One of my all-time favorite vehicles is the 1974 to 1976 Toyota Land Cruiser. It technically was a four-passenger vehicle although the rear seats folded down from the sides and faced the middle. It had two doors, funky curved windows in the back corners, nice ground clearance, and a very utilitarian design. I thought they were very cool, but it wasn’t very pretty. A friend of mine recently bought one and is restoring it, so I thought this would be a good time to discuss car insurance for classic cars.
Classic car insurance in many ways is no different from car insurance for a Ford Taurus, Chevy Impala, or other current model vehicle. It has liability coverage and optional coverage for uninsured motorist, personal injury protection or medical coverage, and roadside assistance, as well as, comprehensive and collision deductibles. It is, however, very different in one key area. Instead of being written on an actual cash value basis, the policy can be written based on the vehicle’s stated value.
Car insurance policies for current model cars, trucks, and SUVs are written on a depreciated or actual cash value basis. This means if your 2015 Honda Acord is totaled, the claim will be paid on its depreciated value. The depreciated value is determined roughly by subtracting 2 years of depreciation (2017 to 2015), approximately 15% to 25% per year, from the original cost of the Acord. Other factors included in determining the depreciation are mileage and condition. Spots, stains, upholstery rips, dings, dents, and scratches will contribute to a lower value.
Based on the above factors, our 2015 Acord which cost $28,000 new may be depreciated $8,400 or more depending on the rate of depreciation and its overall condition. Receiving a check for $19,600 would be quite disappointing and may cause financial hardship if you owe more than that. Imagine how you’d feel if you paid $15,000 or more for a 1976 Land Cruiser or another classic car and it was totaled. The depreciated value of most classic cars may be only hundreds of dollars instead of the thousands they cost to buy.
Classic cars may be worth more now than they were when purchased new or may be rising in value. They are more of an investment than your daily ride and may be insured on a stated value basis. The stated value is dependent on its purchase price and / or stage of restoration. In the case of my friend’s Land Cruiser, its current value is between $15,000 and $17,500 since it’s about 50% restored. Once the restoration is complete, it will be worth about $35,000.
The policy I wrote for him covers it at its current value. We’ll talk every six months to see how far along he is in the restoration cycle and adjust the value accordingly. Being insured for its stated value means if it were to be totaled in an accident, his claim would be paid on the insured value of the vehicle rather than its depreciated value and that’s much better coverage! By the way, the cost for such a policy is much less than what I’m paying for my Toyota Camry.
What do you think? Share your comments, questions, or experiences with me on my Facebook, LinkedIn, and Google + pages. I’d love to hear from you.
Rising home prices in the Dallas / Fort Worth area mean larger mortgages in most cases which raises an interesting question, “How much home insurance is needed when you buy a home?” Stated another way, should the amount of home insurance be equal to the purchase price, the loan value, or some other number?
I dealt with this question last week when wrapping up a home insurance policy for a person buying a home. After getting everything coordinated with the buyer and sending in the paperwork to the mortgage company needed for closing, the loan underwriter requested I increase the amount of coverage to equal the amount on the loan. Let’s examine all three numbers.
Purchase Price: There are two things every homebuyer buys when purchasing a home, the home itself and the lot it sits on. Both have a certain value and are combined in the home’s purchase price. Since the lot isn’t going to go anywhere, home insurance companies only insure the home, not the land. Liability coverage is extended to cover incidents which may happen on the lot, but the lot will never be lost to a fire, tornado, or even a flood. This means the amount of home insurance required should be enough to replace the home, excluding the land.
Loan Value: The loan value consists of the agreed upon purchase price for the home and lot less the down payment the owner pays, so even the loan includes some amount of money to purchase both. Most mortgage professionals agree if the home insurance is a replacement cost policy and covers either the loan value or the appraised replacement cost, they will accept a home policy for less than the amount of the loan.
The opposite case existed in 2009 through 2011 when home prices were depressed and the cost to rebuild the home was often more than the purchase price or the appraisal’s replacement cost. Even though home prices were depressed, the cost to replace them continued to climb due to inflation of building materials, lumber, windows, etc.
Replacement Cost: Insurance companies want to insure a home for the amount it costs to replace them if a total loss occurs (see http://wiseinsurancegroup.com/home-insurance-replacement-cost-actual-cash-value/). The amount of coverage should be enough to cover demolition cost, haul the debris away to the dump, pay whatever fees there are to do this, and build a new home (such as plans, fencing, EPA skirting, etc.).
To raise the amount of coverage if the replacement cost is lower than the loan amount means the client may pay for coverage they may not be able to take advantage of. To have too little, means the client won’t have enough to rebuild the home if a total loss occurs. The best amount is what will replace the home today and grow as inflation occurs so the homeowner does not become underinsured.
I requested a copy of the appraisal from the loan processor to see what their appraised replacement cost was. It turns out the replacement cost policy I recommended contained more coverage than the appraisal stated it needed. The loan underwriter approved my policy without any changes which meant my new client didn’t have to add needless extra coverage to their home policy.
What do you think? Share your comments, questions, and experiences with me on my Facebook, LinkedIn, and Google + pages. I’d love to hear from you!
The 2017 Texas Legislature is well underway with over 8,000 bills introduced for consideration. The hot topics are the bathroom bill, immigration enforcement, equal parenting, medical cannabis, educational savings accounts, abortion, handguns, and parole of certain inmates. Sounds like a typical Texas Legislative session! There are two insurance related bills I want to address in this post – texting while driving and restrictions on lawsuits against insurance companies.
Texting and Driving: SB31, introduced by state Senator Judith Zaffirini of Laredo, seeks to make texting while driving illegal statewide. There are several communities within our state which have passed local laws banning texting while driving, but this has never made it to state-wide law. Former Governor Rick Perry, felt it would be an infringement on individual rights a few sessions ago so it withered on the vine.
This is the fifth consecutive session Zaffirini has introduced this legislation so I’m hoping Governor Abbott supports it. The bill passed the committee vote 6 – 3 and now heads to the full Senate to vote on. Distracted driving is the cause of more accidents than even drunk driving, and I don’t see how requiring people drive sober is any more of an infringement on individual liberties than requiring them to drive in an attentive manner. I believe passage of such a law will help reduce the number of accidents and accident related deaths in Texas and possibly even lower car insurance rates.
Insurance Company Lawsuits: SB10 which aims to limit the number of lawsuits filed against property insurance companies after severe weather events (hail). The original bill was amended and presented to the Texas Senate Business and Commerce Committee by its chair, Senator Kelly Hancock of North Richland Hills.
Hancock, and the bill’s supporters, claim lawsuits have caused insurance companies to decrease and even decline coverage in the counties where they are most prevalent. Insurance companies support the bill claiming they’ve been forced to raise home insurance rates due to these lawsuits and 7 companies have limited or stopped writing policies in Texas.
Opponents of the bill are concerned this places too much power in the hands of the insurance companies and limits policyholders access to the judicial system and the opportunity of holding insurers accountable. In addition to consumer groups, many business groups and law firms are concerned such a law will keep them from obtaining a fair property claim.
I’m not a big fan of frivolous lawsuits as they do drive the cost of home insurance up in Texas. Neither am I a fan of limiting an individual’s access to having their day in court when an insurance company mishandles a claim (Google Hurricane Katrina related lawsuits against insurance companies and you’ll see what I mean.). I believe this bill is well intentioned but misses the mark and needs even great refinement than what Senator Hancock has done.
What do you think? Share your comments, questions, and suggestions for future insurance related legislation to me on my Facebook, Google +, and LinkedIn pages. I’d love to hear from you!
2015 ended with a bang as tornados swept across north Texas damaging or destroying over 1,000 homes and damaging vehicles and commercial properties. Spring of 2016 was not to be outdone either. Last March and April, north Texas was struck by 3 hail storms and San Antonio suffered the worst hail storm in Texas history. The four hail storms combined claims totaled about $1.3 billion in damages to cars, homes, and businesses. Let’s examine how home insurance is being impacted this year.
Home insurance companies are responding to last year’s storms in a mostly predictable way. Rates are increasing for 2017. While not all the carriers have released their rates, the ones who have appear to be in the 20% to 30% range for new and existing policyholders, particularly those with homes in the zip codes west of Denton to east of McKinney. I expect the rates in this area to remain high at least through 2018 and possibly 2019.
Areas south of these zip codes such as Coppell, Carrollton, Farmers Branch, Dallas, and Richardson, are also experiencing rate increases, although they are slightly lower. While rates will climb for most in north Texas, I do expect the rates in these areas to trail the increases of our neighbors to the north. This assumes however, we avoid a major hail storm in north Texas for the next couple of years. If we get another major storm or series of storms, then rates will climb faster and remain higher for a longer time period.
The second way home insurance companies are responding are restrictions on roofs. Below are a couple of examples of the restrictions I’m seeing and have heard about.
- One company will not write a new policy on any home with a roof older than 15 years old.
- Another company adjusts the hail deductible from 1% to 1.5% of the dwelling value if the roof is over 9 years old or receives no written proof it’s younger.
- Several companies default the wind / hail deductible to 2% if they don’t also write the car insurance.
- Another company will write roofs up to 15 years old on a replacement cost basis but moves to a depreciated or actual cash value basis if 16 years old or older.
- There is a rumor one company will only write actual cash value or depreciation based coverage on all new business in the coming two to three months and move all existing policyholders to this coverage as they renew.
We should see a few more announcements of rate changes and roof restrictions made by May.
I believe there are a few actions home insurance policyholders can take to help mitigate the rate hikes and roof restrictions including:
- Review your home insurance options with other companies. Rates may change slower or faster depending on the insurance company and there are still good options available.
- Replace your roof if it needs it, especially if your home is located between Denton and McKinney. Time is running out to file a hail claim if your home was affected.
- If you did replace your roof, confirm with your agent the new roof discount is added to your current policy. This can provide a nice savings.
What do you think? Share your comments, thoughts, and experiences with me on my Facebook, Google +, and LinkedIn pages. I’d love to hear from you!
State Farm reported a loss on car insurance of $7 billion in 2016. It’s a staggering number, and they aren’t alone either. Allstate, Geico, The Hartford, and Travelers also experienced losses last year. One of my carriers shared with me for every $1.00 they took in for car insurance premium, they paid out $!.10 in claim losses, and that didn’t include the catastrophic car losses caused by our recent tornadoes and hail storms.
The question this raises is how will these losses impact consumers in the coming years? The answer is simple, most Texans will pay more for car insurance for the foreseeable future. I suspect we’ll see consistent annual increases. Let’s examine what’s contributing to these losses and how consumers minimize them.
The average cost of a new vehicle in 2016 was about $34,000. The cost will continue to rise as more vehicles are equipped with new technology such as lane departure warning, automatic braking, blind spot warning, back up cameras, smart headlights, and more. For instance, the cost of replacing a deployed airbag can run anywhere from $1,000 to $6,000 or more. Even a minor accident can result in a significant claim amount.
There’s also been an unexplained rise in traffic crashes over the last five years. After several decades of ever lowering crash numbers, they began to dramatically rise in 2011. Traffic related injuries and fatalities have increased over 20% in Texas since 2011. 3,757 died in 3,390 accidents last year with another 263,536 injured in 175,347 crashes in Texas. Not only do we lead the nation in traffic related fatalities, we are number one in alcohol related driving fatalities.
Population growth is also another factor contributing to the losses experienced. Every year over 80,000 people move into the Dallas / Fort Worth area and they bring their cars with them. More cars on our already overcrowded roads and highways means more accidents and more claim dollars being paid to repair the vehicles involved in accidents. This will only get worse if we continue to grow at this rate.
There are several actions consumers can take to minimize the annual increases I’m seeing in car insurance rates.
- Avoid anything that distracts your attention from driving such as talking on your smart phone and texting. Distracted driving surpassed drunk driving last year as a cause of accidents.
- Don’t drive impaired. With services like Lyft and Uber, there’s no excuse for drunk driving.
- Wear your seatbelt. Seatbelts save lives and there are still too many people not wearing them.
- Leave earlier for appointments so you can avoid rushing and not driving defensively.
- If you’re 70 or older, take a safe driving course to re-learn good driving habits. AARP offers one!
- Drive defensively by expecting the unexpected.
- Shop for car insurance. Don’t become locked in to one company, compare!
- Take advantage of discounts offered for having your driving monitored.
If we all do our part, we can lower the number of accidents across all of Texas and reap the savings that accompanies it. What do you think? Share your questions, suggestions, and experiences with me on my Facebook, Google +, and LinkedIn pages. I’d love to hear from you!
The spring buying season started early this year. February felt as busy as any April, May, or June, I’ve ever experienced, and it should only grow as we move into the prime spring buying season. I believe it’s a perfect time to look at how home insurance can impact home buyers when purchasing a new home.
Once the offer has been accepted, there are a lot of moving pieces that demand the buyer’s attention such as scheduling the inspection and appraisal. I also recommend home insurance quotes be obtained prior to the end of the option period. The quotes should be “firm” which means a replacement cost estimate and claims report were run. Here are three things to know and evaluate.
Insurance Rates: Home insurance rates for north Texas have and are rising at a rapid rate. I’ve already seen increases of 20% to 30% and there are still a few carriers which haven’t yet released revised rates. The reason for the increases is due to the tornadoes which struck the area in December 2015 and last year’s hail storms. Home insurance companies paid out millions in claims from those storms and are hedging those losses against future hail claims. Unless you’re buying a home that’s less than 10 years old, expect rates to be much higher than they were last year.
Higher rates can make or break a home buyer’s debt to income ratios which the mortgage underwriter will review. Be open to looking at multiple carriers to find a home insurance rate that works within those ratios. It’s also a good idea to know what your ratios are before you evaluate home insurance, and your loan originator should be able to tell you what it is.
Claims: I always review the CLUE report as a part of creating a home insurance quote. This report shows prior home claims the seller and the buyer filed within the past 5 years. Some home insurance companies factor both the buyer’s and the seller’s claims when determining the annual premium while others only factor the buyer’s claims.
Knowing if the home you’re about to buy has any prior home insurance claims is very important. Even if the home insurance company doesn’t count them when calculating the rate, underwriters will want to know what caused water leaks and that they were properly repaired and confirm if the roof was really replaced after last year’s hail claim.
Updates: This is also a good time to find out if the seller has updated the home. The kind of updates I’m referring to aren’t tile, countertops, or items like that, but rather when the roof, water heater, and HVAC equipment were last replaced. Updates to roofing, plumbing, HVAC, and electrical are worth discounts that help lower the cost of home insurance. You may also need to provide written proof they were done which the seller should provide.
Roof age has become very important to home insurance companies. In addition to impacting the cost of coverage, it can also impact the type of coverage (replacement cost versus actual cash value), as well as the wind / hail deductible (1% versus 1.5% or 2%). I’ll write more on this in a couple of weeks.
Buying a new home can be an exciting or trying time. Working through the home insurance before the option period ends can ensure your home fits your budget and avoid any unpleasant surprises. What do you think? Share your thoughts, questions, and experiences with me on my Facebook, Google +, and LinkedIn pages. I’d love to hear from you!
Small business is alive and well! I’m working with three new business owners who’ve decided to go out on their own and know they need business insurance to help protect their dream. The new owners include a therapist, a civil engineer, and a new retail store which will sell mattresses. I can’t imagine three more diverse businesses, but surprisingly, there are common themes about their needs. There are many different types of business insurance, however, most small businesses will benefit from two broad categories – general liability and professional liability.
General Liability: The therapist and the mattress retailer have a physical location; the therapist has an office and the mattress retailer a store. Clients meet with the therapist in her office while customers come into the store to shop. In both cases, a general liability policy protects the business owners should someone get hurt during their visit and sues them for negligence.
General liability, often referred to as premises liability is designed to protect a business owner when clients and customers come into their premises. Most retail and office property owners and property management companies require business owners to carry some level of general liability insurance as a condition of the lease.
In addition to providing premises liability, a GL policy may provide additional coverage for office furniture and equipment, store fixtures, and even inventory. Some may include coverage for advertising injury, and may provide optional coverage for employment practices liability. These policies are very flexible and can be tailored to the specific needs of the business owner.
Professional Liability: The therapist and civil engineer also provide a professional service based on training, certification, and ongoing education. They don’t sell a product, just their knowledge and insight to their clients. Professional liability is designed to protect a business owner who provides such guidance and insight. Similarly, people in marketing, consulting, real estate, architecture, engineering, law, insurance, and many other industries require this type of coverage.
Professional liability is designed to protect the person providing the service, advice, or consulting when they make a recommendation which turns out to be wrong or causes emotional or financial harm to one of their clients. For the therapist, doctor, dentist, etc., this is often referred to as malpractice insurance. It is referred to as professional liability or errors and omissions insurance for consultants, architects, realtors, home inspectors, title professionals, and insurance agents.
The civil engineer operates out of a home office and meets with clients in their offices so he only needs professional liability insurance. The therapist, however, needs both kinds since she meets with clients in her office. What kind you need depends not only on what you do, but where you conduct your business!
Which one do you need? Share your questions, comments, and experiences with me on my Facebook, Google +, and LinkedIn pages. I’d love to hear from you!
I received an email Monday from Kathy O’Brien, a realtor with Dave Perry-Miller’s Intown office. She asked a very interesting question concerning the post I wrote two weeks ago on the impact rising home prices have on home insurance (see http://wiseinsurancegroup.com/impact-rising-home-prices-home-insurance/). The post I wrote approached the topic from a home buyer, however, Kathy’s question was directed from the point of view of a north Texas homeowner. Her question was, “With home values increasing significantly over the past few years, what, if anything, can home owners/consumers do to ensure their property is sufficiently covered?”
Home prices in north Texas have risen steadily since 2010 and taken off like a rocket since 2014. Over the past four years, home prices have surged by 40%. Kathy’s question raises a real issue current homeowners should evaluate, and that is do they have enough home insurance coverage to replace their home in the event of a total loss? I believe there are two things built into most current home policies that help keep this from happening and one action both homeowners and agents should take to prevent anyone from being under-insured.
Inflation Protection: Most home insurance policies come with an inflation guard protection built in. This coverage is designed to increase the amount of coverage annually based on the inflation rate. Historically, the inflation rate usually runs in the 3% to 5% range annually, however, a 40% rate in home values over four years is much more than that. Many of my clients are seeing adjustments in the amount of coverage on their home in the 7% to 10% range over the past two years which is more in line with the rate home values and home construction are increasing.
Inflation protection was optional on many policies 7 plus years ago, but has become more of an included feature in the policies most companies write. If your policy isn’t adjusting each year, or hasn’t in a while, then a new replacement cost estimate should be done at least every two to three years to ensure you have enough home insurance to cover your home for a total loss.
Extended Replacement Cost: This is an optional coverage I add to most home insurance policies I write, provided the company offers it. It’s designed to provide a bit of “padding” to the dwelling coverage, the amount the home is covered for in the policy. The carriers I work with provide a level of 25% to 50% of the home’s insured value, so if a home is insured for $200,000 and the extended replacement cost option selected is 25%, then the amount of extended replacement cost coverage is $50,000.
Its purpose is to provide additional coverage if the home suffers a total or near total loss and the amount of coverage isn’t sufficient to rebuild your home. In times when home values are rapidly rising or we experience a large catastrophe like the tornadoes which struck north Texas in December of 2015, this coverage can be invaluable in helping you rebuild your home.
Annual Review: Most people never review their home insurance unless there’s been an increase. Many agents don’t review policies either, however, I do. I review every policy we write every year and look at two things – the amount the home is covered for and how much the rate has changed if any. I also requote each policy to see if we can write a new policy to save our clients on what they pay for home insurance.
I recommend all homeowners review their home insurance policies as well. Look for changes in the amount of coverage on the home, policy changes, and rates. You’ll be a more informed consumer if you do and probably avoid being under or over insured. Rates are adjusting now due to the hail and tornado claims across north Texas last year so this is a great time to review yours.
What do you think? Share your comments, questions, and experiences with me on my Facebook, Google +, and LinkedIn pages. I’d love to hear from you!
I had an interesting conversation with a new client the other day. She leases her car and wanted to confirm whether the car insurance policy covers manufacturer parts, also known as original equipment manufacturer or OEM parts, or would they insist on using third-party parts to repair her car if she files a car insurance claim? No client or prospective client has ever asked that question and it told me she’d either experienced or seen a claim go sideways.
I’ve written about how many car insurance claims departments specify the use of third- party parts before (see http://wiseinsurancegroup.com/third-party-parts-and-car-insurance-claims/). The reason is simple; they cost 20% to 50% of what OEM parts cost. However, the discussion pointed out a big difference between cars which are owned and / or financed versus leased which most people aren’t aware of.
If you purchase a car the finance company or bank does not specify what type of parts are used to repair your vehicle when a car insurance claim is filed. The insurance company is free to use any parts that fit, new or used, to repair your vehicle. Owners continue to make payments until they’re ready to replace it with a new or newer vehicle. You may not like the fact a third-party part was used to repair your vehicle but the bank or finance company doesn’t stipulate what kind of part is used.
This isn’t the case with a leased vehicle. Most lease agreements require OEM parts be used to repair your vehicle if a car insurance claim is filed. The reason is they want to sell your vehicle once the lease is finished and they know third-party parts result in a diminished value. If your car insurance company only pays for third party parts, as most do, then it’s the policyholder’s responsibility to pay the difference in cost between the third-party part and the OEM part, which can be significant!
This experience happened to my client when she bought car insurance from a different agent before we met. Like most people, she was angry about the experience. I explained to her most of the car insurance companies I write policies with offer OEM parts coverage as an option. It cost a little more each year to add this to the policy, however, it can save the policy holder a significant amount of money should they have an accident or comprehensive claim.
If you lease your vehicle, please ask whether OEM parts or covered. If not, ask if you can add this coverage to your existing policy. I know I’d rather pay a little more now than be faced with a much larger bill because I wasn’t informed of that option. What do you think? Share your comments, questions, and experiences with me on my Facebook, Google +, and LinkedIn pages. I’d love to hear from you!
I’m a little partial to homes with metal roofs. They are resilient, look pretty, and there’s nothing like falling asleep to the sound of rain falling on one. Most home insurance companies tend like them too as they last long and are fire and hail resistant. There are some home insurance policies though, that may contain a surprise most homeowners aren’t aware of.
Most home insurance companies will write a home with a steel or metal roof. There are a few though that won’t if it’s a tin roof, but they tend to be the exception. There are several carriers, however, that exclude cosmetic damage to a metal roof whether caused by hail or a falling tree limb. In these instances, a roof covered with dings from hail which doesn’t leak won’t be replaced since cosmetic damage is excluded.
The reason for excluding cosmetic damage is simple, the carrier does not want to pay for replacing a roof that looks damaged, but is still structurally sound. This is largely due to metal roofs costing more than composition shingle roofs. If you’re not aware of this exclusion, it can be an awful surprise for the homeowner!
Such was the case with a woman who called me to help her with a policy on her new home. The new home has a metal roof and she was concerned that cosmetic damage not be excluded from the policy I recommended. Her concern was due to watching what a friend experienced when their hail claim had been declined by a carrier who excludes cosmetic damage to metal roofs in their home insurance policy.
The policy I recommended to her includes coverage for cosmetic damage from hail. This carrier, as do a couple of others, provides a discount if cosmetic damage is excluded, however, I don’t think that’s a good discount. Who wants a home with a roof that looks like it was beaten with a hammer?! Including cosmetic damage coverage for your home’s metal roof is easy if you have the right home insurance policy.
The key whenever reviewing a new home insurance quote is asking questions such as, What coverage is included? What coverage is excluded? Are there any coverage limitations with this policy? Asking these questions may have helped my new client’s friend avoid an awful surprise, although, it would have been good had the information been volunteered.
What do you think? Share your thoughts, questions, and experiences with me. I’d love to hear from you!