INSURANCE 101—WHAT YOU NEED TO KNOW
Mississippi Christian Living: What should a young couple just starting out know about the kinds of insurance they need as new homeowners? They are probably totally shocked at what it costs to run a household, pay property taxes, deal with a house note for the first time, etc. What questions should they ask to be sure they have what they need?
John Dorsa: Everyone knows that they need Auto and Homeowners insurance. But most people may not realize that all auto insurance policies are not created equal. Every insurance company sells its own particular policy, with its own set of exclusions, etc. Additionally, your auto insurer may offer several different types of auto policies, which all have much different levels of protection.
Here is an example—If I allow a friend to drive my car, and he causes an accident, is it covered? Under a “basic” level auto policy, there may be no coverage for “permissive drivers,” but under a “premium” or “platinum” type auto policy, a “permissive driver” might be covered. So you need to talk with your agent, and ask them to explain the details of your protection. You need to know what’s covered, and what’s NOT covered—BEFORE a loss occurs!
In my experience, the thing that I encounter most often with young couples is that they ignore their needs for Disability Insurance and for Life Insurance. And I made this same mistake when I was young, so I will use myself as an example.
At 27 years old, just one year after we got married, my wife was diagnosed with Lou Gehrig’s disease. She soon became disabled, and was unable to work. We depended on her paycheck to maintain our lifestyle, so when she became disabled and was no longer bringing home a paycheck, it really put us into a severe financial hardship. If we had purchased Disability Insurance before she got sick, then the Disability Insurance policy would have kicked in and started sending us a monthly check to replace a part of her lost paycheck. Disability Insurance is like having “paycheck insurance,” and if we would’ve had this protection, it would have really made my life a whole lot easier.
Then, when my wife passed away two years later, we didn’t have any Life Insurance. I had to pay for the funeral on my credit card! I was also left with lots of unpaid medical bills from her illness, and it took me many years to pay off the funeral and medical expenses. A Life Insurance policy would have provided the money for me to pay all of these bills.
Neglecting to purchase Disability Insurance and Life Insurance on my wife remains as the biggest financial mistake that I have ever made. But this mistake was a strong motivating factor in driving me to get into the insurance business, because now, when I share the story of my mistake, I hope other young couples will not make the same mistake. I guess this is the Lord’s way of using my story about lemons and turning it into lemonade!
MCL: When considering homeowner’s insurance, what things are basically covered in a blanket policy and what kinds of things need to be listed on a separate floater? How do you determine this?
JD: First, the term “blanket policy” frightens me. This is similar to the term “fully covered,” which is also a misnomer—there is no such thing as being fully covered! Every insurance policy has certain limitations, and deductibles, etc., so there is no such thing as being fully covered.
Also, Homeowner insurance policies are just like Auto insurance policies, meaning that there are many different types of Homeowner policies available in Mississippi, and these different policies have much different levels of protection.
For example, what some companies call an HO-1 policy is a very basic homeowner policy. The best type of Homeowner policy that is normally available in Mississippi is the HO-5 policy, which is sometimes called a Deluxe Plus policy. Obviously, the HO-5 covers many more perils, and has fewer exclusions, than the HO-1 policy. So it is very important to know what type of Homeowner policy that you have.
Additionally, some items do need to be insured separately, either as a Rider attached to your Homeowner policy, or as a separate “Floater” policy. Most Homeowner policies provide a limited level of protection for items such as computers, jewelry, guns, silverware, and furs. If you own more of these items than a standard Homeowner policy will cover, then be sure to discuss this with your agent, so that your additional items of value can be properly covered by a Rider or a Floater policy.
MCL: What questions should a couple be sure to ask to avoid finding out after the fact that the plan they chose doesn’t cover theft or fire or flooding, etc.?
JD: No Homeowner policy covers flooding. A Flood Policy is a whole separate policy, but the good news is that, if you don’t live in a flood zone, Flood Policies are very affordable. Even if you don’t live in a Flood Zone, I always recommend that my customers consider purchasing a Flood Policy, because a flood event can happen at any time, in any place.
When I was still living in Louisiana, one of my customers lived in an old subdivision that had never flooded, so they didn’t think that they needed Flood Insurance. But one winter, a rainy weather system came through, stalled over Louisiana, and continued to rain on us for several days, with a good steady rain. Since this occurred in late fall/early winter, the leaves were falling, and the storm drain in front of my customer’s house eventually clogged with leaves, and the water could no longer drain, and my customer ended up with three feet of water in his house.
He did not have flood insurance, so this loss was not covered, and it cost him tens of thousands of dollars to repair the damage, and to replace his furniture, etc. So a flood can happened anytime, anywhere, and that is why I always recommend that every Homeowner consider purchasing Flood Insurance.
Fire is a basic peril that is covered by almost all Homeowner policies, but some policies differentiate between a “friendly fire”—such as a fire that you start in your fireplace—and a “hostile fire.” This is an important subject to discuss with your Agent, to make sure that your Homeowner policy covers both friendly fires and hostile fires.
Additionally, theft is a peril that should be covered by most Homeowner policies. But theft is not always as easy as it sounds. There is also “mysterious disappearance,” “burglary,” etc. This is another subjected to be sure to discuss with your agent, to see if these circumstances are covered. Also, it is wise to ask if this theft coverage applies only to items stolen out of your home or car, or if it also covers your personal possessions when they are elsewhere—like your suitcase being stolen while you are on vacation. Another question to ask is whether you are required to file a police report before you can file a theft claim.
