February 13, 2013 Presented by Erica Abbott & Jean Lown

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

2. Consider the risks • Severity and Frequency chart (Garman/ForguePersonal Finance)

3. Risk avoidance • Don’t do it… skydiving • or own it… a Pit bull

4. Risk retention • Can you afford the risk or do you need insurance? • Will it cause bankruptcy? • Refrigerator breaking vs. losing your home

5. Loss reduction • Try to prevent a loss or reduce the loss: • Smoke alarms • dead bolts • What other examples?

6. Transferring risk • You give someone else responsibility to pay for your loss: • Insurance (homeowners insurance)

7. Implement • 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

8. Factors affecting cost • Deductible- • Portion of loss you pay • Higher deductible = lower premiums

9. Hazard reduction • reduce probability of loss • Ex: no smokers, dead bolts • Other examples? • Loss reduction • reduces severity when loss occurs • Ex: smoke alarms, fire extinguishers • Others?

10. Shop around! • 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/

11. Liability • Covers injuries or damage caused by you, a family member, or pet • Trampolines & swimming pools • Broken windows • Icy sidewalks

12. Tips • 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

13. Do you have adequate insurance? • 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

14. Major Points • 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!

15. Homeowners Insurance • Liability • Protects against law suits • Property • Dwelling • Other structures on property • Personal property • Loss of use (additional living expenses)

16. Buying HO Insurance • How much coverage to REPLACE dwelling? (not land) • How much coverage on personal property? • How much liability coverage?

17. Home Replacement Value • 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?

18. Contents Coverage • Actual cash value • Yard sale/ thrift store prices • Contents replacement cost • “full” replacement value… except • Read policy limits!! • Review with your agent

19. Personal Liability • 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

20. Actions • 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?

21. Questions on Basics?

22. HO Insurance Industry • 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

23. Actions • 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

24. Filing Claims • Don’t file for < $1,000 • Raise deductible to $1,000 • Large loss • Consider hiring a public adjuster

25. When Disaster Strikes Do not let a crisis become a financial burden

26. Are you Covered? • Earthquake & flood damage are NOT covered by standard homeowners policies • You must purchase separate insurance coverage for these risks

27. Do you need Flood Insurance? • Recent flooding in Northern Utah • Wellsville • Paradise • Richfield • Mendon • Early-mid 1980s • Logan River Thrushwood-Sumac neighborhood

28. Flood Insurance • 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

29. But I live in a low risk area… • Almost 25% of all flood insurance claims come from “low risk” areas

30. Special Flood Hazard Area • If you live in a Special Flood Hazard Area (SFHA) or high risk area, mortgage lenders require flood insurance.

31. Flood Insurance • Who offers flood insurance? • FEMA Federal Emergency Management Agency • Sold through local insurance agencies

32. Flood Insurance • What will it cost? • Premiums: ~ $300-$400/year depending risk level & home value • Estimate your premium at FloodSmart.gov

33. Flood Insurance • 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

34. Flood Insurance • 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

35. Questions on Flood Insurnace?

36. Earthquake Risk & Insurance • 90% of Utahns live in earthquake zones Cache Valley & N. Utah: High risk • Earthquake policy covers • structure • contents • High (5-10%) deductible

37. Earthquake Insurance • 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

38. Earthquake Insurance • 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

39. Putting Down Roots In Earthquake Country • http://ussc.utah.gov/publications/roots_earthquake_low.pdf • How to prepare… besides buying insurance • 7 Steps to earthquake safety

40. Home Hazards • 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

41. 7 Steps on the road to earthquake safety • Identify potential hazards & begin to fix • Create disaster plan • Create disaster supply kits • Identify building weaknesses & begin to fix • Drop, cover & hold on during quake • Check for damage & injuries… • When safe, follow disaster plan

42. Evacuation Grab & Go Box • http://www.extension.org/pages/26403/grab-and-go-box • http://www.lsuagcenter.com/NR/rdonlyres/405B7245-4746-4480-9578-F3CE54172F2B/25562/Pub2949IEvacuationGrabBoxFINAL.pdf • Financial Binder (USU Extension) • http://extension.usu.edu/cache/htm/financial-binder-pages

43. Two Insurance Mistakes #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

44. How to Avoid Mistakes #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)

45. Questions? • What is your personal finance action plan? • Commit to 1-3 actions in coming week • Highest priority • Easiest

46. Upcoming Workshops • March 6th(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

47. You can find FPW at: • http://usu.edu/fpw/ • Like us on Facebook https://www.facebook.com/FinancialPlanningforWomen?fref=ts • Follow our blog at fpwusu.blogspot.com