Let's start by stating up front that if you rent or own a home that is mortgaged, and/or lease or own a car, you are obligated to maintain the appropriate insurance. Beyond this, there are many other forms of insurance such as Life, Health, Employment, Mortgage, Business, Pet and New Home. Recently, I learned of an insurance policy for resale home buyers; it provides up to a year's coverage on things like appliances, roofs etc. So what is all this insurance guff about? And, what, if any, can we live without?
Peace of Mind - my piece of mind
Frankly, I am gobsmacked when financial services and regulators speak of the consumers' level of risk tolerance: I see it more as the propensity for loss. To restate, risk tolerance maybe more aptly described as loss tolerance. So Mr. or Ms. Consumer, let's check reality! How would you feel if tomorrow you no longer had your investments or your home? Could you survive? If not, the short answer is buy insurance: it is bought peace of mind. Naturally, there are areas of our lives in which we have no choice but to buy our peace of mind.
Forced Insurance - there are choices
Forced protection never sits well with me but it does offer some peace of mind. Recently, after a huge thunderstorm replete with tornado warnings, I embraced my homeowner insurance policy like an old friend. Fortunately, the homestead stands unharmed but if damaged, I would be covered. At least if the damage exceeded my deductible. Deductibles are one choice available in the forced insurance arena.
In the years that I have been buying home and car insurance, I've only thought to increase my deductible for my car policy. (Apparently, you can negotiate higher deductibles for both.) But let's start with car insurance.
During the leasing years, my contract stated the maximum allowable insurance deductible was $500. With one company I successfully negotiated this to $1,000. I have heard so many stories of people paying for their own repairs because of the fear of increased premiums. On average, these repairs were in and around the $1,000 range. So let me ask you this:
"Why are you paying for a policy with a $500 deductible when you are opting to pay up to $1,000 (or more) out of your own pocket?"
People, please! Change your deductible. If you lease, be sure you negotiate this upfront and get something in writing acknowledging the change.
According to the Financial Services Commission of Ontario (see www.ontarioinsurance.com) increasing your homeowner's insurance deductible may reduce your premium too. Just remember, doing so creates an immediate increase in your personal need to maintain liquid cash to cover unexpected damage. In fact, this option allows you to self-insurance up to the deductible.
In a world where insurance claims ratchet up premiums exponentially - and you would pay it out of your own pocket anyway - it only makes sense to adjust your deductibles accordingly.
What Other Choices are Available?
Provider choice is an obvious one - you do have a choice in carriers. Whenever I'm in the market for something, especially if I don't have a close personal connection, I ask around. Take a mini survey of family, friends and colleagues. This network can saved you all kinds of money and more importantly, you'll find that good service is only a question or two away!
A few months before your homeowners and/or car insurance is coming due, start your survey. Then get a comparative quote. Remember to compare like policies. There are many different types and cheap does not mean better. Be sure to ask for experience in handling claims as well as costs and ease of doing business.
Insurer demand repairs
Recently a reader called to tell me her insurer had given her a limited amount of time to replace the shingles on her home or they would not be renewing her homeowner's policy. I've heard of insurers refusing policies for homes with aged oil tanks, fuse boxes and a long standing aversion to knob and tube wiring. This is a scary precedent; however, the old adage still holds - a stitch in time saves nine. But really, do we want to be told to do something before it really needs to be done?
To be sure, nothing can replace regular home maintenance. Certainly, fifteen year shingles may not last ten years. So before you start home repairs at the behest of your insurer, get a few opinions from the people that know.
How can you tell if the work is required?
I don't know about you but I've long ago lost the desire to get down and personal with a home repair or maintenance project. Hiring the various trades people, even with references, can be a daunting task. How do you really know if the work is necessary? The surest way is to get an unbiased opinion is from a Home Inspector.
Many of us think of home inspectors when we purchase a resale home but why not consider them when faced with large maintenance or repair situations too. Not only can they identify the work, they can prioritize repairs too. Naturally, the expected repair cost would dictate if calling your friendly neighbourhood inspector makes sense.
In Ontario, look for inspectors with an RHI (Registered Home Inspector) after their names. Go to www.oahi.com to access information at the Ontario Association of Home Inspectors.
Determine cost / reward ratio of bringing in an inspector up front. Some charge flat fees whereas others charge by the hour and may include travel time. In the end, you will have a written report that can make comparing quotes very simple. Imagine not having to rely solely on the tradesman's assessment of the required work!
Check Insurance before you buy!
If you are buying a resale home don't get caught with an uninsurable property. Not too long ago I bumped into a situation where the house could not be insured because of aged oil tanks. Understandably, oil is an environmental nightmare when it comes to remediation and a costly one at that! I've heard a few tales from unhappy home buyers facing uninsurable properties due to fuse panels and by now most of us have heard of knob and tube wiring. To be sure, your home inspector will highlight any deficiencies: regardless, make sure to check with your insurance agent before you sign on the dotted line. If you are in doubt, you can ask your real estate agent to make your offer conditional upon obtaining suitable home insurance. This is becoming more popular of late.
If you are buying a different car, be sure to check with your agent or broker to determine your new rates. Nothing can be more upsetting to a financial plan then to learn you can afford your new car but not the higher insurance premium. There is sure to be a change in premiums if you change the class of your vehicle or if it falls into the "most often stolen" category.
So what insurance can we live without?
I'm still waiting for insurance insurance! Imagine insurance that would cover us in case we forgot to purchase insurance for something important. Until this product becomes available, I'm afraid as individuals, we need to assess our tolerance for loss and support it by purchasing insurance where necessary. My list would not reflect your tolerance so I won't go into here. I will say this; if you plan to buy, lease, or otherwise acquire something, first do the insurance assessment. As for existing assets, remember it never hurts to get another quote / opinion before you sign.
Know what you are buying
Insurance can be confusing. I cannot overemphasize the importance of understanding what you are buying. If you don't understand it the first time, ask the question again! Your sales person has an obligation to help you understand not only the amount of your coverage but all the little bits of the contract too.
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, Fiscal Agents Money Management Newsletter