Wednesday, September 28, 2011

INSURANCE: Your Home Owners Policy Has to Keep Pace With Upgrades

If you’re thinking about adding a pool — or a deck, an elaborate swing set, or maybe even a trampoline — you might want to consider more than whether you can afford it.
You also should talk to your insurance company to see what effect it could have on your home owners policy and premiums.

If someone is injured — breaking their leg on the trampoline, tripping around the pool — the claim may not be covered if you have not updated your policy, said Mike Barbara, senior vice president of personal lines at the Otterstedt Insurance Agency, which represents more than 20 insurance companies.

Or, the company might pay the claim but then drop you as a customer, he said.
“If you’re going to do improvements to your house, you should talk to your insurance agent beforehand to figure out how those improvements affect your existing policy,” he said.
Lori DeSimone Ramil, the agent for State Farm in Englewood, notes consumers go to their doctor for trusted medical advice, their lawyer for legal services, and their accountant for financial tips.

“When it comes to protecting their assets against a lawsuit a lot of people seem to treat it very lightly,” said Ramil. “You really should have a confidant in place like an agent who can help you.”
Another benefit of talking to your agent before you make improvements is that they can give you advice that can head off possible problems, she said. Adding a deck may not require any changes to your policy or premium, but Ramil said she can give advice that would ensure the home owner takes all possible measures to reduce their risk of liability in case there is an accident. (Her advice: If the deck has more than three steps, make sure there is a handrail, and any deck raised off the ground needs railings.)

Talk to an expert
“Having an expert to talk to is really important,” Ramil said
Insurers are more wary about trampolines than pools, Barbara said. Injuries with pools can be more catastrophic, but trampoline injuries are more common. According to the Consumer Product Safety Commission, trampolines cause about 109,000 injuries nationwide per year. According to the CPSC, about 300 children under age 5 drown in pools and spas annually. There are about 8.6 million backyard swimming pools in the U.S., according to

Having a pool does not automatically mean that you would be disqualified for coverage, Barbara said, but the pool does need a locking gate and a fence. (In New Jersey, each municipality determines whether the fence is required by law.) If you have a slide or a diving board, that
would also have to be disclosed to the insurer, Barbara said.

“Those things have a significant potential to cause bodily injury,” he said. “The thing with pools is that even if kids in the neighborhood trespass on your property and get hurt, you are still liable.”
When it comes to trampolines, some insurers will drop you from coverage, he said.
“It is an increase in hazard,” he said.

The additional cost for one of these types of additions can vary, Barbara said. Some companies may not increase your premium; others may raise it by at least $50. Typically, home owners liability insurance coverage ranges from about $100,000 to $500,000.

Another option for home owners is to add an umbrella policy that covers liability on both the home and automobiles. Barbara said those policies, which usually include at least $1 million in liability coverage, cost about $200 a year.

“It’s not hard to go through a half million dollars in a lawsuit,” he said. “If a kid breaks his neck in your pool, you’ll go through that half million pretty quickly.”

Barbara said home owners should make sure that their liability limits covers their needs.
“If you have a million dollars worth of assets to lose you should have at least a million dollars worth of coverage,” he said. “You need to have enough coverage that you’re not wiped out in the event of a catastrophic loss.”

Insurance expert Jay Feinman said, however, that home owners also have to think rationally.
“How much insurance are you willing to pay for?” said Feinman, who wrote, “Delay, Deny, Defend: Why Insurance Companies Don’t Pay Claims and What You Can Do About It,” and is a distinguished professor at Rutgers Law School, Camden.

“How likely is it that if you had, say, $1.5 million in coverage and you were sued for $2 million that they’re going to come after you for the rest of it? Or are they going to settle for what the insurance offers?”

Don’t underinsure
“As long as you are not deliberately underinsured or extremely wealthy, they’re going to take the extent of the insurance coverage,” he said.

And although the consequences of a liability claim can be harsh, it’s not a common problem. In 2009 only about 120,000 homes were hit with a liability claim out of 50 million insured households, according to the Insurance Information Institute. (The average claim paid by insurers was $18,050.)

Still, Feinman said it is always a good idea to check your policy when it comes to improvements. Your premium may rise, not necessarily due to an increased risk of liability but because your property is more valuable and it will cost more to make replacements from damage.

“It’s a good time to evaluate how much coverage the home has,” Feinman said. “Not only ‘am I covered if someone is injured in my pool?’ but, ‘Are the liability limits on the pool high enough?’”
Feinman said that home owners should always ask for a copy of the policy — not just a description from an agent — before they sign up for insurance. And if you discover that your insurance is not adequate and upping your policy will be too costly, you can always switch insurers.

“It’s somewhat inconvenient but you can do it,” he said.

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