Two weeks ago, my wife and I came home to a major water leak.
We’ve been bouncing around between Airbnb’s with three kids and a dog since then.
Fortunately, the $50,000 (and counting!) worth of damages are being covered by insurance.
But I learned that’s not always the case.
I learned that some VERY large insurance companies have stopped covering this type of loss.
If you want to learn more about my current situation + how you can ensure your home is properly protected, this episode is for you.
Stay Wealthy Giveaway 🎁
Custom, high-quality Stay Wealthy hoodies by Linksoul have arrived!
As a thank you for being a dedicated listener this holiday season, I want to give them away.
👉 Click Here to Throw Your Name in the Hat
I’ll be drawing names at random on January 3rd and shipping them off.
Stay wealthy warm,
How to Listen to Today’s Episode:
Episode Links & Resources:
- 👉 Get Your One-Time Retirement Plan
- Resources Mentioned:
- Ambiguous Water Damage Coverage Clause [WDB Legal Blog]
- Home and Auto Insurance: How to Maximize Your Policies and Save Money [Stay Wealthy Podcast]
- How to Save Money on Home and Auto Insurance [Define Financial]
Stay Wealthy Giveaway + What You Need to Ask Your Insurance Company (ASAP!)
Taylor Schulte: Welcome to the Stay Wealthy Podcast. I'm your host, Taylor Schulte, and I have two important things to share with you today.
First, I don't know about you and what the weather's like in your city at the moment, but winter has officially arrived here in San Diego. In fact, last week we had over one inch of rain, and I think we even saw the temp drop down into the high forties there for a few minutes. So if like me, you're ditching the flip-flops and you're trying to stay warm out there, I've got you covered.
I partnered with one of my favorite brands, Link Soul to make some high-quality custom Stay Wealthy hoodies, and the first box just arrived at my office and I want to give them away to our listeners this holiday season as a way to say thank you. On January 3rd I'll be drawing names and shipping them off. So if you wanna throw your name in the hat, all you have to do is go to youstaywealthy.com/giveaway. That's youstaywealthy.com/giveaway.
And if you're driving or at the gym, don't worry, I'll be linking to the giveaway URL directly in the episode description, which shows up in your podcast app, as well as adding it to the show notes, which can be found by going to youstaywealthy.com/137.
Okay, next, on a not-so-exciting note, two weeks ago, my wife and I escaped for a nice staycation, that was our first time away from all three kids, and unfortunately, we came back to a flooded home. Like many homes, our plumbing is buried in the foundation and well, one of those water pipes in the foundation burst causing what's called a slab leak, which is just a fancy word for you've got water coming up through your floors, which nobody wants to come home to.
So we've been out of our house for two weeks now, bouncing around Airbnbs with three kids and a dog trying to sort this whole mess out. And along with just sharing a personal update here, I also learned something pretty surprising through this process that I think everyone here might be able to benefit from.
So as always, when you have water damage, your first call is typically to a restoration company to help come and mitigate the damage as quickly as possible. And when the restoration company showed up to our house, the first question the guy asked me was, who is your insurance company? When I told him it was USAA, he let out this huge sigh of relief and proceeded to tell us that we were extremely lucky, which I thought was kind of odd. So I asked him why were we so lucky here because it seemed pretty clear to me that this was not something that I had control over, like maintaining a roof to prevent a roof leak.
To my surprise, he shared that many insurance companies, including big ones like State Farm, which he specifically called out, don't cover slab leaks anymore. Meaning the $50,000 and counting worth of repairs that my wife and I are currently faced with would likely be coming out of our pocket if we had one of these other insurance companies.
Now, this is just a sample size of one and it's impossible for me to verify what's covered and not covered by every insurance company in every state. But given how surprising this specific situation was to me and how relieved our restoration company was, I decided to do a little bit more digging and I was actually able to find one article from a law firm in Philadelphia that shared more information specific to State Farm and some of the changes that they made to their water damage clause a few years ago.
In short, it sounds like State Farm and likely some other insurance companies added some ambiguous language to their water damage coverage clause a few years ago stating that water leaks that have occurred over a period of time may not be covered at first. That clause kind of makes sense, right? If you've had a leak for an extended period of time that you've ignored and now it's causing bigger, more costly issues, well you're on your own.
The problem here, according to this article at least, is that State Farm apparently doesn't define or make clear what continuous water damage over a period of time actually means.
So for example, let's say that my recent slab leak started three weeks ago, but it was a slow leak and we didn't know it was there until water started coming up through our floors. It sounds like in some of these situations, specifically with insurance companies that have this ambiguous language, your claim could be denied because you didn't catch the leak right away and make an effort to stop it.
Now, the article I found was from 2017, and it's possible that State Farm and other insurance companies have made the language in their agreements clearer, but based on the reaction from my restoration company two weeks ago who literally deals with insurance companies all day every day, that doesn't sound like it's the case. Given that, I have to think it would be worth your time to contact your insurance company to learn more about what's covered and not covered.
With regards to water damage specifically, you might ask about continuous water damage that has occurred over a period of time, and if they have a clear definition for what that period of time is, it might not also hurt to ask specifically about slab or foundation leaks and if they're covered and where they fall in the water damage clause.
For what it's worth, the article I found, which I'll link to in the show notes, mentions that when an insurance policy has ambiguous language, it must be interpreted in a way that's most favor favorable to you, the insured.
Now, keep in mind, I don't know who this law firm is. I'm not endorsing them. I'm obviously not an attorney, so I don't know if that's 100% true, but what I did conclude through all this is that if a water damage claim is ever denied due to a continuous leak that has occurred over a period of time, it's probably worth pushing back, asking some more questions and maybe even reaching out for legal guidance if it feels necessary. And it is probably always worth pushing back on a claim that's denied, especially if it's a gray area in your coverage.
So I know you're probably ready to kick your feet up and listen to some podcasts in your new Stay Wealthy hoodie, but you have one final year-end homework assignment, which is to contact your insurance company and learn more about water damage coverage because this is an example of a type of catastrophic loss that we want to be sure that we're covered for.
We thankfully caught our problem quickly and we're still probably gonna end up close to six figures in damages here. So just imagine if we were out of town for a week, what kind of damage that could have done. So skip the iPhone insurance, skip the rental car coverage. You don't need all the bells and whistles that many of these insurance companies like to sell you.
Just be sure that you're covered for the big stuff, the stuff that can absolutely derail a retirement plan. Speaking to that, and given that you might be calling your insurance company here shortly anyways, I thought I would quickly recap some of the most important things to look out for when optimizing your auto and homeowner's insurance to round out today's episode.
You might remember I did an entire episode on this a while back, which I'll link to in the show notes, but here are a few of the most important things.
First, umbrella insurance, you need it. Your existing liability coverage will only get you so far even if you're retired. For example, if you accidentally hit a neurosurgeon while you're driving on the freeway and he or she can no longer work and perform surgery, as a result, they will be looking for compensation from you. And if you don't have a paycheck to garnish wages from, they'll start coming after other assets like your investment and retirement accounts.
My rule of thumb is for your umbrella insurance coverage to match your net worth. However, some clients who want to be extra safe will bump it up even more, especially since it's so cheap, to put some rough numbers to it for maybe $500 to $700 per year, you could obtain a $5 million policy. It's really hard to find insurance that's that important at such a great price.
Number two, if you have healthy cash savings and overall you're in good financial shape, you might consider raising your deductibles to save on annual premiums. Remember that insurance companies love when you have low deductibles. These low deductibles mean higher recurring fees for them. Raising your deductibles might even offset the cost of umbrella insurance. So not only will you end up with better, more comprehensive coverage, but you could possibly obtain it at no additional cost to you.
Number three, if you have an old car, and again, you have healthy cash savings and a solid financial plan in place, consider ditching comprehensive and collision coverage, which is often just tacked onto insurance policies without you knowing it. If your old car is totaled, it's likely a better deal for you to just pay to replace it out of pocket than to be paying for comprehensive inclusion insurance every single year.
And then lastly, and this is an exercise that I go through every few years, spend 15, maybe 20 minutes on the phone with your insurance company going through line by line what you're currently covered for. And while doing this, ask them what is optional and what is required because some of these things are required by these insurance companies. So what's optional and what's required, and then work to remove as many of the optional items that you don't really need to be paying for.
For example, many insurance companies will tack on rental car insurance, roadside assistance, and even windshield replacement coverage. If you're in good financial shape, you likely don't need to be paying recurring annual premiums for these things that you may or may not need. Plus, some credit card companies offer some of these services, and many people are also members of services like aaa, which overlap with a lot of these things like roadside assistance.
In short, be careful about ensuring the little stuff i.e. the bells and whistles, and stay focused on being properly covered for catastrophic losses.
Okay, one final thing to add here is to shop around for insurance every three years. And you don't have to do it with the intent of changing insurance companies either. You can always retrieve proposals from other companies, which is pretty easy to do. And if one comes in lower, take it to your existing company to see if they'll match it.
In my experience, they will most always match the proposal. Also, as I've noted here on the podcast before, unfortunately, there's no one size fits all for insurance companies. In other words, Geico might be the lowest price for you and the highest price for me, and it's often hard to pinpoint the exact reason for that, which means shopping around every three years to be sure that you're getting the best coverage at the best rate is likely your best bet.
And if you value your time and you prefer spending time with your loved ones in retirement instead of sitting on the phone with insurance companies all day, you can always consider going through a local PNC insurance broker. While there's often an extra layer of cost involved there because there's another person involved, their relationships with insurance companies can sometimes result, in savings and discounts that you just can't get on your own, which can help offset the cost of their services, not always the case.
So be sure to take your time in understanding how their services work and the fees and costs, which I know you'll already do.
Okay, really quick before we part ways for the year, if anyone does end up contacting their insurance company to learn more about their water damage coverage and if you learn anything new that's worth sharing with our audience, please do send me an email at email@example.com, especially if you have State Farm.
I'd love to know if the comments made in the article that I'm linking to and I talked about as well as my restoration company are in fact accurate. So if you have State Farm, if you're calling them, if you get some interesting information please do share it.
For the links and resources mentioned today, head, head over to youstaywealthy.com/137.
Thank you as always for listening. Have a great rest of the year and I will see you back here in 2022.
Episode Disclaimer: This podcast is for informational and entertainment purposes only and should not be relied upon as a basis for investment decisions. This podcast is not engaged in rendering legal, financial, or other professional services.