When you're shopping for the best value for your personal or commercial insurance requirements, you may notice that some insurance coverages specify basic, while others may offer special or broad peril coverage. The differences are significant and when trying to make an apples-to-apples comparison, you want to carefully consider your risks and the price. A well informed insurance agent or broker can help you decide, but if you're looking for a cheap online policy without the help of a professional, what you buy may be cheap, but may not offer the protection you need.
Starting with the Basic Form of insurance coverage, a policy that offers basic peril coverage is ONLY going to cover the insured for named perils. That means, if an event that isn't actually named in policy happens, there's no coverage. You're on your own for any losses that aren't specifically named, a devastating realization for those thinking they were smart to go on their own and save a few dollars. Many of the common insurance coverages in a Basic Form include the following:
• Windstorm or Hail
• Aircraft or Vehicle Collision
• Riot or Civil Commotion
• Sinkhole Collapse
• Volcanic Activity
At first glance, it may appear that the list of basic form coverage will take care of just about anything that can happen. It isn't until you look at what a broad form offers that one begins to realize what's missing and why it's important to know what you're buying.
As probably anticipated, the Broad Form is more encompassing than the Basic Form coverage. The Broad Form is built to cover everything the Basic Form, and the most common perils expected. In the most common Broad Form insurance policy, you will also typically see the following coverages:
• Burglary/Break-in damage
• Falling Objects (like tree limbs)
• Weight of Ice and Snow
• Freezing of Plumbing
• Accidental Water Damage
• Artificially Generated Electricity
It's important to note that both Basic and Broad Form coverage policies ONLY cover named perils. In other words, if it's not named as a cause of loss, it's not covered.
The most expansive form of insurance coverage is usually within the Special Form policies. In policies that use the special form type of coverage, instead of the perils covered being listed, the EXCLUSIONS are listed. In other words, unless the policy states a peril isn't included, it's included and your potential loss is covered. Usually, but not always, the special form is the one you want to buy. This is especially so if you're not prepared to examine all the possible perils that may happen to your assets and evaluate the potential that they may happen in relation to the cost of coverage and your budget.
Not everything is included in the typical special form though. Depending on your location and type of risk, the exclusions may be highly material to you. For example, flooding is a common exclusion. That may not matter if you don't face a flood risk, but for many, it's the most important coverage you want. Common exclusions include:
• Ordinance of Law
• Power Failure
• Nuclear Hazard
• Intentional Acts
One "sleeper" risk is earthquakes. Many people don't realize that they're close to a fault line because they haven't experienced an earthquake that they could feel. Chicago and New York residents may believe earthquakes only happen in the sunshine state of California, but they would be wrong. the New Madrid fault zone in the heart of America extends from Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri, and Tennessee. Chicago is included and just because it's sleeping, doesn't mean it's not going to wake up at any moment.
In 1968, an earthquake that was felt in 23 states and damaged property in Chicago and it's estimated that a chance of a magnitude of 6 or higher has a 90% likelihood of happening before 2055. The point being, that just because you think a risk is unlikely, doesn't make it so. It's very dangerous to simply assume based on personal experience that a risk isn't possible.
Flood insurance is another type of coverage that many dismiss without careful consideration. Most people wrongly believe they don't live or work within a flood zone. Because of updates in our ability to understand flood risk, locations are no longer considered within or outside of a flood zone. Any given location is rated based on its risk of flooding. That's a good thing because over 20% of property that becomes flooded wasn't considered within a flood zone previously.
Bottom line, be sure to talk with a professional before making a decision on the type of coverage you should have. Because if you make the mistake of buying insurance based on cost instead of coverage, you're likely to wish you didn't, and at the worst possible time.