172 – Become an Insurance Expert In One Hour with Vernon Williams

Synopsis

Vernon is from Brighton Financial and Insurance Services. They’re full-service insurance brokers with a focus on commercial insurance. He’s from the Caribbean and has worked in electronics engineering for over 25 years in the U.S. before deciding to start his own company. In this episode, Vernon talks to us all about insurance including the types of policies, penalties, hazard insurance, and more.

Key points

Different Insurance Policies

Insurances have two broad categories: personalized insurance, and commercialized insurance. Personal insurance includes home insurance, auto insurance, and life insurance. Commercialized insurance is business insurance. Vernon’s specialty is commercial insurance.

It’s important to understand that insurance is a legal contract saying the insured is transferring the risk to an insurance company in exchange for some money. It’s basically a hedge against bad things happening. Being a legal contract, they should be understood by both companies.

But, most insurers and the insured focus on the price and not the details. It’s important to have a broker or agent that helps you understand the technical details.

Insurance Subcategories

The public doesn’t know much about commercial insurance. Insurance companies have two broad categories: admitted companies and non-admitted or surplus companies.

Admitted companies are backed up by the State when they fail. Non-admitted carriers are not part of the State pool, so the State won’t back them up when they go under financially. They exist to write the non-standard risks that most insurance companies refuse to write for.

Who Are The Customers Of Non-Admitted Insurance Carriers?

Flippers start off in the non-standard box because they buy a lot of distressed companies. Once the property is fixed up, they can get standard insurance.

The risks for Airbnbs are not well-defined, that’s why it is considered a non-standard risk. But if you’re doing stays of 30 days or more, there are markets available for those in specialty carriers. For longer-term stays of 1 year and longer, standard carriers would be able to service them.

Anytime you change the parameters of your property, you need to inform your insurance carrier or they might decide to not honor your claim.

Canceling Policies

Flippers with a non-standard policy would just need to keep the policy a minimum of 3 months before they can cancel without penalty.

For the standard home and auto insurance, you can cancel the insurance without penalty. But in commercial insurance, there is a penalty.

Claiming Period

Typically, you should get some type of cheque within 24 hours. In the business world, it could take a week before a cheque is given with the remainder to be released later.

The initial cheque could be just to help the insured. It could be money for new clothes if they lost a house. But the way it works, within a month, the insured should receive some type of cheque.

Money for fixing the property is a complicated case. Incorrect information whether intentionally or unintentionally given during the application could be used as a reason for denying the claim.

Sometimes replacement costs are higher than buying a new home, so people choose not to repair their house anymore and would go buy one instead.

Insurance companies will typically give you back what you had and not more, so there’s no point in being over-insured because the insurance company won’t give you the extra money. So houses should be insured for the amount it takes to build it not the amount it takes to buy it.

If a third-party caused the damage to a house, the insurance company would pay the insured and do subrogation or go after the third-party.

Should You Get Flood Insurance?

If you live in a high-risk flood zone, you might be required to get flood insurance. There are different severity of floods, so the price points might vary.

Every 5 years, FEMA redraws the flood maps, so you might be in a high-risk flood zone now when you weren’t before.

Flood is defined as water rising from the outside. Hence, water falling down from some part of your house leaking is not considered a flood.

Should You Get Earthquake Insurance?

Earthquake insurance is very expensive, but it is not mandated by anyone. Whether you should get it depends on where you are in your lifecycle.

Earthquake insurance has a 10 or 15% deductible based on the size of the limit that you have. For you to get any money, the damage should fall above that threshold.

If you’re 55-60 years old, you probably won’t be able to recover from dealing with the foundation of your house getting cracked and the property getting condemned. So, getting earthquake insurance is a good idea.

However, for younger people who have the time to recover financially, it might be better to just sell the house and take the loss.

Hazard Insurance

Each state has a commissioner of insurance, and there is a standardized form that each follows.

The standard package typically includes replacement costs which are computed by the software used by the State, separate structures like barns, personal belongings such as clothing and electronics, loss of use for cases when you have to live somewhere else, and liability.

Liability is for when you get sued by someone for any covered reason. This means the insurance company pays that person you may have caused injury to on your behalf.

Some insurance carriers now are including new things in their coverage such as appliance coverage and utility line protection.

Appliance coverage covers the repair or replacement of appliances that have been damaged. Utility line protection covers the line from your house to the main distribution line of the utility.

Insurance Score

This tracks how many claims you file. If you have too many losses or claims, your rates could be adjusted or you could be denied insurance regardless of which company you go to.

Commission

If someone sells a non-standard policy, they can get a commission and charge a broker fee. In the standard market, there’s a straight commission, it could vary from 10-20%.

Captive markets or those who can sell only specific insurance can only earn a commission.

Should You Go To A Specific Insurance Carrier Or A Broker?

Everything you do will be fitted into the box a specific carrier is offering. Thus, they don’t have any other option than what they have to offer.

If you go to a broker selling multiple brands, you’ll get to see how insurance is working as they’ll give multiple options and prices.

In Vernon’s practice, he looks at the risk first because he wants to make sure that should anything happen, his client gets paid.

Resources

References

• Subrogation

Websites

• National Flood Insurance Program of FEMA

More from our guest

• You can reach out to Vernon by going to his website.
• Send him an email at vwilliams@thebrightonfinancial.com or call him at 408-241-2100 Ext 3.