10 things you need to know about homeowners
Why wait until after a disaster to discover your homeowners
insurance doesn't really have you covered? Here are 10 things to
do so you can have peace of mind -- and full protection -- right
1. Buy the right insurance. "You should
know what you have, and you should know ahead of time that you are
covered," says Jeanne Salvatore, vice president for consumer
affairs with the Insurance
Information Institute, a nonprofit industry trade group. She
recommends looking at your insurance coverage in four key areas:
the structure of your house, your belongings, your liability to
others and your living expenses if you're forced out. "If there's
a disaster, you want to be able to rebuild your house and replace
everything in it. And you need enough liability coverage to protect
you in case you do get sued." Living expenses would cover the
cost of making the house livable or living elsewhere while your
home is being repaired or rebuilt.
2. Get replacement value insurance. Face it,
this is an insurance policy, not a garage sale. You don't really
care how much your possessions would fetch on the open market, the
so-called "cash value" or "fair market value."
You want to be able to replace everything you lost with similar,
new items. And make sure that your policy spells out that both your
home and its contents are covered by replacement-value insurance.
When it comes to replacing the home itself, look for
extended or guaranteed-replacement-value coverage. Guaranteed replacement,
which covers rebuilding no matter what the cost, is not offered
much any more, says Don Griffin, assistant vice president of commercial
lines for the Property
Casualty Insurers Association of America (PCI). Many companies
offer extended-replacement-value insurance, which will cover up
to 100 percent of the value of the home, plus a certain percentage
to cover rebuilding the home in today's market.
3. Understand the claims process. Two policies
can promise the same amount of coverage, but they can be vastly
different when it comes to making you whole after a loss. Have the
agent explain exactly how claims are handled, especially when it
comes to writing you a check. Do you receive your entire claim upfront,
or just a fraction? Does the company pay you for all the things
you've lost, or only those things that you replace?
Some policies will give you the cash value of your
possessions right after a loss, but wait to cover the replacement
value until after you've replaced your items -- and have the receipts
to prove it. This could be a problem if you're wiped out and have
no cash reserves.
Equally important is the timetable on replacement.
If you go from living in a five-bedroom home to sleeping in a motel
room with four kids and a dog, you might not want to go on a shopping
spree right away. How long do you have to replace your things?
4. Take inventory. Filing a claim involves
two steps -- proving you owned certain items and verifying their
worth. This is a lot easier to do when you still have your things.
Go through your home with a video camera (rent one if you don't
already have one.) Walk through each room, do a quick sweep and
get everything you own on tape. Don't forget the attic, basement,
closets and offsite storage locker, if you have one. Or take the
low-tech method: make a list and shoot a few rolls of film. Stash
your video or photos in a safety deposit box with a copy of your
policy. If you keep your inventory at home, make a second copy to
give to a friend or keep at the office.
5. Buy floaters. Many times, homeowners and
renter's policies limit the amount you can collect on some big-ticket
items -- usually things like computer equipment, jewelry, furs and
fine collectibles -- to a fraction of the replacement value. If
this is the case, you need to pick up a special policy known as
a "floater" or "endorsement" for each of those
items. A floater will also reimburse you if you simply lose the
article. In the case of something new, save the bill of sale with
your inventory, and fax a copy to your insurance agent. If the item
is older, have an appraisal done. Again, save one copy and send
another to your agent. That way, you'll never have to worry about
proving you owned an item, and there will never be a dispute over
what it's really worth.
6. Keep pace with inflation. This is especially
important with a homeowners policy. It may have cost you $100,000
to build your home 10 years ago, but it might cost $120,000 to replace
it today. "Many companies have inflation guard, which covers
the increasing cost of rebuilding," Salvatore says. When your
policy comes up for renewal, talk to your agent to verify that your
coverage amounts are still realistic. And when you make an improvement,
add it to the total.
7. If you own a condo or co-op, protect your property.
Make sure that the condo board or association has a policy that
covers the common areas, and get a copy. Also look at the association
bylaws to find out what portions of the home you must cover. "It's
usually from the drywall in," Griffin says.
Since condo owners need their contents policy to cover
things like cabinets and fixtures, they need a bit more insurance
than the typical renter. Sometimes you get a price break if you
go with the same company that wrote the policy for the condo association.
"Plus they are familiar with what they cover,
so they know what to sell you," Griffin says.
You also may want to consider assessment coverage.
If the condo association's policy is not large enough to cover a
loss, or if there is a hefty deductible, the association will split
the additional costs among the members in the form of an assessment.
With assessment coverage, your insurance company pays the tab.
8. Consider flood and earthquake insurance. Granted,
this is not for everyone. But if you live in an area prone to floods
or earthquakes, it pays to know that most property policies do not
cover these disasters. Some independent carriers offer both. For
flood insurance, you can also contact the National
Flood Insurance Program. In California, you can get earthquake
insurance through the California
9. Think about buying an umbrella policy. Liability
insurance, which picks up the tab if someone gets hurt on your property
or through the actions of your family members, tops out at $300,000
on most homeowners policies, according to Griffin. "But nobody
sues for $300,000," he says. "That usually starts at $1
million." His recommendation: if you have assets, pick up an
umbrella policy that would add extra liability coverage to your
home and auto policy. "Umbrellas are cheap -- usually starting
at about $200 to $350 a year."
10. After a life-changing event, call your agent.
Getting married or divorced? Are the kids moving out -- or back
in? The amount of insurance you need -- and the items you want to
cover -- change over the years. Be sure you keep your policies and
inventories up to date.
Dana Dratch is a freelance
writer based in Atlanta.