Homeowners Insurance Is Not Enough

For most middle-income Americans, the purchase of a home represents their largest investment and their most valuable asset. Thus, the lender, homeowner and personal lines insurance agent tend to focus on the common causes of loss when considering homeowners insurance coverage.

Lenders demand their loan be covered by the limit of property protection against perils such as fire, wind, flooding (if within a flood zone), and vandalism and burglary.

Personal insurance professionals take pride in insuring their clients to 100 percent or more of the replacement cost coverage; they offer annual reviews, replacement cost estimators, and personal and liability coverage checklists, as well as options with deductibles and differing limits of liability, and medical pay.

Yet the lender and the personal lines agent are neglecting the most common cause of losing a home: One in every 92 U.S. homeowners loses their home each year to foreclosure. By comparison, the odds of a home being struck by fire are 1 in 310, the National Fire Protection Agency says.

Currently, more than 1.5 million Americans are in jeopardy of losing their homes.

A recent study by Christopher T. Robertson of Harvard Law School found that 49 percent of foreclosures were caused in part by a medical problem, including illness (32 percent), unmanageable medical bills (23 percent), lost work due to medical problems (27 percent) or caring for a sick family member (14 percent).

A similar study demonstrated that 62 percent of U.S. bankruptcies were due to medical bills. Most of those cases involved well-educated, middle-class homeowners. On average, medically bankrupt families had $17,943 in out-of-pocket expenses. That average includes $26,971 for those who lacked health insurance and $17,749 for those who had health insurance at some point.

Three-fourths of the people with a medically related bankruptcy had health insurance and went bankrupt anyway because there were gaps in their coverage, such as co-payments, deductibles and uncovered services. Others had private insurance but got so sick that they lost both their job and their insurance.

Critical Illness Protection

How can the personal lines agent protect their clients and investment? Offer critical illness insurance protection.

A critical illness policy provides cash that can be used for mortgage payments, paying property taxes, replacing lost income, and covering deductibles and co-pays, even for experimental treatment.

This product pays a lump-sum benefit in the event of a heart attack, cancer or stroke (the three conditions which account for nearly 80 percent of all serious illnesses), and also pays cash in the event of a coma, paralysis, burns, renal failure or even Alzheimer’s disease.

A critical illness policy can be used to help prevent bankruptcy, thus saving the loss of the insured’s home. Given that medical foreclosure is a more common occurrence than fire or tornado, it makes financial sense to invest in critical illness protection and the standard homeowners insurance policy.

Affordability

As always, affordability is a factor. A $20,000 critical illness plan would cover average out-of-pocket expenses, perhaps saving the home from foreclosure and the insured from bankruptcy. A $20,000 simplified issue, non-tobacco, critical illness plan for a healthy 40-year-old male can cost less than a dollar per day.

The personal lines producer should present the benefits of a critical illness policy as they would have protection from fire, wind or burglary. Many homeowners also purchase coverage for jewelry, computers, guns or other personal property, so they are open to additional coverage and protection when the risks are explained.

Insurance professionals should present coverage to insure our clients’ greatest asset from the greatest risks.

Topics Homeowners