| A. |
IT'S A COMPLICATED SUBJECT! |
| |
|
| 1. |
| The interrelationship of business and personal activities must be
coordinated carefully.
Personal insurance policies exclude business property and
commercial activity.
Commercial policies insuring corporations or LLCs do not extend coverage
to individuals, or the extension is very restrictive.
This may lead to very serious problems related to personal vehicles used
for business purposes, business owned vehicles used personally,
business property located in your home, commercial buildings
owned individually and leased to your company, lease agreements
you have signed as an officer in a business and guaranteed
individually, etc.
|
| |
| A very common problem is business travel where an
individual rents automobiles. There are specific procedures to
follow in order to trigger commercial insurance coverage on a
rental vehicle.
There are also limitations if a vehicle is rented for business and then
the renter takes personal vacation.
To see just how complicated this issue is, click on
Rental Vehicles and take a look.
|
|
| |
|
| 2. |
| A common example of conflict between personal insurance and business
activity or business insurance and personal activity.
A vehicle owned individually and used in business, or a vehicle purchased
in the name of a business and used personally can create a
number of serous gaps in coverage. Personal insurance provides
coverage for the named individual and family members residing in
their household, with very limited extensions for other use.
Commercial insurance provides coverage for the named business,
with limited extensions for other use.
|
| |
| The confusion between ownership and use is a
common cause of uninsured losses. |
|
| |
|
| 3. |
| Personal property and liability insurance provides coverage for
“resident relatives.”
Today, a sizeable percentage of the populace may share a common
residence but they are not relatives in a legal sense.
Use of a shared residence or vehicle by unrelated parties needs
to be addressed with considerable care.
|
|
| |
|
| 4. |
| Catastrophic loss studies show thirty-five percent (35%) of all flood
damage in the
United States
occurs to property
that is located outside the recognized flood hazard
boundaries.
How do you determine if your property is subject to flooding when you are
outside the flood hazard zones identified on the federal maps? |
| |
| a. |
First and foremost, you need to realize floodwaters don’t follow the
maps.
Flood maps show a measure of probability of
flooding at stated elevation. The one hundred-year (100)
flood elevation is simply one percent (1%) probability
the site will flood in one year. Floodwaters may exceed
the recognized flood elevation by twenty-five feet (25’)
or more, and extend tremendous distances beyond the
flood zones identified on federal maps. |
| |
|
| b. |
If you live outside a flood zone you still need to know if your home is
in proximity to the flood area.
If you are within proximity to a flood area, do the
following: |
| |
|
| |
| i. |
Identify your property in proximity to
the flood zone. |
| |
|
| ii. |
Determine the difference in elevation
between the one hundred or five hundred-year
flood zones, and the ground floor elevation of
your home (or building). |
| |
|
| iii. |
Determine the distance from the flood
zone to you property. |
| |
|
| iv. |
If your stream rises ten or twenty-five
feet (10' or 25') above the flood elevation, how
deep will the water be in your building? |
| |
|
| v. |
If you will need a boat in your house,
then you need flood insurance. |
| |
|
| vi. |
Flood insurance on property outside the
recognized flood zones is quite inexpensive. |
|
| |
|
| c. |
The insurance industry typically provides
coverage for people living in flood zones, but
determining risk beyond the boundaries of the flood maps
tends to be ignored. |
|
|
| |
|
| 5. |
| How do you determine if you need earthquake coverage? |
| |
| This task is simpler.
Stand in your front yard and look at your home very carefully.
Then pretend your house has been hit by an earthquake and is fifty
percent (50%) or one hundred percent (100%) destroyed.
If you can write a check and pay for the repairs, then you may
not need earthquake coverage. If you can’t write
that check, then you do.
Earthquake risk isn’t limited to California,
Alaska and the New Madrid area in the mid-west.
There have been major earthquakes in many states.
The New Madrid earthquake near Memphis, Tennessee in the early 1800s
caused church bells to ring in Boston, Massachusetts. |
|
| |
|
| B. |
HOW DO
YOU DETERMINE ADEQUATE INSURANCE LIMITS? |
| |
|
| 1. |
Marshall & Swift, an independent appraisal company, conducted a two-year
study of nearly 1,000,000 homes to assess the adequacy of property
valuation. They found
seventy percent (70%) under insured.
The average amount of the under valuation was twenty-nine percent (29%).
(January 5, 2001 release)
|
| |
|
| 2. |
The January 1999 issue of Consumer Reports estimated seventy percent
(70%) of the homes in the United States were underinsured.
Their estimate of under valuation was thirty-five percent (35%).
|
| |
|
| 3. |
If your home was leveled to a knee-high pile of debris, do you have
adequate coverage to rebuild?
|
| |
|
| 4. |
How do you value contents?
The insurance industry provides a percentage of building value, a number
that is always wrong. How do
they know the value of your belongings?
|
| |
|
| 5. |
In order to collect for a loss to personal property the insured must
provide a detailed inventory of damaged or destroyed goods.
Assume your home is totally burned and you cannot identify many of your
belongings. |
| |
|
| |
| a. |
Do you have a detailed inventory of your personal belongings? |
| |
|
| b. |
Do you have photographs of the interior of your home? |
| |
|
| c. |
Do you have photographs of the interior of your closets, dressers or
other storage containers? |
| |
|
| d. |
If not, how will you construct this list and determine the value if you
have a loss? |
|
| |
|
| 6. |
Post disaster studies find construction costs increase materially
following a
regional storm.
How do you address the combined task of (a) estimating values, and (b)
predicting post disaster construction costs?
|
| |
|
| 7. |
Determining adequate liability limits is a very confusing task.
How do you decide an amount that is adequate?
What criteria do you use?
|
| |
|
| 8. |
Why does a person of ordinary means need high automobile limits?
Let me provide an argument you haven’t considered.
A large percentage of the motoring public has low
automobile limits, or none at all.
But the segment of our population with no, or very low, automobile
liability insurance cause an exceptionally large percentage of
catastrophic automobile accidents.
Having high limits including uninsured and underinsured motorists
coverage will enable you to recover liability losses imposed on a party
with inadequate coverage from your own insurance program.
And the cost is quite low.
|
| |
|
| 9. |
How does a person of substantial means determine adequate liability
limits on their personal insurance account? It is interesting to see prominent individuals have
very serious discussions about
the adequacy of liability coverage and limits for
a business, then ignore their
personal account. But this happens far too often.
|
|
