 million, for bodily injury and property damage claims which exhaust the limits of your auto, home or watercraft policies. Properly structured, an umbrella policy can greatly reduce the likelihood that a personal lawsuit will devastate your net worth.

Buying a product you hope you never need to use is never a fun way to spend money. Insurance is not the only way to reduce risk: Making smart decisions and being careful go a long way. Still, a properly constructed insurance program is a critical component of a sound financial strategy. Planning for the worst, and hoping for the best, is a good approach in an uncertain world.

Tips to save on your homeowner’s insurance policy

Rightfully so, we focus a lot on ways to make sure your homeowners policy offers proper protection− but cost matters too! Here are some ways to make sure you are getting the best deal in the marketplace:

• Review deductibles: Most insurers structure their rates to reward deductibles of $1,000 or higher. If you have a $500 deductible, you’re likely leaving savings on the table.
• Account credits: Insurance companies are looking for “spread of risk” − that is, insuring multiple policies for the same client. If you have separate insurers for your home and auto look to combine for additional discounts.
• Loss Control Devices: Insurance companies will reward customers who install systems that reduce the likelihood of claims. Central station fire, burglar and low temperature alarms will reduce your premium. Insurers may also offer discounts for automatic generators and automatic water shut-off valves.
• Shopping Around: On a national level, insurance companies have been hit with unprecedented catastrophic losses but Maine has thankfully been spared the worst of these natural disasters. If your renewal premiums have increased significantly, your insurer may be penalizing you for poor performance in other regions. Look for a regional insurer or a national company who has rates in Maine that are more in-line with the risk.
• Coverage Inflation: Insurers increase the amount of coverage on your policy each year. The intent is to keep pace with the increased cost of construction but often those increases compound and the coverage limit gets ahead of the replacement cost of your home. Review the limits of coverage to make sure you are not under-insured or over-insured. My top tip is to find a policy that will offer extended replacement cost of either 125% or 150% of the policy limit, or even unlimited or guaranteed replacement cost coverage. This endorsement will prevent you from being underinsured at the time of a loss.