can’t understand your insurance agent?referralsmatter.com/wp-includes/images/book.pdf · when...

2 Offutt Insurance Services 817–708-9000

Understanding Insurance

in Simple English

By David Offutt


Table of Contents

Dedication

Acknowledgments

Disclaimer (The Legal Stuff)

Introduction

Dispelling the Myths

Insurance policies done poorly

So What Coverage’s do You Need to Consider?

Car Insurance-No Such thing as “Full Coverage”!?

Car Insurance-Liability

Car Insurance–Uninsured/Underinsured Motorist

Car Insurance-Collision Deductible:

Car Insurance-Other than Collision/Comprehensive Deductible

Car Insurance Loss of Use/Rental Reimbursement

Car Insurance-Roadside Assistance

Renters Insurance

Renters Insurance-Contents;

Renters Insurance-Take an inventory

Renters Insurance-Loss of use

Renters Insurance-Liability

Life Insurance

Life Insurance: No IRS, No Creditors, No Way!

When should I get life insurance

How Much Life Insurance do I need?

Types of Plans?

Term or Permanent Life insurance

Disability Insurance

Homeowners Insurance

Homeowners Insurance - Dwelling Coverage

Homeowners Insurance - Separate Structure

Homeowners Insurance - Contents


Homeowners Insurance - Loss of use

Homeowners Insurance - Medical and Liability

Note on: Open Perils vs. Named Perils

Note on Deductibles

Note on: Claims Handling

Do I need an Umbrella Policy?

Specialty Policies:

In Closing,

About the Author


Dedication

Dedicated to my wonderful wife, Jana.

Thanks for always supporting me in living my dreams.

-David Offutt


Acknowledgments

Kevin Feldman, thanks for all you effort and dedication in pushing this project to completion. I could

have never done it without you. You are my hero.

Thank you.

David Offutt


Disclaimer (The Legal Stuff)

I am not a lawyer, a doctor, nor an underwriter – so I don’t practice medicine, law, nor

do I give tax advice, etc.

Don’t think of this as legal advice, and if you have questions that I don’t address you

should call your insurance agent. If, his name is David Offutt, you can reach him in Fort Worth,

Texas by phone at (817) 708-9000.

The information contained in this document, are my opinions and my understanding of

the insurance business in Texas.

These are my thoughts and as such are (in my opinion) correct. If you disagree with me,

good for you! At least you're thinking, no matter how wrong you are.

Nothing in this document is meant to explain your insurance policy. Read your policy to

understand your coverage’s.


Introduction

When insurance agents, start talking about polices – your eyes normally glaze over. It’s a

normal reaction to a foreign language.

Insurance is boring to most, confusing to many, and a necessity for us all. The confusion is our

(the insurance industry’s) fault and due to the over complicated nature of the policies and all the

confusing words we use. Every industry loves its jargon, but our industry is particularly bad, second only

to the medical field.

When seconds count the police are only minutes away. Ever notice you cannot get a cop when

you want one? When you need insurance, if you don’t already have it, you cannot get it! If you have

the wrong coverage, because you didn’t understand what you agent said, you’re screwed. That’s why; I

Speak English and you need to understand insurance, better.

Because, the bottom line is you are responsible for your (and your family’s) actions. Whether or

not you’re properly insured -- It’s up to you…

OK, if you are still reading this, it’s because you want to better understand auto, home, life, and

a couple other policies without a lot of jargon. Since this topic is dry, I’m going to try and break it down

as no one has before. Understandable. In Simple English.

Nothing (including this guide) will substitute for a real understanding of your insurance coverage

or the counsel of a good insurance agent.


Dispelling the Myths

Aren’t insurance companies and their policies – highly regulated – so, just get the one with the

best price – since they are all the same, right?

Wrong, nothing could be further from the truth. There are

some really great polices out there among some real dogs. Many

insurance companies want you to think their products, and the way

they take care of claims, are the same. The sophisticated and long

term nature of insurance products is the reason we are regulated.

Prices for insurance policies are regulated, and are all close to the same.

Wrong again, while insurance companies are required to file their rates with the states, the

market sets prices. States may challenge a rate change, but requires a lawsuit against the carrier, who

has already calculated their profit and loss. Besides, I doubt you would agree that the state is doing a

good job regulating insurance, once you read the section on state minimum car insurance.

Insurance policies done poorly

I’ve had people ask for my help with claims gone bad -- on policies with other

carriers, policies that were chosen based on low price or misunderstanding the

coverage. It’s truly disheartening, not to be able to help.

Very few people understand their coverage, and are shocked after filing

a claim to find their policy didn’t perform as expected, but then it’s too late.

Yet, because of the sophisticated and long term nature of insurance

many folks find out they have the wrong coverage – after they’re on the wrong

side of a claim. Nothing takes the place of a complete understanding of

insurance or the counsel of a reliable and honest insurance agent. So please,

review your policy on your way to my office, not literally, OK?


So What Coverage’s do You Need to Consider?

Well, it depends. It depends on where you are in life.

Renting or Buying a Home…

Kids or No Kids…

What age/value is the car you own…

What have you done for your retirement…

What happens if tragedy strikes…

These are suggestions for coverage’s you want to consider, but by no means a complete list.

Needs vary.


Car Insurance-No Such thing as “Full Coverage”!?

Yes, that term simply does not exist. Beware of any agent or company that says they will

provide you “Full-Coverage” since they will be putting coverage’s together in the way THEY feel is “Full”.

Full coverage could mean anything your agent wants it to mean!

Simply telling your agent you want full coverage is rolling the dice. There

are many opinions about what “full coverage” means. So when the adjustor

tells you something in your claim is not covered, you lose. Reminding him

that you had “full coverage”, is meaningless and won’t get your claim paid.

So, you either have to understand these coverage’s like an underwriter, or have an agent you trust doing

your insurance. Automobile insurance is needlessly sophisticated, but keep reading we’ll break it down

with as little jargon as possible.

Car Insurance-Liability

If you test the law of physics that says two cars cannot occupy the same space at the same time

– you crash. You now have a responsibility for someone else’s injuries and damages. The other guy’s

lawyers agree. These lawyers are also skilled at calculating a large amount of money to make things

right. (Remember, lawyers typically, get paid by a percentage of what they collect!)

This is where your insurance coverage comes in. It’s called Liability. Liability provides legal

counsel and moneys so that your policy can:

Deal with other Attorney’s demands

Defend you in Court, if needed

Pay you a daily allowance when your company needs you for testimony, statements, etc.

Choose how to settle the claim: (when and how the company sees fit )

Pays damages (up to the policy limits or agreed amount, whichever is less)

Think of this coverage like prepaid legal services with the bonus that your lawyers write checks

when they lose your case. How hard they work for you before settling, has a lot to do with the amount

of coverage you have.

Insurance companies can be quick to settle if you only carry the state minimum coverage

required. Yes, MOST people carry the state minimum. If you’re my client, we don’t typically write

minimum coverage.


Your insurance company can settle the claim without your input. Insurance company’s lawyers

deal with many cases at once, so they handle cases based on risk to the company, not your risk. That’s

the facts, I won’t sugar coat this one.

If the other party is suing for quite a bit more than your policy will pay, then your company’s

lawyers are going to settle quick. The insurance company will only pay up to the limits in your policy.

Please don’t blame them, they won’t fight for a lesser amount. They only fight if the settlement could

be below your policy amount. Your insurance company will settle your claim in their best interest.

You’ll know when your company’s lawyers settle, they’ll let you know it may be time to hire your

own lawyer. They just settled for less than the other guys wanted, so you may need to hire your own

lawyer.

Even if you own nothing, you’re still responsible for anything your policy amount didn’t cover.

Courts award Levies and Liens, where your credit and property rights may be assigned to others. The

best solution is simply having larger liability limits in your policy. Talk to your agent, hopefully, David

Offutt, to discuss the amount of coverage available to protect you. My phone number is (817) 708-

9000.

There is no deductible for the repair of someone else’s car.

Recommendation: Have higher limits on this coverage, it’s inexpensive and it may save you many

thousands of dollars or hundreds of hours of headaches.

State Minimum requirement is :

$30,000 1 Person /

$60,000 More Than 1 Person /

$25,000 Their property

How far do you think the state minimum goes in a bad accident?

I recommend: $250,000 / $500,000 / $100,000


Car Insurance–Uninsured/Underinsured Motorist:

You have an obligation to the other driver, so do they. But, that doesn’t mean that everyone

takes the obligation seriously, does it? Uninsured Motorist covers you, your passengers, and your car

when you are the victim to a driver without insurance.

Most people carry too little, because they don’t

understand their coverage’s, and they don’t know what you

discovered in the liability section. Other folks just don’t care,

and don’t carry any insurance.

We live in Texas, where people without car insurance

are among the highest in the nation. I have heard estimates as

high as 1 out of 5 drivers in Texas have no insurance. Many

more have too little coverage, they bought the minimum. The State Minimum ($30,000 at the time I

wrote this) doesn’t go very far in an accident with a couple hundred thousand dollars of damages.

If you are thinking, “hey I have medical coverage” you may want to review your exclusions and

limitations such as “first-pay”. With all the changes in health insurance, requirements that car insurance

takes care of medical benefits are more common than most people realize. Your health plan may not

cover you as easy as you think. Incidentally, a hit a run will usually be filed under uninsured motorist.

Recommendation: Buy this coverage, and select the same higher limits you did in liability,

after all, why have better coverage on ‘the other guy’ than you do on yourself?

Car Insurance-Collision Deductible:

You wreck your car – and this time it’s really your fault – this coverage pays to repair your car. Your

Collision deductible is the amount of money you pay – and your insurance pays the rest.

Before I discuss the amount I recommend for your deductible – how about something more

important? The real cost of this coverage -- something few agents will mention. What value is a claims

adjustor going to put on your car?

You already know how to pick a deductible you willing to pay, after that your carrier will pay the

rest. Companies have very different ideas about what the ‘rest’ means. Most people know their

deductible, but didn’t think about or ask about, what the insurance company would do before a claim.

So, the question is will you be comfortable discovering the difference between you and your insurance

company after you wreck it?

A good agent (who gets involved with claims) should openly speak about how the claims

handlers deal with repairs. The same agent should be able to explain how the value for your car is

calculated. Yeah, car repairs are a headache, but wouldn’t a good agent have explained if they will meet


your expectations? Especially, if meeting your expectations means that a settlement should fully fix or

outright purchase another car. Not all insurance companies are created equal.

You should ask your agent, how values are calculated? How well repairs will be completed? Do

they personally have pull with local shops ensuring your car is fixed to your satisfaction? A strong agent

will have stats on the local shops and should be able to help you with things like rental cars, etc.

Recommendation: You should set your deductible at a comfortable amount. Most people go

for a lower deductible, but this raises the cost. Could you save by raising your deductible?

Could you raise your deductible and save $ 50.00 per month in a mutual fund instead of paying

for a lower deductible. That $50 per month could end up a lot of money over time.

Car Insurance-Other than Collision/Comprehensive Deductible:

Besides you wrecking your car (unless you hit a moose or duck) “comprehensive” or the other poorly

named ‘Other than Collision’ part of your insurance policy is used. I think most of the confusion about

this coverage comes from the fact that carriers haven’t decided which sorry name to use. But, this

coverage will fix your car for most anything besides you actually wrecking it.

Your choice of deductible is generally from $50 to $1000 and will be the amount of money you

will pay before your insurance company picks up the balance.

Things like Hail, Theft, Glass Replacement, if you hit a bird or an animal, are covered in

‘Comprehensive’.

Note: Car Insurance (at least in Texas) does not pay for theft of property not belonging to the

car. So, I’m sorry… your Grammas’ bag of diamonds will not be covered when stolen out of your car.

These possessions are insured through your Homeowners (Renter’s) policy.

Before I recommend the amount of this poorly named coverage you should have asked your

agent if they have any special deals for you. As an example, in my agency we bargained dealer cost for

glass replacement – Generally, my clients can get their broken windshield replaced for about $120.00.

By the way that is way lower than what most of us choose as a deductible.

Again, as I mentioned in Collision Coverage, you likely know what a comfortable deductible

looks like. Most people have something close to $500. But, your pricing does not change as much

when you adjust your Collision deductible.

I typically recommend a similar amount as your ‘collision’ deductible. Isn’t it better to have a

frank conversation with your agent, before you have a wreck? Rather, than an ‘adult’ conversation

about why their comprehensive coverage may not pay enough to fix your car?


Recommendation: within your comfort zone – choose a little higher comprehensive deductible

and consider putting the savings in a mutual fund.

Could you raise your deductible and save $ 50.00 per month in a mutual fund instead of paying

for a lower deductible. That $50 per month could end up a lot of money over time.

Car Insurance Loss of Use/Rental Reimbursement:

This coverage will pay you back for Rental while you car is in the shop. In the shop does not mean the

mechanic, and sitting in the shop refers to the piles of cars at the body shop after an ice storm. You

need a rental car while your car is waiting to be repaired. Choose your cost by setting the daily

maximum your company will pay for your rental car.

Loss of use (K-Coverage) is new to Texas and offered only by Farmers at this time. Similar to old

school reimbursement, K-Coverage allows you to pocket the benefit if you decide against a rent car,

while your car is in the body shop.

Recommendation: since this coverage is one of the more expensive ones when considering

price vs. benefit. Ask what it costs to have the car you want. If you have more than one vehicle

available you may not need it, but it’s your choice.

Car Insurance-Roadside Assistance:

The unsung hero of auto insurance. Most clients tend to forget what this coverage will do for them – if

they even have it. I use this one all the time. Flat tire, lock your keys in the car, dead battery… and yes,

tow a disabled car to the shop for repairs. A great plan gets you prepaid service. Having to fight for

reimbursements can be a hassle and the costs of services can be terrible when you are stranded.

‘Highway robbery’ will come to mind if you get towed without pre-negotiated prepaid coverage’s.

Recommendation: take this coverage, it’s inexpensive and useful. Also check out my YouTube

channel and see how we use this coverage. My YouTube channel is: TimeToGetOffutt

http://www.youtube.com/user/TimeToGetOffutt


Renters Insurance

There is a widely held misconception that a landlord provides this for your possessions. This is

simply not true and many realize too late that they had no coverage after a disaster or theft. Your

landlord’s policy has simply no coverage that protects the tenants. Not sure why, but fires seem more

common for renters. Also a renter’s policy will help protect you from lawsuits when people are injured

when the landlord’s policy won’t.

You’ll find this coverage critical for paying rent at a temporary home while your apartment or

rented house is repaired. Since most leases I have seen require you to continue paying rent on your

damaged domicile. And of course, this policy can replace your possessions when they are lost due to a

disaster or theft.

Renters Insurance-Contents;

There is a limit (Total Amount) your insurance company will pay a claim, to replace your

possessions in a covered claim. Examples are: Theft, Water damage, fire, etc. Technically, you have to

tell your insurance agent what your stuff is worth -- after all it is your stuff.

Your Roommate’s Stuff is not covered on your policy

That is right. You cannot insure things you do not own (or renting in some cases) but let’s suffice to say

that you don’t have an insurance interest in your roommates stuff, nor do they in you.

Your possessions may be worth more than you think. Talk with your agent about Replacement

Coverage or your claims adjustor will pay you less than your cost to buy new stuff, due to your stuff

depreciating and being worth less than when you bought it.

You will appreciate Replacement Cost as it enables your claim handler to pay you to replace your

possessions with new stuff – after deductible, regardless of what it cost you originally.


Renters Insurance-Take an inventory?

How much renter’s coverage do you need? (Makes me think of this scene in a movie. A

brilliant, yet far too literal scientist was interviewed on an am talk show. Later that day was asked, hey

didn’t I see you on TV this morning? Scientist: “Now, how am I to know what you saw on TV?”)

Yes, you need coverage for you stuff, but how much? You’ll have to figure out what your stuff is

worth and tell your agent – the dollar value, so they can cover it.

I recommend you create an inventory, sounds tough, right? Well relax; you can take an

inventory with your phone or video camera. Grab a flashlight and start videoing, going from room to

room catalog your stuff, verbally making a description. (Take close-ups of expensive items, include

model numbers if possible) Easy right? The flashlight is there so you can get in your closet, and other

tight places without dragging everything out. Viola! You should be able to record a whole inventory in

about 15 minutes. Now, put that file on a cd in a safe place AWAY from your apartment.

Renters Insurance-Loss of use

Without this coverage you might be couch surfing through your friend’s living rooms. ‘Loss of

Use’ Pays rent for another place while yours is being rebuilt after it burns down – or something similar.

Check your lease -- Your landlord does not owe you a place to live immediately after a disaster. They

wrote the lease, and you could be paying rent with no place to live.

Recommendation: keep in mind you could be renting clothes, dishes, furniture, in addition to

what it costs to pay rent.

Renters Insurance-Liability

Pays for damages to others, deals with lawsuits, and provides for legal defense costs both inside

your place or common areas when the injury was caused by you. So, if someone accuses you of harming

them while entering or leaving your rented home or apartment, your insurance policy should cover that.

Again, as stated above in car insurance, consider liability as Pre-paid-legal where your attorney pays for

whatever cases that they lose.


Life Insurance

Unfortunately, you are not going to live forever. You are going to die. And so will I – that is a

fact.

The leading cause of human fatality is being born.

You don’t need life insurance. The family you leave behind needs you to have a plan in place so

they are not in a financial bind when you’re gone.

I want to go like my grandfather, peacefully in his sleep – not like the passengers in

the car screaming and trying to wake him.

Like grandpa you don’t know how or when you will go. Only that you will.

I’m willing to bet you have goals in your life.

You may even be so fortunate in life that you have people around you championing to make

those goals. They benefit from you doing well in life. I bet you call these people family, like I do.

Now, I’m also willing to bet that some of these goals are financial goals, and you have people

relying on you. I bet they think you are pretty great at it. It, of course, is bringing home a pay check.

You have family that rely on you, family that will still rely on even if you are dead. The fact is that they

will rely on you even more when you are dead.

The point of life insurance. You can make no excuses from the grave. And no one will think kindly

of you, if you don’t take care of your family’s financial obligation … before you die.

The worst day in your life is the day your spouse dies. The second worst day is the day you realize

they didn’t have enough Life Insurance.

Many people shortchange their value, but here is a good test, let’s turn to the Doctor…

What are you worth? When a beer truck runs you over?

If the beer truck runs you over, you would expect them to pay for all the income you could no

longer earn. If you miss two weeks, two months, or two years – you’d expect them to replace all those

missed paychecks.

So, what if the beer truck runs you over and now you have just enough time to negotiate the

settlement from you deathbed, and the plant manager comes by and offers you 2 or 4 year’s salary?


I’m insulted for you -- and you should too – unless you plan on coming back from the grave,

after the beer money is gone. You know, shake off the stink and get a job.

It’s just not enough money.

Recommendation: have a policy that pays your family the same thing your lawyer would

demand of the beer company. This is what life insurance is for – to replace your income when you are

dead.

Life Insurance: No IRS, No Creditors, No Way!

Life insurance does something unique, that no other financial vehicle does. It cannot be taxed.

Is immune to creditors. nor can ANYONE make a claim on your life insurance.

You have heard of the young woman marrying a rich old man, and tying up a huge estate in

probate for decades after his death. It happens, the name Anna Nichole Smith sound familiar?

When you die, your life insurance company writes a check to your family.

When should I get life insurance?

When they’re young. The earlier the better. Life insurance you own early can give you better

rates, and if you get sick (uninsurable) later in life, you already have life insurance.

Didn’t get your policy when you were young? Get it now unless your plans include getting

younger and healthier.

Own your own policy. The only insurance policies that you control are the ones you own. Many

people rely on their job for life insurance. The policy at work is rarely enough to protect your family.

And when you change jobs, you lose your coverage.

Most employers provide a small component of “free” coverage and most folks take just that.

Typically, it’s enough that it sounds good at the time, but will it meet your family’s needs? After all,

didn’t you negotiate your salary? Did you negotiate your life insurance coverage?


How Much Life Insurance do I need?

Most financial experts recommend 10 times your annual salary.

If I put all of my two degrees in economics to work on that formula here is the result:

10 times Your Income minus Your Current Savings = Need for Life Insurance.

For the sadist, there are nifty tools that calculate ‘Financial Needs Analysis’ – and as an

economist, I’ll tell you those things are a pain in the neck.

I’ll bet you more snow cones than you can eat on a hot day – you’ll die before you succumb to

this analysis. And the brain freeze is more fun. When it wears off, you’ll have nothing less than 10

times your income minus your savings.

Types of Plans?

There are no limits to the number of different types of policies. You have heard of Term,

Limited Term, Whole Life, Mortgage Payoff plans, and Variations within these – certainly too many to

list.

The best life insurance plan… My final Answer!

The one that is in force that protects your family, when you die.

You know that EVERYBODY has an opinion about life insurance. Not just insurance agents,

EVERYBODY!

And they’ll tell you, usually without asking.

So what is the best type of plan to own?

Look the best type of life insurance is the one that is in force the day you die. I don’t care if

your uncle told you to buy the double back flip super life combo, because he learned from a millionaire

that you need life insurance. If that super combo plan expired the day before you do, your uncle’s

advice did you little good.

So the best policy you can have is:

One you can afford to protect your family

Meets all your financial needs

Is active the day you die


Hey I’m too old or sick for life insurance

What makes you certain? I just wrote a life insurance policy a few months ago for an 80 year old

man. He got the highest rating for his age group and it was approved in 3 days. He is still alive and his

bride knows they can afford his final expenses when he goes.

Too sick? Overweight?

So what’s more important? Being your ideal weight with the perfect figure, blood pressure,

cholesterol level, sugar level, able to leap tall buildings in a single bound? Or having life insurance to

protect your family?

Take the policy you can get now. Then get motivated to get back in shape. You can always get a

better rating later (lower price – more benefits). I have worked on my health since I opened my agency

and reapplied for life insurance every year. I’ve gone from worse to better ratings – by eating better

and taking better care of myself.

Life insurance companies use labs to gauge your health –

Good health indicators (as judged by the lab) equals lower payments

Negative indicators are the same ones that predict that you will die prematurely

due to poor health.

So, get your policy – then get in the gym. Come back next year and your policy could be more

affordable with greater benefits.

Never been able to get life insurance?

Products are changing all the time. Type 2 diabetes used to mean you could not get a policy.

So did being 80 years old. Last year we helped get policies for one man who was 80 years young and

another with type 2 diabetes.


Term or Permanent Life insurance

OK, I’m not the first guy that will weigh in on this one, nor will I be the last. I’m not looking to

change your opinion if it’s already set. Although, I have changed my mind and I own both on myself, Yes

Both!

What is Term Life Insurance?

Term Life Insurance – only pays if you die within a certain timeframe.

If you die after the 10, 20, or 30 years in your policy, you get nothing. Term insurance can be

inexpensive – when you are young. Term can be inexpensive when you are healthy.

Term policies typically cannot be purchased when you are old and sick – any more than buying

insurance on a burning building.

It’s the life insurance company’s job to know about when you will die – with financial certainty.

Life companies don’t write insurance policies on people that are going to die, soon. Only about 3% of

term policies end in a claim.

What is Permanent Life Insurance?

Permanent Life Insurance – is designed to pay whenever you do die. Usually costs a lot more – and

shouldn’t it? If a policy is designed to pay a ton of money when you finally do die? Then yes, they cost

more.

Permanent life insurance may have tax advantages. These advantages stem from the fact that

life insurance proceeds are not able to be taxed. Unlike money or property you have saved, which may

be taxed at your death before being transferred to your family.

Advantages that once applied only to the wealthy, may now apply to you.

The Heated Debate (or how the fight started)

Here is where the fun starts: brother vs. brother, husband vs. wife, in the Term vs. Permanent

debate.

No stranger to the arguments, I started selling life insurance in my early 20’s. I have heard most,

of these arguments and repeated many of them since I first started selling life insurance in the early

90’s.


Many of my opinions have changed 20 years experience tends to do that. But, a couple of the

very first policies I ever sold are still in force today.

But here are some practical thoughts.

Your term policy will not be active when you die

o because you were not able to justify the cost

o or was no longer available, due to health or age

You cannot justify the expense to have permanent life insurance to cover your needs

You will likely buy a lot of term and some permanent – or – all term.

Many companies have options to change some or all of the term coverage to a permanent plan

I understand why the arguments are there for and against Term and

Permanent life insurance.

There are Valid arguments against both type of polices. Both have their place, and used

incorrectly either will let you down.

There is NO simple Always do this answer. There is no simple never answer, either. None of

the “buy this and invest in this” strategies work for everyone.

If buying Term instead of Permanent life and investing the difference worked every time – why

are so many older adults without life insurance?

The problem with having all permanent life insurance is the cost. Most people cannot afford as

much coverage with permanent as with term.

Life insurance is like gambling? Or better yet, the lottery.

If you really think I’m going to do the “insurance company is betting you won’t die – you are

betting you will” argument then skip to the then next section. I have heard that argument – it’s silly and

incorrect.

Simple English aside, I have two degrees in mathematical fields and life insurance companies are

not gambling. On the math part they know how many people will die, they are the boss. The life

insurance companies know the statistics.

But first what does the Lottery have to do with that?

To know how the Texas Lottery Works – Follow the Money.


1/3 goes to Winnings

1/3 goes to administration (advertising, etc)

1/3 goes to the educational slush fund.

Every dollar put in the lottery has an Expected Value of 30. It’s the math folks.

The million dollar question is… $$$

You can imagine someone winning one million dollars with a one dollar ticket. But, have you

ever heard of anyone buying spending all their winnings on lottery tickets. That’s gambling.

The point is that life insurance is not gambling. Nobody is betting if you are going to die. The

life insurance company knows you will die. – And statistically when.

Life Insurance Companies know you will die. You know you will die.

There are all kinds of life insurance policies, but it’s up to you to decide what your needs are,

and what type of policy will best protect your family. The best policy is the one that is in force when

tragedy strikes


Disability Insurance

Disability Insurance replaces income lost because you cannot work due to long term illness or

injury.

Two policies = two timeframes…

…Long Term Disability –and- Short Term Disability.

Short Term Disability Policy is typically used after you exhaust your Sick Leave and can run for

about six months.

Long Term Disability Policy – Pays income lost because you are not able to work.

Most people assume that long term means the benefits will take care of you forever.

o This is just not the case.

Others think it pays for a nursing home, doctors bills,

o Which is not necessarily true

Disability Income Policies are intended to bring home the bacon, should you become disabled,

and not able to work.

Disability benefits are not:

Going to pay hospital or doctor bills

Fund your retirement

Take care of you for life

Tax Free Benefit of Disability Insurance

Disability can replace up to 75% of your income when you are sick don’t worry; these are

generally not taxable as income.

Employer ‘Provided’ Disability Policies.

Becoming less common every year, large employers traditionally ‘provided’ these policies for

their employees. When I say provided, I mean purchased on your behalf. But they justify purchasing

this coverage based on what you bring to them as an employee. If you were not important enough for

them to purchase this coverage, on your own.


As an economist, I remind you that your company exists to make a profit. Paying employees

who cannot work, goes against the company’s goal. Healthy companies don’t go against their goal. If

your employer allowed everyone to abuse their sick days, get paid, and produce little. Then your job

would eventually disappear.

Long Term Disability

Does not mean lifetime benefits. Only working years, these policies typically stop paying at the

age you would apply for Social Security. Long Term Disability payments might even be in your policy if

you are only partially disabled.


Homeowners Insurance

According to the BLS (Bureau of Labor & Statistics), 73% of the average American family’s net

worth is represented by their home. This has taken a real hit recently, but nevertheless, your home is

your single most valuable asset, so don’t screw this coverage up.

Surprises in your coverage when you wreck your car can be irritating and expensive. But,

discovering you are improperly covered after something happens to your home, could spell financial

disaster. Families that have improper insurance, are not able to rebuild will have little choice but to

allow their home to go back to the bank.

Before exploring the components of a homeowner’s policy, let’s talk about some of the things

that make some policies different from others. Depending on your policy you may or may not have the

following.

Open Perils (or all risk) means that when you have a claim it should be covered unless it is

excluded in the policy.

A Named perils claim is honored when the bad thing that happened to you home was

specifically named in the policy.

Water Coverage is an option in many policies – some older policies don’t cover or may have

significant limitations. This is generally water damage from water inside the home. (typically

does not include rain)

Flood Damage (is Rising water) is not something that homeowner’s policies cover. Nor, a risk

that most homes have. You would typically know you are in a flood zone when you take out a

mortgage, when the bank requires you to by a flood policy. You could also call you insurance

agent and have him run a flood zone determination, report from FEMA, enabling the two of you

to determine the need for a flood policy. Most companies offer flood policies, but they are

through FEMA.

Homeowners Insurance - Dwelling Coverage

This is the part of the coverage that pays to rebuild you home. If you home is damaged, the

dwelling dollar amount is the limit you insurance will pay to repair / rebuild your home. Technically, you

are responsible for telling us the amount of coverage, but most companies have software that calculates

this amount. Many homeowners think this amount is related to market value, but this amount is based

on the cost to rebuild. Don’t be surprised when it’s close to $100/sq foot.

My Recommendation be certain you understand if your policy is providing ‘Replacement Cost’

Coverage and if they will be using ‘Open’ or ‘Named’ Perils.


Homeowners Insurance - Separate Structure

This coverage is to pay for damage to other structures. Other than those used for business,

examples are detached garages, gazebos, swimming pools, Etc. Standard limit in Texas is 10% of the

replacement coverage on your home. Higher limits may be needed.

Homeowners Insurance - Contents

This is the amount your insurance company will pay to replace your stuff. My top requirement

for my clients is that this coverage is ‘Replacement’ coverage. With replacement coverage you can buy

new, even if the cost is more than you paid. This allows my clients to replace their possessions, after a

disaster.

By the way, 10% of your Contents coverage is automatically extended away from your home,

worldwide. Of course, as mentioned previously, ‘Open Perils’ vs. ‘Name Perils’ is important – just

because you have ‘Open Perils’ on your Home does not mean you automatically do for your possessions.

Recommendation be certain you understand if your policy is providing ‘Replacement Cost’

Coverage and if they will be using ‘Open’ or ‘Named’ Perils.

Take an inventory?

Do you really expect to remember all the stuff you lost after a bad disaster? You own more than

you think. I used to be surprised at how much stuff people own (have you really looked inside your

closets?). One claim after a bad fire showed that one client had $4500 worth of food and spices in her

pantry alone!

I recommend you create an inventory, sounds tough, right? Well relax; you can take an

inventory with your phone or video camera. Grab a flashlight and start videoing, going from room to

room catalog your stuff, verbally making a description. (Take close-ups of expensive items, include

model numbers if possible) Easy right? The flashlight is there so you can get in your closet and other

tight places without dragging everything out. Viola! You should be able to record a whole inventory in

about 15 minutes. Now, put that file on a CD in a safe place AWAY from your house.

You should really have enough Contents coverage to equal the amount of all the stuff in your

home.


Homeowners Insurance - Loss of use

When a claim causes you to move out of your home for the time it takes to repair, then your

insurance company should cover your temporary living expenses. Remember moving out of your home

is expensive. These costs are similar to being on vacation for 6, 12 or 24 months while your home is

being fixed.

Note, my carrier is great about this coverage and the only I know that can issue a prepaid debit

card at a house fire. Good carriers trust their claims handlers to write checks on the spot, but Great

carriers, will provide a VISA prepaid with emergency funds at a disaster.

Recommendation: Ask your agent if they are a Good or Great company at claims time? Do

they make decisions and write checks? Or do they hire third party handlers that have to send their

findings back to the ‘home office’ for approval?

Homeowners Insurance - Medical and Liability

Medical Costs include unintentional harm to another person. It’s a small amount (Maximum is generally $5000)

per person, no fault coverage for minor injury.

Example: someone is slicing vegetables in the kitchen and no fault of yours, they cut themselves.

This part of the policy should cover that.

Liability

Similar in Concept to Automotive Liability, in many regards, dissimilar that you aren’t required to

have Liability Coverage on your home. That’s right, this is the land of the Free -- you don’t have to carry

protection, but this is the last place I would recommend skimping.

If covered your policy can:

Deal with the other guy’s Attorneys

Defend you in court

Pay you a daily amount if the company needs you in court for testimony, statements, etc.

Choose how to settle the claim: (when and how they choose fit.)

Pays damages ( up to the agreed upon amount)

In automotive liability I used the analogy of “prepaid legal services” with a bonus that your

lawyers write checks when they lose your case. As, in the automotive counterpart, how hard they work

for you and where they choose to settle would be influenced if by the amount of coverage you have.


More Liability coverage means the insurance company could pay a higher settlement. Company lawyers

work harder, the more the company stands to pay.

Most Homeowner’s Policies have a minimum coverage in these, and if your agent is

recommending you $100K of Liability coverage, he is not looking out for your interests, at all. After all

the difference between the minimum ($100K to $1Million – about $20.00/year!) will surprise you. The

difference in between these two amounts, could be could be a big deal when your dog eats the

neighbor.

What if I don’t have anything?

Ok once in a while I’ll get the ‘what if I don’t have anything argument?’ argument.

All I can say that is equally silly is the facts. Regardless of how little you have here is a list of the

things that the lawyers cannot take from you...

One House

One Car

One Chicken

A Cow

And One Gun

Anything else is fair game, and you don’t choose which house, car, etc. I’m they will leave you

the rustiest car and oldest chicken if you have more than one. After all, this is Texas!

Note on: Open Perils vs. Named Perils

Open Perils. (Or what they used to call ALL RISK)

Misunderstand this and you could be displeased in the outcome of a claim.

Named Perils simply means that the type of loss must be listed in the policy.

Open Peril (all risk) means that losses are covered except for those on the exclusion list.

While it is true that All Risk policies afford more coverage than their Named Perils counterparts.

But, that does not mean that the company won’t have exclusions that may affect you.

Recommendation: ask your agent to help you understand if your policy is ‘Open’ or ‘Named’ –

and what your exclusions are. Or risk your financial future.


Note on Deductibles

Homeowner’s deductibles are often expressed as a percentage. The deductible is a percentage

of your home insurance policy. Translating percentages to dollars can be confusing when talking to your

agent. The test is does your agent speak in terms that YOU understand.

Typically there are three deductibles in your policy that you need to understand.

Clause 1: Wind/Hail Deductible: (generally roof related). Choose your deductibles based on

something you can afford to pay. We have hailstorms about every 10 minutes in Tarrant County, so

roofs in my area don’t die from old age.

They go from natural causes – hail is a force of nature so naturally you will need a roof

from time to time. The important thing to keep in mind on this one is how the claim will be

handled.

You may want to ask your agent (hopefully yours truly) how claims handlers decide how

much damage calls for a new roof verses repairs. Beware if your agent cannot answer.

Also, does your agent get involved in claims from time to time? Or will he when you feel

it’s necessary?

Clause 2: Tropical Cyclone Deductible: we really don’t see these in my area. But, we didn’t used to

get earthquakes either.

Clause 3: All Other Perils Deductible: This coverage, and the deductible you need to select, is pretty

much anything other than the first two. Meaning anything other than wind/hail.

Recommendation: You may want to really discuss deductibles with your agent, to figure out

what is best for you and what you can afford. So you are not surprised when you file a claim.


Note on: Claims Handling.

We think it’s important to understand and discuss how claims are handled by your company

before buying a policy. Learning how claims are handled may leave you angry, if discovered later. A

couple questions you should ask:

Are your claims handlers’ local?

How fast do they respond?

Are they specialized? Does the same claim handler do homes and cars?

Can they provide funds immediately? Or do they need home office approval?

Beware if your agent cannot answer your questions.

Our claims handlers are local and specialized, and able to settle their own claims. Meaning they

can write a check on the spot, without reporting back to corporate.

Do you rent out a room?

This requires special attention. Generally homeowner’s policies will have exclusions for renters

and borders. Homeowner’s policies are designed for people that live in, and care for, their own home.

Tenants and Renters policies are different from homeowner’s policies. Special exceptions are

sometimes made if blood relatives are renting a home from you, but you need to talk to your agent

about coverage.

Business Exposure?

Do you own a Home-based business? Well homeowners insurance covers a normal home risk,

but does not automatically extend to protecting your business. You should call your agent to gain clarity

on what is actually covered.

If you own a real business, it’s not covered on your homeowner’s policy. So, leave your business

at your business. Your business insurance policy should cover your business – make sure you have one.

Theft Claims:

These are generally handled differently, that it warrants discussion. While a theft claim does not really

reflect poorly on you, the industry as a whole tracks them. Make sure you file a police report; you will

need the report number.


Many insurance carriers may not write a new policy when a theft claim has been filed in the last

3 years. We have several special policies, so call us, if this has happened to you – or someone you

know.

Recommendation on Homeowners policies: Set the amount of your policy to the cost of

rebuilding, not the market value of your home (rebuilding costs more). Buy flood coverage if you are

at risk for flood damage. Read and understand all the exclusions in your policy (you don’t want to be

surprised when you file a claim).

Do I need an Umbrella Policy?

It’s an additional personal liability policy (harm to other’s or lawsuits from others). Typically, in

the amount of $1 Million or more. It helps protect you from serious lawsuits for unintentional harm to

others. This coverage is worldwide.

Before a lawyer files a lawsuit, he will check your financial status to see if you are worthy of

being sued. The higher your net worth or assets, the greater likelihood he will proceed.

Folks that have high risks like swimming pools, trampolines or financial assets should seriously

consider this protection. After all, we live in a litigious society – as many people look at insurance like a

lottery.

Home Warranty Coverage:

A home warranty is designed to repair or replace such items as water heaters, and dishwashers,

or other appliances like Air Conditioners. Generally, they have per visit deductible like $50- $100 to

repair or replace an item.

Your Homeowner’s insurance policy is not a maintenance program. It does not cover

appliances.

Specialty Policies:

Obviously, we could not discuss all types of insurance policies. Talk to your insurance agent

about the types of polices that you may need.

Examples may include: Long Term Care, Health Insurance, etc.


In Closing,

Now that you have an understanding of the insurance business, it’s imperative that you read and understand your policies. What’s covered? What’s not?

You need to have an annual policy review with your agent.

Life has a tendency to change and your insurance needs, will also.

As life changes don’t get caught off guard, be properly insured.

Hope you found this informative and useful. If I can be of service, let me know.

About the Author

David Offutt

Connect on Linkedin

Connect on Facebook

YouTube Channel

David Offutt, a small plane enthusiast with an advanced degree in Economics, started in the insurance

business while in college. Active today in Fort Worth, Texas, David is on a mission for people to

understand their insurance needs and policies, without learning the “jargon”.

It had became obvious to David, that almost everyone was being was underinsured, and few agents took

the time to make sure their people understood their policies.

He was challenged to write this book when he realized that he had become the insurance agent that

people trusted but could not easily understood.

http://www.linkedin.com/pub/david-offutt/9/249/930

https://www.facebook.com/pages/Offutt-Insurance/77470993420?fref=ts

http://www.youtube.com/user/TimeToGetOffutt

can’t understand your insurance agent?referralsmatter.com/wp-includes/images/book.pdf · when...

Documents