Q: I read your column each week and enjoy it immensely. However, a recent column left out an important consideration.
A property casualty insurance policy, such as a homeowner policy (as well as a landlord dwelling and personal auto policy), will only pay proceeds if you have suffered a financial loss to property you own. If the house was destroyed or damaged, the owner of the policy (most likely the husband) would possibly not be able to collect since he did not suffer due to no ownership in the property.
The wife (if she is not a named insured) is not a party to the policy and would not be eligible for payments from the policy for the financial loss she suffered. This would also apply to her personal property and if she were to suffer a liability claim for injury to others on the property or due to her personal negligence. If she and he were both named insureds, then she could possibly collect part of the proceeds, but he could not.
I wish more advice columnists would stress the basic rule all agents try to teach their insureds: “The named insured on the policy must match the ownership of the property.”
I have seen too many claims denied because people don’t tell their agent the true ownership interests or who actually resides in a property. Often it is because the homeowners either don’t realize the extreme importance of the information or are hiding the ownership in a misguided attempt to save premium dollars.
A: Thanks for your comment. The column you reference was actually about a woman who divorced her husband. Her name is on title, but only the husband’s name is on the mortgage.
You bring up an important point. People sometimes forget about insurance issues. Every homeowner who has purchased a home or transferred the home to a sibling, parent or child should make sure to update their homeowners insurance policy. The policy should be in the name of the owner or, to your point, it may not provide the coverage you’ve been paying for.
Also, when people divorce and are taken off the title to the home, that person should be dropped from the insurance to the home. Let’s say that a husband and wife own a home, and in the divorce the husband gets sole ownership of the home. The ex-wife quit claims her ownership interest to her ex-husband. The ex-husband should update the insurance policy to remove the ex-wife’s name.
Keep in mind that if you don’t remove the ex-spouse from the insurance policy, the insurance company may make any payments due for any claim to both of the parties listed on the insurance policy. Once that check is cut to both names, you’re facing an awkward conversation at best, and a contentious one at worst, when you ask your ex-spouse to sign over the check. Better to simply take care of the insurance issue once there is a change of ownership on the home.
When you improve your home, you should reevaluate the amount of insurance you carry to make sure the policy limits are sufficient to cover you for the loss given the improvements. (Your insurance company can help you evaluate whether you need to increase your policy amount, and by how much.)
When you sell your home, you should cancel the policy. There is no need to keep paying on a home that you no longer own.
Lastly, and separately from your excellent observations, we remind our readers to review their insurance coverages on their homes. Recent climate change events and catastrophes are a reminder that a total loss can occur, and it’s better to review your insurance coverages before disaster strikes.
We will never forget when friends of ours were traveling and lightning struck their home in the middle of the night. By the time the fire department arrived, the only thing left of the home was part of a wall and the chimney stack.
They were in shock, of course, when they got home to see what was left of their home. Worst of all, they didn’t know if they had sufficient insurance coverage to rebuild. Fortunately, they found out later that day from their insurance agent that they had guaranteed replacement coverage and the insurance company paid for the entire cost of rebuilding, replacing their furnishings, and rented them an apartment during the two years it took to rebuild their home.
Not everybody has guaranteed replacement coverage and some who do may find their insurance company puts a cap on that coverage. As we turn to 2022, now is a great time to review your insurance policies and make sure they’re up to date.
Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (Fourth Edition). She is also the chief executive of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact them through the website, BestMoneyMoves.com.