NUTS & BOLTS
RISK MITIGATION
Getting to KnowYour Policy EDUCATING YOURSELF CAN HELP YOU AVOID THE DISAPPOINTMENT OF UNMET EXPECTATIONS DURING THE CLAIMS PROCESS AND MAY ALSO HELP YOU PREVENT A LOSS ALTOGETHER.
by BreAnn Stephenson
I
f you never have a loss, you may end up feeling that paying for insurance was a waste of money. Or if you need to use your insurance, the type of damage you have may not be covered by your policy. Both can be disappointing scenarios, but it’s important to remember that insurance is different frommany products for which you pay. Having been an insurance agent for almost a decade, I’d like to share some insights that have helped me as a consumer. Being satisfied with your insurance purchase has much to do with your understanding of its purpose, when to engage your coverage and simply getting familiar with the “guts” of your insurance policy. WHAT IS INSURANCE? Insurance, literally, is a contract. A contract implies that two parties enter into an agreement where both are bound to perform certain duties. You, the insured, promise to pay a set premium in exchange for the insurer paying for certain losses caused by risks specified within the contract. In addition to the money you pay for insurance to protect you from those specified losses, you also have other duties to perform to help the insurer fulfill its promises to you. Why? Insurance simply doesn’t cover every scenario. Un- fortunately, there are just some risks that insurance companies have excluded because they are either far too common or costly. Insurance, after all, isn’t a nonprofit business, though sometimes we treat it as such. If an insurance carrier covered every type of damage to your property, including wear and tear, for instance, then that insurer would quickly be out of business and not be able to offer you coverage when you need it most, such as when you sustain a large fire loss. THE ‘ARCHER IN THEWATCHTOWER’ CONCEPT Because insurance can’t cover everything, you must become familiar with what it does cover. If you think of your investment as being protected within a castle, the moat, walls and drawbridge are INSURANCE SHOULDN’T BE THE MAIN RISK MANAGEMENT STRATEGY FOR YOUR PROPERTIES
your main protections against intruders, right? These items might be likened to things such as your strategic plan for which neigh- borhoods you will invest in, your tenant screening process, your exit strategy, etc. These components make up your general business structure and plan. Insurance is there to help you with the unexpected -- the lone wolf who comes riding across your lands ready to invade. These would be items such as a hailstorm that rolls through the area or an electrical fire caused by spontaneous arcing. Notice I didn’t talk about a tenant leaving a pot on the stove and starting a kitchen fire? Or pipes bursting? Though insurance may cover those items, those are still avoidable losses. That stated, insurance is there to protect you from the unplanned and unexpected event -- not to pay for items that are a part of your daily cost of doing business. PROTECTIVE SAFEGUARDS: WHAT ARE THEY, AND DOES YOUR POLICY INCLUDE THEM? A “protective safeguard” is a system that you must have in place at the time of the loss. Not every policy requires them, but if any systems are listed, it is crucial that you employ them, otherwise your coverage may be denied. Consult your agent for specific definitions of the listed items in your policy. Examples of some of those safeguards include maintaining working smoke and/or carbon monoxide alarms, providing working fire extinguishers and (for commercial properties) maintaining fire alarms and installing automatic sprinkler systems, to name a few. ‘YOUR DUTIES IN THE EVENT OF A LOSS’ – READ THIS SECTION OF YOUR POLICY BEFORE A LOSS HAPPENS “Your Duties in the Event of a Loss” is a section in all stan- dard insurance policies. It tells you what you are responsible for should a loss occur. You’ll want to become familiar with this before something happens so you’re not scrambling during an emergency. Though you will need to read through that section to get familiar with the specifics of your own coverage, here is a summary of what is often included: • Notifying the police if a lawmay have been broken
• Giving the insurer prompt notice of the loss or damage (some may have a limited time frame in which you can submit a claim – often as little as 30-60 days from the time you discovered the damage) • Taking all reasonable steps to protect the property from further damage (mitigating damage) • At the insurance company’s request, giving it complete invento- ries of the damaged and undamaged property • Cooperating with the insurance company throughout the claims process, answering its questions (the insurer may request written and signed statements), allowing the company to inspect the property as necessary, providing damaged items if needed and letting it examine your books as warranted You have a responsibility (to the best of your ability) to keep your property from experiencing further damage after an initial loss has occurred. Here are some basic quick tips for keeping additional damage to a minimum: IN THE EVENT OF ANY LOSS • Take all reasonable steps to protect the property from further damage • Report the loss to your insurance company • Take photos of the damage • If feasible, set the damaged property aside and in the best possible order for examination • File a report with any applicable parties (police, fire, etc.) • Obtain an estimate from a trusted contractor • Submit all receipts for incurred expenses pertinent to the loss A full checklist pertaining to specific types of losses (fire, MITIGATION 101: YOU’VE HAD A LOSS – WHAT SHOULD YOU DO TO PROTECT YOUR PROPERTY FROM FURTHER LOSS?
burst pipes, etc.) is available in our “FREE Resources” section of the ALPS website (www.AffinityLPS.com).
WHEN TO FILE AN INSURANCE CLAIM Though you may have a covered loss, it may not always be within your best interest (or necessary) to file a claim. Taking higher deductibles and reserving your insurance for use in catastrophic situations that could take you out of business can save you a lot of premium dollars and keep your rates stable over the years so that your insurance really can respond when you need it most. If you file too many “frivolous” claims, most insurers will either raise your rates at your renewal or may decide they don’t want your property as a risk any more. WRAP-UP From reviewing almost 20 years of claims data, we have ascertained that prevention is always the best approach. It is the least expensive and consumes the least amount of time. The level of frustration is minimal compared to experiencing a loss, and it keeps others from being harmed, too. Becoming familiar with your coverage—including what is and isn’t cov- ered and what is expected of you in the event of a loss—can make the claims process much smoother and produce a result that is understood by and fair to all parties. ALPS is your advocate for helping you prevent avoidable losses, so please connect with us on our website (www.Affin- ityLPS.com) or sign up for our monthly newsletter. We wish you all the best in your investing life this summer! •
BreAnn Stephenson is assistant vice president of Affinity Loss Prevention Services. Contact her at breann@affinityLPS.com.
84 | think realty magazine may :: june 2017
thinkrealty . com | 85
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