Insurance covers more than your property. It also protects your assets when you are blamed for a loss.
Last week, we looked at Additional Living Expense coverage.
This week, we will conclude our alphabet soup series of homeowners’ coverages by talking about liability and guest medical coverage.
Liability and Coverage E: The story of Bob, Sue, and the Perfect Storm.
Bob and Sue were careful. All the time. So, they never thought about liability coverage. After all, what could possibly happen?
That was until the Perfect Storm struck.
That storm, and that day, changed everyone’s life.
The highest winds anyone had seen in years hit hard on that day. The old tree at the edge of Bob and Sue’s property just couldn’t take another pounding.
With one big gust, it toppled over — right onto Dave’s home next door.
That was bad enough, but worse, because it crashed through the guest bedroom window where Dave’s elderly grandmother was sleeping.
She was badly injured. Her recovery took weeks, and she continued having nightmares about the event for months.
Dave blamed Bob and Sue for not taking care of the old tree near the property line. It should have been cut down years ago, or so he alleged in his lawsuit.
Suddenly, the words “personal injury” and “pain and suffering” became important.
And suddenly, this question became very important: “How much liability coverage do we have?”
You can’t foresee everything.
No matter how careful you are, you can be held legally responsible for things that can get very expensive. Here are just a few:
That small dog that never bit anyone... bit someone.
That really safe lawnmower found a rock and hurled it through your neighbor’s window.
That hole you never saw in your yard... the neighbor twisted their ankle in it.
Even away from home, you can need your liability insurance. “Oops, I’m sorry I just bumped into you and knocked you down.”
That “oops” can end up in court if someone is seriously injured.
Small accidents and Coverage F: Guest Medical to the rescue!
Picture this: Your good friend comes over to help you slice vegetables for your party tonight. You reach behind her for something on the counter, and accidentally bump her. Now, instead of slicing vegetables, she slices her finger.
You rush her to the emergency room. A few stiches later, she’s “right as rain.”
She’s not upset at you (accidents happen after all, right?)
But, she has a large deductible on her medical insurance. She’s out of pocket for the trip to the ER.
Enter the “we still get to be friends” coverage, Guest Medical.
Insurance companies see the need for smaller claims to be settled without assigning blame or filing lawsuits. This situation would fall into that category.
It’s usually limited to a small amount, so you should check your policy to see your limits of coverage.
Do you have enough liability coverage?
Many people don’t. That’s a simple and sad fact. What’s sadder is that the cost to increase your liability coverage is usually far less than you think.
Plus, you can often add an Umbrella Policy on top of your homeowners policy for an affordable rate.
An umbrella policy is usually sold in $1 million increments. It extends your liability protection to match your assets and future earnings potential.
If you haven’t reviewed your liability needs in a while, call your local agent for a review. They can help you review your assets and potential risk, and make sure that you don’t come up short at claim time.
Your home burned down. Where are you going to live? Can you afford it?
In my last article, we explored Coverage C, Personal Property Coverage. Now it’s on to Coverage D, Additional Living Expense, which can also be referred to as Loss of Use coverage.
Additional Living Expense (ALE) covers the additionalliving expenses and costs associated with being displaced from your home if it becomes uninhabitable after a covered disaster, up to policy limits.
In other words, if you can’t live in your home after a covered loss, this coverage kicks in to help pay the extra costs of daily living while your home is being rebuilt.
Coverage is limited by either a time span (such as 12 months), a set dollar amount (often 10 to 20 percent of the dwelling coverage limit) or both. It pays until your limits are reached or your home is repaired.
What’s not covered?
This coverage is pretty broad in scope. Lots and lots of things are reimbursed. Your whole life is upended; suddenly you are staying in a hotel, you’ve got to find a place to eat... maybe you need to take a cab to get to work in the morning. That’s what this coverage was made for.
But emergency spending can get out of control really quickly. So, some simple limitations apply:
First, don’t change your lifestyle from a reasonable Napa Cabernet to a private reserve Dom Pérignon.
Insurance companies expect you to maintain your current standard of living, but not to increase it at their expense.
If you lived in a nice home, you can’t rent a mansion while your home is being rebuilt. As much as you’d like prime rib every night, unless that’s what you ate before, don’t expect the insurance company to foot the bill. If you lived in a three-bedroom home, that’s the home you’ll need to rent.
Second, it’s an “additional expense” coverage.
Let’s say your family spent $300 a week on food at home. Now you are eating at the local café for breakfast, McDonald’s for lunch and Applebee’s every night. The bill comes to $525 a week. You would be typically reimbursed the additional cost of food, which is $225. Not the total food bill.
Third, you won’t usually be reimbursed for staying with family or friends.
Finally, the insurance company isn’t paying for a vacation.
If a tree fell on a corner of your house, but you can still live in your home while they repair the minor damage, you can’t move into a hotel and send the insurance company the bill... even if the repairs are loud. Your home must be uninhabitable due to a covered event for this coverage to kick in.
This type of coverage requires a lot of “hands-on” attention if there’s a disaster.
You’ll need to keep detailed records and receipts. You’ll need to understand your policy limits. And you’ll need to be reasonable on spending.
At some point, the insurance company will expect you to move out of the hotel and into longer-term rental housing if repairs are expected to take a while.
That’s financially fair and practical. It’s a win-win for you to settle into a place of your own. Working closely with your claims adjuster can make the entire process go more smoothly.
Finally, talk to your local agent today if you aren’t sure that you have enough coverage for Additional Living Expense.