Hurricanes, tornadoes, floods or wildfires can sweep away your home, but two of every three Americans do not carry enough insurance to rebuild what they lose.
Make a checklist and save yourself from catastrophe, experts advise.
"It's much more common than you'd suspect," says claims adjuster Dennis Howard, CEO of the Insurance Consumer Advocate Network in Branson, Mo. "People think they're insured properly, but far too often find they're only covered for about 80 percent of their home's replacement value.
"Almost everyone should take a close look at just what cover you have. You'll probably find you need to increase it."
Marshall & Swift/Boeckh, a Los Angeles firm which helps many insurers determine the value of houses, estimates 64 percent of American homes -- some 45 million homes -- are underinsured by an average of 27 percent, with some by more than 60 percent.
To help assure you've got the coverage you need and want, use this checklist against catastrophe. Ten minutes' work now might help you make a critical assessment, and could save you from a lot of heartache later.
Here's how to do it:
- Take stock. Create a room-by-room inventory of just what you have in your home. List all major items, one room at a time. Put down the item: 'carpet,' 'drapes,' 'lighting,' 'furniture' and so forth and list an approximate value next to it. Take videos or photographs, and keep them safe, so you can document what was in your home if disaster does strike.
You should list everything from electrical equipment and appliances to personal effects like clothes, books, sports gear and tools. If you have high-value items such as a coin collection or jewelry, you might need to list them on your insurance policy, because they could exceed standard liability limits.
- Measure the house. Getting an accurate measurement helps you get the right coverage. Insure a house at 1,500 square feet when it's really a 2,000 square-foot residence and you will be short-changed if you come to rebuild. "The correct way is to measure the footprint from the outside to get the lowest level, and then measure upper levels from the inside, because the roof pitch may affect the square footage," explains Howard. "And don't forget to include the basement." If you base your estimate on the real estate ad you saw when you bought the house, you might be losing out. Features like porches are often not included in those measurements.
- Determine the true value of your home. Using the purchase price as a basis for insurance can lead you to undervalue the property. Rebuilding your home five years after you bought it can cost tens of thousands more. "Not only has your house most likely appreciated in value, but construction costs have risen sharply," explained Howard.
Recent demand for plywood has driven the price up from around $10 a sheet to $35, for example. If you do need to rebuild, your bank balance will take a severe hit if you haven't got sufficient coverage.
- Talk to your insurance agent. He should be knowledgeable about local construction costs and should give you an accurate picture of what it would cost to replace your home, so you'll know if you have adequate insurance. "Too many people save a few bucks by lowering their policy limits, then find out too late that they don't have enough coverage when disaster does strike," says Howard.
If you do find yourself with a wrecked home and a payout too small to rebuild it, ask yourself if your insurance agent has been negligent. He has a duty to see your coverage is adequate. If he hasn't contacted you to update your coverage in the past few years, his errors and omissions in not performing that duty may be held against him.
- Do a walk-through of your house. Look for additions, improvements or upgrades you've made since the house was last appraised. You might be surprised at the things you've forgotten -- that new shower, the extension on the deck, the upgraded lighting, the granite counter tops in the kitchen. They all add value, and you need to put that extra value on the insurance policy. Look outside, too. Have you added a greenhouse or garden shed? New fences? Landscaping? Again, it's all added value and if you don't put it on the policy, you'll not be reimbursed for its loss.
- Check the calendar. If the last insurance appraisal was done five or more years ago, you'd best boost your limits. Construction costs have been climbing, even faster than inflation, and you could be seriously underinsured.
- Count your collectibles. If you have valuables such as a coin collection or fine silver or antiques, or other high-value items, such as antique jewelry you were left as a legacy three years ago, you might need to list them for an endorsement or 'floater' to your policy.
"People think their renters or homeowners insurance will cover them for any loss, and it just isn't true," explains Loretta Worters of the nonprofit Insurance Information Institute in New York.
"If you have a high-value item, you should be sure your insurer knows about it, has an accurate idea of its value and has listed it on your policy. If an item is worth more than $1,000 to $2,000, you should add it as an endorsement on your homeowners policy."
The value of the contents of a home is usually set as a percentage of the cost of the building. If your art works, stamp collection and antiques are worth more than $10,000, you should list them and have the agent draw up a separate valuables policy, or endorse your general policy to include them.
Cover yourself against any later dispute by photographing the valuables, keep the store receipt or get an expert's appraisal. For as little as $30, you'll have it registered and documented that you owned the valuable and it wasn't a fake.
Disaster may never strike you, but if it does, insurance can soften the blow. And if you never need to make a claim, be happy!