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Watch for dangers of liability deductible.

Be aware. Be wise. Compare. A few words every true consumer knows regardless of the product they may be shopping for. What about an insuran. ce policy? Unfortunately, many wise buyers lose their smarts when it comes to shopping for the proper insurance coverage.

Stop and think for a minute. When you purchase an insurance policy, what are you really baying? In reality, we will be paying for nothing more than a "promise to pay." Just how good is that promise? This is what you need to understand as a savvy insurance consumer.

Remember Hurricane Andrew? How many people are homeless because their insurance companies were unwilling or unable to pay for the devastation caused by Hurricane Andrew? Many insurance carriers have gone out of business in Florida as a direct result of that storm. Many insurance companies had to move billions of dollars to cover damages caused by Hurricane Andrew.

The point I want to make is relatively simple. When selecting an insurance program or company, look behind the premium, coverage and broker to the insurance company itself. How sound is the company financially? What is its Best Rating? What type of surplus does the company have to pay for claims? How much business does the company write each year? Is it a profitable business? Will the company have the ability to live up to its promise to pay in the event you and several people like you have serious claims?

There are several insurance programs being offered to the public today. Many have high deductibles on both the property and liability insurance coverages. Some innovative brokers have devised several different types of buy-back options. I've seen some very imaginative schemes that, despite my academic degree and 20 years in the insurance business.

As the consumer, you must understand what a deductible on the liability really means. First, you will or should be paying a lower premium for the basic liability policy because you have elected a $10,000 deductible. However, your net savings, if any, will depend upon the price of the buy-back option. Second, you must understand that, in the event the buy-back becomes unavailable or unable to pay, you are responsible for $10,000 on each and every liability claim. If you had six liability claims during the course of a given year, you could be responsible for as much as $60,000 in payments over and above your premiums. You must fully understand the buy-back instrument and how financially sound it is. You must avoid unrated or financially low-rated companies. Avoid surplus lines carriers. They may not have any guarantee from the State Fund and they may not have to comply with the New York Insurance Law and other rules and regulations established to protect the insurance consumer.

Before getting involved with any liability deductible buy-backs, you should have the answers to the following questions:

1. What is the liability deductible?

2. Does the deductible apply to claims payment only, or to settlement and adjustment expenses as well?

3. What is the Best Rating of the company offering the buy-back?

4. Are any non-admitted or Surplus Lines companies utilized?

Read the Surplus Lines Affidavit before signing. Know your rights under New York Insurance Law. Most importantly, if you can't afford to purchase liability with a $10,000 deductible, don't. Play with the matches and you may just end up getting burned.

The RSA Purchasing Group was rounded by the backing and support of the Rent Stabilization Association of New York, Inc. The RSA Purchasing Group offers a comprehensive insurance program that is underwritten by all New York Best Rated, admitted insurance companies. There is no deductible on the liability insurance. In fact, each member can purchase up to $51 million in liability limits at very competitive rates. The RSA Purchasing Group has insurance companies that can provide for the lead paint coverage that may be required on certain properties.

Contact the underwriting staff for further information at 1-800-9894772.
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No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Property Management/Improvement; Section I; evaluation of insurance policy deductibles
Author:Schecher, Richard
Publication:Real Estate Weekly
Date:Feb 24, 1993
Words:663
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