Risk Management: Homeowners Insurance
Financial Planning for Women
February 13, 2013
Presented by Erica Abbott
&
Jean Lown

• Severity and Frequency chart
(Garman/Forgue Personal Finance )
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• Don’t do it… skydiving
• or own it… a Pit bull
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• Can you afford the risk or do you need insurance?
• Will it cause bankruptcy?
• Refrigerator breaking vs. losing your home
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• Try to prevent a loss or reduce the loss:
– Smoke alarms
– dead bolts
– What other examples?
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• You give someone else responsibility to pay for your loss:
– Insurance (homeowners insurance)
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• Insurance is necessary:
– high loss
• could lead to severe stress or bankruptcy
• Insurance is important:
– medium loss
• have to borrow $ at high interest
• Insurance is optional:
– low loss
• you can afford to pay for loss
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• Deductible-
– Portion of loss you pay
– Higher deductible = lower premiums
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– reduce probability of loss
• Ex: no smokers, dead bolts
• Other examples?
–reduces severity when loss occurs
• Ex: smoke alarms, fire extinguishers
• Others?
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• Homeowner insurance policies are standardized, but premiums vary
– Shop for price
– but find company that is reputable
• Utah Insurance Department http://www.insurance.utah.gov/
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• Covers injuries or damage caused by you, a family member, or pet
– Trampolines & swimming pools
– Broken windows
– Icy sidewalks
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• Coverage-
– enough to rebuild home
• find out cost per square foot
– don’t worry about value of land
• Don‘t buy on steep hill, riverbank, coast
• Named peril policy
– covers ONLY perils named
• All-risk
• covers everything EXCEPT what is listed
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• 3 out of 4 homes are underinsured by 35%
• CV residents need earthquake coverage
• Some CV homeowners need flood insurance
• Earthquake insurance and flood insurance are NOT included in HO policies
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• Understand & apply risk management principles to HO insurance
• Evaluate & update your HO coverage
• Document your home & possessions with a home inventory
• Increase deductible & liability coverage
• Purchase earthquake coverage!
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• Liability
– Protects against law suits
• Property
– Dwelling
– Other structures on property
– Personal property
– Loss of use (additional living expenses)
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• How much coverage to REPLACE dwelling? (not land)
• How much coverage on personal property?
• How much liability coverage?
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• Cost to rebuild ‘same’ home on your lot?
– Not same as market value!
• Get builder estimate
– Cost may exceed new home prices due to
• Higher cost/sq.ft. of partial rebuilding
• Updated building codes
• Guaranteed replacement cost coverage?
• Annual inflation adjustment?
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• Actual cash value
– Yard sale/ thrift store prices
• Contents replacement cost
– “full” replacement value… except
• Read policy limits!!
• Review with your agent
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• You could be sued (for more than your net worth) & future earning capacity
• Even if “innocent” you need to defend against lawsuits
• Standard coverage: Inadequate
– $100,000 personal liability
– $1,000 no-fault medical
– $250 no-fault property damage
• Higher limits are cheap
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• Consider cost to replace home
• Document contents: HH inventory
• Raise deductible if it saves you $
• Buy earthquake coverage
• Consider flood insurance
• DO NOT file small claims!
• Adequate emergency fund?
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• Lots of losses nationwide in 2012
– Superstorm Sandy
– Western wildfires: Colorado Springs
– Mold losses increasing nationwide
– Repair costs increasing
• Premiums going up
• Insurers dropping customers who
• File claims!
• Live in risk prone areas
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• File small claims & you could lose coverage
– Raise deductible
– Cover “small” losses yourself
• Check your credit report
– Credit history is used to set insurance rates
– Free reports
– www.annualcreditreport.com
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• Don’t file for < $1,000
• Raise deductible to $1,000
• Large loss
– Consider hiring a public adjuster
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Do not let a crisis become a financial burden

• Earthquake & flood damage are NOT covered by standard homeowners policies
• You must purchase separate insurance coverage for these risks
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• Recent flooding in Northern Utah
– Wellsville
– Paradise
– Richfield
– Mendon
• Early-mid 1980s
• Logan River Thrushwood-Sumac neighborhood
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• Floods happen in all 50 states
• “Everyone lives in a flood zone.” (FEMA)
• Only one inch of water can cost over
$1,000 to repair damage.
• New land development around you can increase flood risk
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• Almost 25% of all flood insurance claims come from “low risk” areas
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• If you live in a Special Flood Hazard Area
(SFHA) or high risk area, mortgage lenders require flood insurance.
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• Who offers flood insurance?
– FEMA Federal Emergency Management
Agency
– Sold through local insurance agencies
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• What will it cost?
– Premiums: ~ $300-$400/year depending risk level & home value
– Estimate your premium at FloodSmart.gov
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• What will it cost to buy from the government?
– If your community participates in the NEIP
National Emergency Insurance Policy and the risk is low, cost can be as low as $140/year
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• What is covered?
– Contents are covered only in the part of the home that is above ground
– For area below ground:
• Contents not covered
• unpainted sheetrock or stairs not covered
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• 90% of Utahns live in earthquake zones
Cache Valley & N. Utah: High risk
• Earthquake policy covers
– structure
– contents
• High (5-10%) deductible
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• What does it cost you now?
– An additional $1.60 per $1,000
• Ex. $160 a year for a $100,000 home
– An additional $7.75 per $1,000 if it is brick.
• Ex. $775 a year for a $100,000 home
• Save $ by excluding brick façade
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• What will it cost you after the quake?
– 5-10 % deductible
– About 5% on structure
• Insurance will pay up to $100,000
– About 10% on contents
• Insurance will pay up to $75,000
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• http://ussc.utah.gov/publications/roots_ear thquake_low.pdf
• How to prepare… besides buying insurance
• 7 Steps to earthquake safety

• Kitchen cabinets- need latches
• Secure TVs, stereos, computers- straps
• Pottery, vases – velcro, earthquake putty
• Use closed hooks on mirrors & pictures
• Secure tops of top-heavy furniture
• Secure water heater- straps & screws
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1. Identify potential hazards & begin to fix
2. Create disaster plan
3. Create disaster supply kits
4. Identify building weaknesses & begin to fix
5. Drop, cover & hold on during quake
6.
Check for damage & injuries…
7. When safe, follow disaster plan
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• http://www.extension.org/pages/26403/gra b-and-go-box
• http://www.lsuagcenter.com/NR/rdonlyres/
405B7245-4746-4480-9578-
F3CE54172F2B/25562/Pub2949IEvacuati onGrabBoxFINAL.pdf
• Financial Binder (USU Extension)
– http://extension.usu.edu/cache/htm/financialbinder-pages

#1 People over-insure : spend much more on insurance than they should
Too low a deductible
#2 People under-insure end up in financial crisis after a loss
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#1 Think ahead
– Is the risk great enough that you need insurance?
– If so, how much insurance do you really need?
– Do you have the resources to cover deductibles?
#2 Be prepared
– Have emergency savings (3-6 months of expenses)
– Keep a copy of your insurance policy somewhere safe (safe deposit box)
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• What is your personal finance action plan?
• Commit to 1-3 actions in coming week
– Highest priority
– Easiest
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• March 6 th (First Wednesday): Basics of Investing
• April 10th (11:30-12:30 in TSC room 336):
Social Security Expert Mickie Douglas
• May 8th: Great Mutual Funds for your Individual
Retirement Account (IRA)
• June 12th: Getting your house in order before buying a house.
• July 10th:
Saving for college with 529 college savings plans
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• http://usu.edu/fpw/
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• Follow our blog at fpwusu.blogspot.com
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