Monthly Archives: October 2013

If I Rent Out My House And Move Elsewhere, Do I Have To Contact My Agent?

Q: If I Rent Out My House And Move Elsewhere, Do I Have To Contact My Agent?

A: YES!!

Anytime you change the occupancy of your residence you MUST call your agent.

A homeowners policy will only cover you and your home if that is your primary residence.

If you rent out your home you will need to purchase a new Rental Fire Policy.
If you move to a new primary residence, you will need a new Homeowners, Renters or Condo Policy for there as well.

Do NOT move before contacting your insurance agent !

Directors and Officers Liability Insurance

blog-directorsDear Sherri: I sit on the Board of a large non-profit organization that already has Directors and Officers Liability. As a result of my work on this Board, I was recently asked to join another Board of Directors also of a non-profit organization. Will the policy I am currently insured under provide coverage for me on this second board?
NY Boarder

Dear NY Boarder,
Oh God, now I’m bored! Anyway, in answer to your question, yes, the original D&O policy will provide coverage, provided that it includes coverage for “Outside Directorship”. This is an automatic extension that provides coverage for directors serving on other non-profit boards as part of their duties. I know this sounds like a “Who’s On First” skit, but it is something important to consider before accepting an invitation to sit on another Board. So check the policy to make sure that “Outside Directorship” coverage is included and that the second Board is also a NON-PROFIT ENTITY.

Be sure to call your insurance agent for more details.

How Much Insurance Do I Really Need?

Calculator-with-handAn interesting question and perhaps the most frequently asked when trying to determine the limit of insurance necessary to protect your property in case of loss. In insurance lingo, this concept is known as “insuring to value.” When trying to determine what this limit should be, most people immediately think of the market value of their property. However, market value has no bearing on the cost to rebuild or repair in case of loss. Frequently, clients insist that their property be insured for the selling price they believe they can get in today’s market, or for the price they paid when they purchased the property. This thinking can inflate the cost of the insurance, or worse yet, leave one improperly (under insured) insured at the time of a loss. So what standard should be used to determine the correct limit of insurance?

Keep in mind that land doesn’t burn and, therefore, doesn’t need to be repaired or rebuilt. So it follows, that even if you paid separately for the land and the structure, you don’t need to include the value of the land in the limit of insurance you choose. Structures can, and do, burn including both the main structure as well as any “appurtenant structures” such as garages for example. When establishing the value of your property you want to choose a limit of insurance that reflects the cost to repair of rebuild in case of partial loss or total loss. When in doubt a good rule of thumb, used by insurance carriers, is $175 to $200 a square foot. (Keep in mind that this figure is only to be used as guide when trying to determine insurance to value.) Since inflation is often a factor in contracting costs, many insurers include automatic percentage increases in their policies which range from 2% to 8% a year to cover such contingencies.
There is also an 80% rule which is utilized by insurance carriers. This rule, called “Coinsurance,” requires that a homeowner or building owner have a limit of insurance that is equal to at least 80% of the total replacement cost of the structure. A breach of this requirement, results in a penalty that can leave the property owner a participant, or a “coinsurer,” at the time of loss. In short, the insurance company will only pay a loss based on the limit of insurance carried, to the limit which should have been carried to meet the 80% requirement. Often clients think that they can save money by choosing an arbitrary building limit, until they encounter this situation at the time of loss and then it is too late!

For example, I own a home with a replacement cost of $300,000. (Some of my neighbors have recently sold similar homes on my block for upwards of $450,000. Remember, however, that the price I can sell my home for has nothing to do with the limit of insurance I need. If I were to build an exact duplicate of my home on some exotic island it might sell for over $5 million, but the replacement cost is still that same $300,000.) 80% of $300,000 is $240,000 which is the limit of insurance I need to meet the 80% requirement. Any lesser amount will generate a penalty. As a consequence, I won’t be paid in full at the time of loss. Let’s say that I decide to insure my property for $200,000. Subsequently, I have a loss and the damages are approximately $100,000. Even though this is not a total loss, undoubtedly, I will suffer a coinsurance penalty. Here is how this works: $200,000/$240,000 = 91.67% and the carrier will only pay me 91.67% of the loss or $91,670. The remaining $8,330 is my portion of this loss, and on top of this, the carrier will further reduce my payment to reflect the deductible I chose when I took out my policy.

Remember, any renovations or major changes to structure such as adding a room or extending the property will change this requirement, so it is imperative that you review your policy limits with your agent on, at least, an annual basis!

By Karen Skoler, CPCU

What Is Miscellaneous Professional Liability & Why Does My Company Need It?

miscMiscellaneous Professional Liability is a type of insurance designed for all businesses that specialize in some type of service to the general public. That is, when a company sets itself above the lay population by claiming to know some type of information that sets them apart from others. When a company or individual “provides a service for others” there can be mistakes, errors or omissions, – that is what this insurance is designed to cover.

A professional can make a mistake, misstate information, use information improperly or be guilty of malpractice just like any other person. When a professional acts accordingly, they can be sued.
In a litigious society such as ours, nobody can escape litigation for either a legitimate or perceived mistake. Such actions often turn into allegations on the part of the general public.
Who needs this protection?:

• Accountants
• Lawyers
• Financial consultants
• Realtors
• Providers of technology services or a human resources administrator
• Anyone who is compensated for the services they provide

Nowadays, typically lawsuits are in excess of $1,000,000. And a multi-million dollar lawsuit can virtually bankrupt a company, or damage its finances dramatically, even if an award isn’t rendered in a court of law. We are finding that defense costs can be more expensive than actual settlement amounts.

We recommend that anyone who signs a contract with their clients purchase this important protection.
If you do decide to purchase this insurance, here are some important provisos to look for:

• World-wide coverage;
• Duty To Defend wording;
• Inclusion of services performed via the Internet;
• Claim definition to include written demands for non-monetary relief;
• The inclusion of Punitive Damages where permitted by law;
• Broad definition of the word “Insured” to include any subsidiaries, spouse, heirs, domestic partner, etc;
• Coverage for Personal Injury;
• Defense costs in addition to the limit of liability wherever possible.

Please, we urge you not to try to decipher policy terms and conditions on your own. We recommend that you leave it to an independent insurance representative who is well versed in policy language and how coverage applies to your individual needs.

If you are a professional, don’t wait until you need the coverage. Get it now because it will offer you peace of mind and hope that you never have to use it!

– Karen Skoler, CPCU