Q. Why doesn't my homeowner policy cover settling, cracking, wear and tear, etc.?
A. The simple answer is because it is a certainty, not a risk. The purpose of insurance is to spread the uncertainty of risk among a large pool of people. Some will never suffer a loss while others will suffer very large losses. We insure things that are unlikely to happen to any one home (such as fire, hail, tornado). Cracking, settling, wear and tear are certain to happen to EVERY house. If we covered those it would be more like a warranty and would not be affordable.
Q. Why is there a limit in the policy for cash? (as well as jewelry, etc.)
A. Two reasons: First, most people do not keep much cash on hand. Second, it is considered a "moral hazard." Cash is easy to steal and transport and hard to prove that one had a specific amount. Not surprisingly, if an insured had $500 stolen how easily it can increase to $10,000.
Q. Why do I only get paid actual cash value up front on a claim?
A. Again, two reasons. Insurance is almost 400 years old. For 340 of those years, all insurance ever paid was actual cash value. Insurance is based on the concept of indemnity (making one whole). If you lose a 2 year old iPhone, you get paid for a 2 year old iPhone. You are made whole, not better off. Replacement cost is a benefit. It goes beyond indemnity and adds value to the customer's loss. For that reason, your policy does not pay the benefit UNTIL the customer actually replaces the item with a new one. The second reason is similar to the moral hazard described above. If you knew that it was likely your 2 year old iPhone would be stolen you might be more careless with it in hopes you will get a newer, better one. That increases the insurance company's risk, and therefore increases premiums.
Shelly Guibert - Ben Goodwyn Agency - 972.618.0100 - www.bengoodwynagency.com
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