Have you ever sat down and read through your insurance policy cover to cover?
If you’re one of the very few who has, can you honestly say that you understood every word of it?
Understanding your insurance policy is one way to help protect yourself should you suffer a loss.
Here are three key pieces of your policy that you must learn about today – you’ll be glad you did.
1. All-Risk vs. Named Perils
Some policies cover all accidental direct physical damage unless it is excluded by the policy. This is known in the industry as an “All-Risk Policy.”
This is much better coverage than a “Named Perils Policy.” In a Named Perils Policy, you are only covered for accidental direct physical damage caused by a named peril as outlined in your contract. As you can imagine, having a specific list of covered types of claims is not nearly as good as saying everything is covered unless specifically excluded.
Take for example an accident at your home. Maybe you spilled some bleach on your hardwood floor which caused a bad stain. As you might guess, there is no named peril for spilled bleach. If you had a named perils policy, you might not be covered, but under the All-Risk policy, you would be.
In the end, if you are looking for the better coverage, get the All-Risk policy, you will be happy that you did.
2. Actual Cash Value vs. Replacement Cost Value
Actual cash value (ACV) refers to how much you could sell one of your items for today. For example, that computer or phone you are using now to read this blog might only be worth 50% of its original cost. That amount is the actual cash value of your device. Replacement cost value (RCV) is the amount that you would have to spend today to purchase the same item.
Using the same example, how much would it cost you to go buy a new phone or computer? That is the replacement cost value. The difference between those two numbers is known as recoverable depreciation.
Insurance policies can either pay you based on actual cash value or replacement cost value. If your insurance policy offers to reimburse you the actual cash value of items lost, they will only give you what your used item was worth at the time of the loss. However, if your policy will reimburse you the replacement cost value, they will give you the amount necessary to go buy a new item.
Here is the catch. When you buy a replacement cost value policy, the insurance company will usually only give you the actual cost value until you actually go out and replace the item.
Let’s use a desk as an example. Your desk costs $500 brand new. You have it for 5 years and in its current condition, you could sell it for $200. But you have a fire and your desk is destroyed. If you have a replacement cost value policy, your insurance company may only give you $200. They will then hold your $300 as recoverable depreciation. You can only get that money if you go out and spend $500 on a new desk. But where do you come up with the extra money needed to buy the desk?
This is a common problem. Imagine you have a fire that destroys your entire home. You could have hundreds of thousands of dollars of items lost. If the insurance company take out even 20% for depreciation, that could leave you tens of thousands of dollars short. How can you replace your items?
Over depreciating items is a common tactic used by insurance companies to save them money. If you feel they have held back too much money, give us a call and we can help.
Most of the time, you will need to spend more money than you are given in order to replace your property. If you file a claim and your insurer only wants to give you the actual cash value for property lost, Wheeler, DiUlio, & Barnabei will always aim to get you the full replacement cost value.
3. Endorsements
Endorsements may seem harmless, but they can change everything.
An insurance endorsement is an amendment to your policy which changes the terms of that policy. Be careful: insurance companies will often make claims that they are not attempting to change coverage, but they will actually use ambiguous language that can be left up to interpretation and allow them to get out of paying you for a loss.
Sounds crazy, doesn’t it? Well, it’s happening right now. State Farm has changed its policy to say that leaks which occur “over a period of time” are not covered. What is a period of time? And who gets to decide that important designation? We explored this ridiculous policy in a recent blog post. In the case of State Farm, the endorsement goes so far as to say that State Farm is not attempting to change coverage, but depending on how it is interpreted, it might change your coverage.
This is just one example of hundreds of endorsements that insurance companies are trying to slip past their customers in order to free themselves from having to pay you the money you deserve.
If you have any questions about your contract, or if you are having a hard time understanding your insurance policy, give us a call. Pages upon pages of convoluted language and confusing endorsements can be overwhelming. We’re here to help you make sense of your policy and to make sure you are never taken advantage of.
Click here to speak with an attorney at Wheeler, DiUlio, & Barnabei.
