Things You Need to Know When Purchasing Insurance
Insurance is a tricky matter. It is so much more complicated than most people imagine. An Insurance policy in fact is a contract Insurance Company designs and you, as a consumer, buy. Should we enter into a contract without knowing what is in the contract? Nobody would agree with that statement, but most of us do exactly that when we buy insurance. We only compare prices, sometimes we also glance over the coverage, to make sure the mortgage company or landlord or state regulators are OK with it.
20 years into the insurance business, I can tell you countless times that my clients never know their coverage until they have the claim. Isn’t that too late? That is why we insurance brokers come in, where we protect our clients from unforeseeable losses by placing the right coverage for them.
A Real-Life Case
Today, I am going to talk about an obscure coverage called “Loss of Use”. It actually means different things in different types of policies like homeowners, renters or landlords. I had an initial consultation recently with a prospective client and this is the story she told me:
“My apartment was flooded at the beginning of the year. I was 8 months pregnant. I had to move out of my apartment right away because it was not inhabitable. For the next 6 months, I had to move 4 times, to different hotels, due to delay of repair work and my condo’ strict regulations. It was the most difficult time of my life, with my baby’s birth and all. To make things worse, the insurance company only pays a fraction of my living expenses during those 6 months, I was under tremendous stress to shop around for the lowest possible cost of housing. That insurance company really sucks.”
I went on and had an extensive discussion with her about this experience. Her policy was issued by a very reputable insurance company, the problem is she did not purchase the right coverage. When asked how she made her purchase decision, she told me that her realtor found a very affordable condo policy for her before her closing on her condo. Here it goes, it proves my statement that most people do not read their policy when they buy, the only thing matters is price.
If she purchased the right amount of “Loss of Use” coverage, she should be completely out of the stress to look for a cheap place, so she can focus more on the birth of her first child. In a homeowner’s policy, Loss of use coverage, also known as additional living expenses (ALE) insurance, or Coverage D, can help pay for the additional costs you might incur for reasonable housing and living expenses if a covered event makes your house temporarily uninhabitable while it's being repaired or rebuilt. It is normally a percentage of the dwelling coverage. In this case, since her Realtor helped her purchase this “affordable” policy, the dwelling coverage was only $10,000, hence the loss of use coverage at $2,000. Imagine that! How many days of hotel rooms can you purchase with $2,000?
I went ahead and adjusted her dwelling coverage to $50,000 and her Loss of Use to “actual loss sustained”, her annual premium went up $100. Isn’t that money well spent? Again, and again, I educate my clients that you should look for a policy that provides the BEST VALUE, not the LOWEST PRICE.
Consult an Insurance Professional
As an insurance professional, we know the value we provide to our clients. Contract law is one of the most complicated areas of law in the United States. It is almost impossible for a layman to read and understand every word on the policy (which is an insurance contract). As a broker, we represent the Insured, not the Insurance Company. we always do our best to find the Best Value policy for our clients.
This post is to be used for informational purpose only and does not constitute legal, business, or tax advice. Each person should consult his or her own accountant, attorney, or business advisor with respect to matters referenced in this post. Zhou Agency assumes no liability for actions taken in reliance upon the information contained herein.
Justine Zhou
Justine is the CEO of Zhou Agency. As a one-of-a-kind CPA who also excels in real estate investment, retirement planning and insurance, Justine was once given the nickname of "The Renaissance Woman", meaning " a woman who can do all things if she will." In spite of her seniority, Justine is a very approachable professional who genuinely cares about each individual and business' needs and finding them solutions that best fit their unique situation.
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