FAQs

Insurance is for the uncertainties of life. Accidents and catastrophes happen. What can’t be predicted is when they will occur, and whom they will affect. Most people understand they’ll get sick at some point in their lives, but they can’t predict the severity and extent of the illness nor the cost of the treatment.

Catastrophes strike: In 2005, there were 24 weather-related or other disasters causing a total of $61 billion of insured losses. Hurricane Katrina alone caused $41 billion in damage from 1.75 million insurance claims.

Even the safest drivers face the risk of an accident, and even the safest homes can catch fire. In 2006, about 5 percent of insured homes had a claim, according to the Insurance Services Office. About 94 percent of these homeowners insurance claims were for property damage, including theft.

Lawsuits are another uncertainty that businesses and homeowners face. They’re costly: In the 56-year period from 1950-2006, the costs of the tort lawsuit system in the U.S. increased an average of 9.2% each year, reported Tillinghast-Towers Perrin. While most lawsuits are settled before they reach the courtroom, Jury Verdict Research data show that the median plaintiff award in personal injury cases was $45,000 in 2005, compared with $32,000 in 2002. Insurance provides two benefits to those who are sued: It pays for the cost of defending the lawsuit and pays for any liability payments for which the insured is found responsible.

Insurance is simply a vehicle for transferring risk from one party to another. You need insurance if you have financial risk (and everyone does) and you want to reduce that risk. To do so, you pay someone else (e.g., the insurance company) to assume much of the risk for you, in return for a payment known as a “premium.”

Because American consumers hold a tremendous amount of wealth in property—ranging from homes and cars to collections of baseball cards and Christmas ornaments—they have a basic need to protect themselves from losing that value.

Insurance is designed to “make people whole” after their property or assets are damaged or stolen, or if they are responsible for harm caused to another party. An insurance policy is a contract under which an insurance company agrees to pay a certain amount of money to the policyholder if certain events happen (and their property is damaged or they cause harm to someone else or someone else’s property).

Life insurance for centuries has been first and foremost insurance: it provides a death benefit to the family or business partners of an insured person.

Beginning about 30 years ago, the attractive returns in stock investments led insurance companies to bring investment elements into life insurance policies. For example, agents and companies offered consumers the choice of placing life insurance premiums into mutual funds, stocks, and bonds within the life insurance contract—known as “variable” life insurance. The term “variable” implies that the investment returns on these premiums vary with market performance.

With these types of life insurance policies, the insurance carrier takes the policyholder’s premium dollars and places them in the investment account(s) chosen by the policyholder. These types of life insurance policies are subject to state insurance regulation and federal and state securities regulations.

While investment-oriented life insurance has grown popular over the past generation, traditional life insurance (both permanent and term) continues to be purchased in large amounts. Americans purchased $3 trillion of new life insurance coverage in 2006, according to the American Council of Life Insurers.

If you’re not sure whether a life insurance policy includes investment elements, you can check the disclosure information on a life insurance application or policy, which must discuss whether securities are part of the life insurance contract

Rebuilding a home often costs more than what it took to build it originally, a fact that is surprising to most people. It’s important for your peace of mind to know you can replace your home in full if necessary.

To assure complete protection of your home, choose the coverage you need based on replacement, rather than original build, costs. There are subtle, extra expenses associated with rebuilding and they add up. You encounter most of them before you even drive the first nail.

Temporary repairs – the first step in a rebuild.

You may need to board up the home or have other temporary work done to secure it. This protects against further damage by the elements and by vandals. In severe losses, the home may need temporary electrical and heating. These are costs that you would not encounter when building a new home, but are often a necessary first step in a rebuild.

Demolition truths: it costs money to destroy something.

A damaged structure often requires partial or complete demolition before rebuilding can occur. Removing and hauling away the debris can be costly. An older home can make these costs even higher. Plan your coverage accordingly.

Your first building permit does not cover your rebuild.

You may not realize it, but a rebuild needs its own permit. Your insurance coverage should include this cost.

Engineers and architects – yes, you may need their services.

Rebuilds typically require an engineer’s calculations to receive a new building permit. An architect’s rendering may be required in the event of a total loss. Engineers and architect fees can add 5 to 8 percent to the total cost of replacement.

Outdated code compliance can cost you.

Many insurance policies have a provision to cover code-compliance upgrades – to a point. However, these upgrades can cost thousands of dollars when you consider electrical work, asbestos abatement, addition of tempered glass, etc. Particularly for older homes, this can be a critical issue. Make sure your coverage includes upgrades such as these.

Landscaping – the icing on the cake.

Some insurance policies cover landscaping, however, often they cover only what was destroyed in the initial incident. The traffic of construction personnel and vehicles can wreck havoc on your lawn, shrubbery and flowers. The rebuild process can end up destroying any landscaping that survived the incident, and your coverage should be enough to cover it.

No price breaks.

If one builder built your allotment, which is increasingly common today, the builder likely purchased construction materials and home fixtures in bulk. For a rebuild, the price-break opportunity is not there. You will now pay a premium for the same materials.

You have to have a good foundation.

Though rarely destroyed as a direct result of a fire, foundations often need to be replaced due to “spawling.” This happens when moisture inside the concrete heats up and affects the integrity as well as the aesthetics. It is not unusual for an engineer to call for the full replacement of a home’s foundation following a large fire.

The items listed above can easily add 20 to 30 percent to the cost of rebuilding a home – even more, depending on the age and condition of the home. Make sure your home is adequately covered. You will rest easier knowing you and your family can return to your home and enjoy the life you have built, having obtained true full-replacement value for your biggest investment.

Material provided by Kemper. Ask us about a Kemper Homeowners policy today.