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Coverage Gaps And How To Identify Them

The vast majority of Americans have some kind of insurance, many of us having at least 3 policies, auto, health and property, in place at any given time. The average consumer doesn't take much time to read through their policy to find out what is and isn't covered, what the limits are or what's required of them to maintain their coverage. There are many scenarios that can cause coverage gaps in insurance but first off, what is a coverage gap?

A coverage gap can be defined in a few different ways, as it applies to different types of insurance, but a simple definition is this; the difference between the amount of coverage, for example $200,000 on your home, and the actual cost to repair or replace in the event of a loss. So let's say you have your home insured for the actual cash value, or ACV in insurance terms, and it's $200,000. A fire destroys the house and it ends up costing $250,000 to build a new home. You would think that insurance would cover the total cost right? Not in this case. Because it was insured for ACV, the insurance company will only cover the costs up to the $200,000 limit on the policy. This is why it is important to consider all the options when going over insurance with your agent, they will help you determine what the best policy for you is. ACV policies require less premium than Guaranteed Replacement Cost or other policies that protect against coverage gaps but you may end up paying more in the event of a loss.

Other common coverage gaps can arise out of changes during the policy period. Did you recently remodel your home? Is your property in an area prone to earthquakes or floods? Did you recently acquire a valuable piece of personal property such as artwork, jewelry or a set of valuable silverware? All of these scenarios can cause coverage gaps. If you remodeled your home with more valuable building materials or added to the square footage or overall value of your home and don't disclose this to your insurance agent or carrier you may not be covered. Earthquake and Flood coverage are excluded from all property insurance policies and require separate policies. Personal property is almost always limited to relatively small amounts i.e. $1,000 for jewelry, $2,500 for guns and ammunition and $1,500 for artwork.

The last common coverage gap we'd like to explain before we go over some ways to reduce or remove gaps entirely applies to auto loans. Most auto policies are written on an ACV basis and the value of vehicles drops dramatically over time. If you purchased your vehicle new and received financing for it, you were most likely required to purchase full coverage for your vehicle. This coverage gap arises from the difference in the amount you still owe on your vehicle and the ACV, which can be substantial. Let's say you still owe $25,000 on your vehicle but the ACV, as determined by the insurance company, is $19,000. That creates a $6,000 coverage gap that your lender will require you to pay before closing out the loan. Most people don't have $6,000 to spare at any given time, especially in the event of loss when other expenses, like hospital bills, rental cars, or insurance deductibles, are needed.

So how do we prevent or reduce coverage gaps? One thing we recommend is finding an insurance agent you trust so you can develop a relationship with them. More and more people are going directly to the insurance companies for their coverage because the costs are, often times, lower. One of the downsides of this approach is that you most likely wont have one person you know and trust to help you when you need it. Your insurance agent will help you when it's time to renew your policy by asking you the right questions to figure out if there are gaps. They will inform you of changes to your policy or of exclusions that may apply to you and put you in danger of a serious coverage gap. They explain things like GAP Coverage for your car that covers you if you owe more on the car than it's ACV.

Insurance for businesses or organizations can quickly become very complex and difficult to understand unless you're familiar with insurance terms and exclusions as they apply to your operations. Having an experienced agent that knows what kinds of coverage you need for your specific business or organization is extremely valuable in todays society where litigation is rampant and exposure to hazards or risks is growing quickly. Regardless of the kind of insurance you need, personal or commercial, we recommend finding the right insurance agent to help you through the often complex process of making sure you're covered in the event of a loss.

At HD Insurance we have over 25 years of experience in helping people identify and cover their assets whether they are a business, home, automobile or their own life through life and health insurance. Many agencies are becoming niche agencies meaning they specialize in specific types of insurance rather than providing options for consumers from all walks of life. Our experience has given us confidence in our ability to find insurance for our clients, regardless of their needs, and use the access we have to numerous markets to find the right coverage for them at the best price. If you have questions about your policies or are unsure about whether or not you're adequately covered we are happy to look through your current policy and help you determine if you're coverage fits your exposure.