Full Coverage doesn’t mean Fully Protected

 

Full Coverage

 

Everyone wants to think they have “Full Coverage” so what exactly does that mean? 

Well for auto insurance that means the vehicle is covered for damage as well as the state required liability and medical coverage.  Sounds ok – right?  Not really since many states only require very low liability & medical limits!  In Pennsylvania auto insurance is only required to provide $15,000/person or $30,000/accident for bodily injury and $5000 for property damage!  If the injured person hires an attorney to sue for their injury, the attorney’s fee will be almost half so the injured party only would receive $9,000 which probably wouldn’t cover their medical expenses!  And how far would their $5000 medical coverage last?  With juries awarding large judgements, you should consider higher liability limits and even EXCESS Liability (sometimes referred to as an “Umbrella”). 

 But what about my home?  Homeowners insurance is a “replacement cost” contract, so you will need to insure your home for the cost (in TODAY’S DOLLARS) to rebuild the home exclusive of the land.  Insurance companies use replacement cost computer estimates to determine the cost to rebuild your home based on the type of construction (Older homes were built differently than new homes), features and location. 

 Homeowners insurance requires that you insure to 100% of replacement cost but since that can be difficult to determine exactly, you will need to be within 80% (coinsurance clause) to have coverage at replacement cost even if you have a partial loss.  For example, a storm damages your roof and the cost to repair is $10,000 but you only carry 75% of replacement cost, you will only get partial reimbursement for the damage!  So, if the insurance company says the replacement cost (NOT the market value) is $300,000 but you only insure for $225,000, you could end up getting 75% of a new roof!