Friday, March 20, 2009

When Liability Insurance Attacks: For Home Sellers

Our insurance adviser tells us that one of the highest liability risk periods for any home owner is when they market the home for sale. This makes sense because hopefully a lot of interested buyers will be coming onto the property to see it -- most of them strangers. If someone falls, etc., it's like any other time basically -- there could be a liability claim against you. A standard Listing Agreement with any real estate broker should cover this in some further detail, however your best protection on all of these issues is to speak with your insurance agent.

We have even been advised that some home owner insurance carriers will not even establish a new policy while a house is on the market for sale because of the increased risk. Also, as with any insurance policy, the beast is in the exceptions listed in the policy, not to mention insufficient coverage compared to the likely liability cost a covered incident provides for in the policy. (For example, if you only have $5,000 for injury liability but someone breaks a leg, you could well be on the hook for way more than $5,000.)

Cheap insurance quotes are like discount real estate brokers in my opinion: you think you're saving money (and most times you're really not) -- and you better hope you never need them.

Another scenario: I have a pit bull and so am very aware that many home owner liability policies will either a) not cover pets, or b) not cover certain breeds from the liability policy. So every pet-owning home owner must be clear on that aspect of their policy. Even if your pet's actions are covered, you want to be sure the coverage is sufficient for any likely claim scenario - as with the above example, a dog bite could put you on the hot seat for way way more than $5,000 if that's the limit in your policy. Nothing stops anyone from suing you for more than your insurance coverage. If that person were to win in court, the plaintiff can pursue your other assets. Anyway your insurance agent can speak to all of this, and if anything in this post is news to you, you should call that agent right away.

Other critical items in my view to discuss with your insurance agent:

  • Whether you need a business rider on your car insurance. Without it, if the insurance adjuster determines your car was being used for business in a collision, your coverage could be denied.
  • Establishing or raising the value of an umbrella insurance policy to enhance your coverage limits. Think about it: if you have a catastrophic car crash that's your fault, if you have minimum coverage, your insurance carrier has every incentive to write a check for $25,000 (if that's your limit) and walk-away, leaving you with potentially hundreds of thousands in additional liability in the incident. Proper coverage including affordable umbrella coverage at $1 million, for example, could put your insurance company on the hot seat for up to $1.5 million in such an incident -- that's a sure calling card for their A-Team lawyers to come to your defense with that much of their own money on the line.
  • Whether your carrier is a mutual company, meaning its policy-holders own the company, or whether your carrier is a publicly traded corporation whose shareholders own the company. This basically gets to one important aspect: making sure your carrier, no matter how it's structured, has a good reputation for being fair about pay-outs on claims. In this Google era, you can do some private due diligence of your own as well.

Like I said, insurance is more than just a cheap quote. Sometimes you get what you pay for, and -- as is the case with my own professional role as a real estate broker -- sometimes the right adviser with the right ethics, experience, and expertise can get you far better results for the same "low price." At any rate, if you just go with the cheapest quote on anything in life without examining what's behind it, then whatever it is, you better hope you never need it.