Question: We were renting a house and after a freakishly hard rain some exterior drained clogged up and our house ended up with two feet of water in it for about an hour. It drained after the rain stopped, but the damage was done. We had renters insurance, but found out none of our stuff was covered for flood damage. How are we supposed to know this stuff? We’re out thousands of dollars.
Answer: You and your agent needed to play a scrimmage game before the season started.
Every summer in the heat of August, football teams all over America endure the hellish ritual of August practice. The smell of fresh cut grass in 99 degree heat still makes me sick at my stomach due to the memories of endless football drills, running in full pads, hitting head to head and getting yelled while a coach yanked on my face mask (we didn’t have all those rules back then about having to treat players like human beings).
During August, before the season starts, most of these football teams will play at least one scrimmage game. A scrimmage game pits half of the team against the other, simulating most of the circumstances of a real game. Coaches arrange scrimmage games not so they can see how great their teams are, but to spot weaknesses that need attention.
The beauty of a scrimmage game is that it has most of the qualities of a real game, but few of the liabilities. If you lose, it doesn’t go on your record, but your team still gets the experience of playing through the tension of a live game where you don’t know your opponents well. It is a simulation of real life.
Before you buy any kind of insurance policy, ask your agent to participate with you in a scrimmage game. You’re buying the insurance for a reason, right? It is to protect you – but against what? And how much protection does it offer?
So if you were buying a homeowners insurance policy (or a renters policy), you would want to ask, “What does this policy protect me against? And if that circumstance happens, how much protection do I have?”
Generally speaking, when it comes to insuring your stuff (your assets – home, furnishings, auto, etc), the word to keep in mind is “replacement.”
If the thing you own (in your case, it was the contents of the house you were renting) is damaged, how close does your insurance policy come to replacing that item?
It is unrealistic to expect an insurance company to pay to replace 100% of any item lost. Otherwise you have no incentive to exercise your own common sense and avoid either circumstances or behavior that could destroy your property. So most policies have some level of deductible (the first dollar paid to replace the item) and perhaps some other cost-sharing mechanism. Be sure you understand all of these.
Rather than search for “first dollar coverage,” make sure you are covered in the event your loss is very large. Easier to pay for the first $1,000 of a loss than to have your $300,000 house burn and learn it was covered for $200,000.
I suspect there are some renters policies that cover flood damage and others that do not. A scrimmage game would help you think through the various “what if” scenarios that might come up. It might seem a bit tedious, but you’re paying the price today for having not gone through such a process.
Scrimmage games aren’t usually as much fun as the real thing, but hopefully they help you avoid (in the future anyway) the experience of small annoyances becoming major catastrophes than can impact you financially for years to come.
Call your agent and get your scrimmage game scheduled soon.
Byron R. Moore, CFP® is managing director / planning group of Argent Advisors, Inc. Email him at firstname.lastname@example.org. Write to him at 500 East Reynolds Drive, Ruston, LA 71270 or call him at (318) 251-5800. The opinions of any single advisor do not necessarily reflect the opinions of Argent Advisors, Inc.No forecasts can be guaranteed. Argent Advisors, Inc. does not offer tax, insurance or legal advice. The information contained in this column should not be construed as a substitute for personalized investment, tax, insurance or legal advice.