What is a blanket insurance policy?

A blanket insurance policy is a kind of insurance that covers a bunch of different dangers, which are called “named perils”. When you get a blanket policy, it sets one total limit for how much money you can get if something bad happens. It doesn’t say the most you can get for each thing that might happen.

How blanket policies work

Let’s say your blanket policy has a limit of $500,000. It might cover stuff like fire damage, water damage from burst pipes, theft, and vandalism. If any of those things happen, the insurance company will pay to fix it. But they won’t pay more than $500,000 total, even if more than one bad thing happens.

The good and bad of blanket policies

The good thing about blanket policies is they make it easy. You just have one big pot of coverage. You don’t have to figure out the right limit for a bunch of separate things. The bad part is if one really costly thing happens, it could use up a big chunk of your coverage. Then you don’t have much left if something else happens later.

When do people get blanket policies?

For homes

Homeowners sometimes get blanket policies as part of their home insurance. It can cover the house itself and also other structures like a garage or shed. Some home blanket policies cover your belongings too, like furniture and clothes.

For businesses

Businesses use blanket policies a lot. They might cover a bunch of business locations under one policy. Or cover a bunch of different types of company property, like machinery, computers, and office furniture.

For valuable collections

People with valuable stuff like art, antiques, jewelry, and furs can get blanket policies too. One policy can cover the whole collection up to a set limit. That can be easier than insuring each thing separately.

How coverage limits work

The overall limit

The most important part of a blanket policy is the total limit. That’s the absolute most the insurance company will pay, no matter what. Once they pay out that much money, you’re out of luck if anything else happens. The limit gets used up.

Certain limits

Some blanket policies do set limits for certain things. Like it might say $500,000 total, but only $50,000 for theft. So if more than $50,000 of stuff gets stolen, you only get $50,000. But the payments for theft and other things can’t go over the total $500,000 for the whole policy.

Deductibles

Most blanket policies have a deductible. That’s the part you pay out of pocket when something happens. Like say you have a $1,000 deductible. If you have $10,000 of damage, the insurance company subtracts the $1,000 and gives you $9,000.

Figuring out how much coverage you need

Making a list

The first step is to make a big list of what you want to cover. Write down all your property or locations. Try to think of everything that could get damaged or stolen.

Estimating costs

Then you have to guess how much it would cost to repair or replace that stuff. For a building, you want the cost to rebuild it from scratch. For items, figure out how much it would cost to buy new ones. Those numbers can add up fast.

Padding the number

It’s smart to get a little more coverage than you think you need. Costs can go up, especially for construction. And you might forget to include something when you make your list. Tacking on an extra 10% or 20% can give you a cushion.

The claims process

Telling the insurance company

If something happens, you’ve got to tell your insurance company right away. Call them or submit a claim online. The faster the better. They’ll give you a claim number and assign someone to handle it.

Showing the damage

The insurance company will probably want to send someone out to look at the damage. They need to see how bad it is. Take pictures of everything that’s messed up. Keep any damaged items unless they’re dangerous, like moldy carpet.

Providing records

The insurance folks will ask for all kinds of records. They want proof that you owned the damaged stuff. And they want to see how much you paid for it. Dig up any receipts, appraisals, or inventories you have. If you’re missing some, they might accept things like owners manuals or old photos that show you with the item.

Getting estimates

For anything needing repair, like buildings, cars, or appliances, get some estimates. The insurance company will probably want to see a few estimates to make sure the costs are reasonable.

Working with an adjuster

The insurance company will assign an adjuster to your case. That person is in charge of investigating the claim and deciding how much the company will pay. Work with your adjuster and give them everything they ask for.

Getting paid

If all goes well, the insurance company will approve your claim and send you money. But they’ll subtract your deductible first. So if you have $8,000 of damage and a $1,000 deductible, they’ll send you $7,000. Then you’re responsible for covering the rest out of your pocket.

When blanket policies fall short

Hitting the limit

The biggest problem with blanket policies is using up the coverage limit. Once the insurance company has paid out the max, they’re done. Even if you have more damage. Say your blanket policy limit is $500,000. If your warehouse burns down and it costs $475,000 to rebuild, you might feel okay. But then if a bunch of expensive equipment gets stolen, and the cost is more than $25,000, you’ll have to pay for anything over that yourself.

Disaster situations

Blanket policies can really fall short after a major disaster. If your whole city gets walloped by a hurricane, materials and labor costs go way up. That’s because demand is so high. All the contractors get booked up fast. And the cost of lumber and other building stuff skyrockets. So your coverage limit might not go nearly as far as you expected.

Getting dropped

Using a blanket policy doesn’t always go smoothly. Your insurance company might drag their feet on paying. Or they might try to lowball you. If you put in a lot of claims, they might even cancel your policy altogether. Then you’re in a tough spot, trying to find new coverage. Other insurers will see you as risky since you’ve made a bunch of claims.

Alternatives to blanket policies

Specific limits

Instead of one big blanket limit, you can get a policy that sets a specific limit for each danger. So you might have $200,000 for fire damage, $150,000 for water damage, $100,000 for theft, and so on. That gives you more control. But it’s more complicated. You have to really think through the risks and costs for each category to set the right limits.

Standalone policies

Another option is to get separate policies for different things. You could have one policy for your building, one for your business property, one for general liability, and so on. The upside is you can customize the coverage for each item. The downside is you’re juggling a bunch of policies, each with its own rules and limitations.

Self-insuring

Some folks, especially companies, choose to self-insure. That means setting aside their own money to cover losses. But that’s really only an option for big organizations with deep pockets. And you have to be really disciplined about keeping that reserve fund flush. It’s risky though – one huge loss could wipe you out if you’re not prepared.