insurance
Time to review your homeowners policy
How can you tell if you've outgrown your homeowners policy -- or whether it ever fit to begin with? Here's what to look for before you renew your policy:
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Know your policy
Your homeowners policy, which is regulated by your state, features three main components: home (loss to structures), contents (loss to personal property) and liability coverage. If your claim is approved, you pay up to your deductible and the company pays the rest based on terms and limitations of coverage. A typical deductible is $250 to $500. Some homeowners lower their premium by opting for a higher deductible of $1,000 or more.- Home: Your policy usually covers structural loss caused by fire, theft, winds, accident, falling trees, water damage from broken pipes and even terrorism, based on the estimated value of your home. Typically not included (exclusions) under so-called "all risk" coverage are war, nuclear disasters, earthquakes and floods. Separate earthquake coverage is relatively inexpensive and a good idea if your home is on shaky ground. Flood coverage, of course, is available only through the National Flood Insurance Program administered by the Federal Emergency Management Administration, or FEMA. Nearly 20,000 flood-prone communities participate in this program. If you live in a flood plain, you may be required to purchase flood insurance. If you're not required to, it may be a good idea to purchase it anyway, especially if you live at sea level near a sea.
- Contents: The contents of your home are typically insured against loss, damage or theft for 50 percent to 70 percent of the estimated value of your home; that is, if you have a $200,000 home, your belongings, furniture and clothing would be insured for $100,000 to $140,000. Personal property not specifically excluded is often insured wherever it goes, even on vacation. There are often conditions and limits placed on loss of certain items such as jewelry, cash, furs, artwork, antiques and wine collections; to insure these for replacement value, additional coverage is usually available at a very affordable rate. But according to the survey, nearly half (47 percent) of respondents who owned valuable collections didn't own special insurance coverage for them.
- Liability: If your dog bites someone or someone slips and falls on your untended sidewalk and sues you, your liability coverage handles legal fees and judgments.
Here are some details to look for when examining your policy:
Replacement cost versus actual cash value
Flannagan says most home policies today insure the contents of your house for actual cash value rather than replacement cost. What's the difference? Actual cash value means you'll only get what your 20-year-old sofa is worth today; with replacement-cost coverage, your policy will pay to replace it with a new one of like kind and quality."If you're the kind of person who replaces stuff often or always has to have the best all the time, you want the replacement cost because you'll be able to get another $3,000 couch," Flannagan says. "You can purchase replacement cost on the contents and it's not expensive."
'All risk' versus 'named peril'
If your policy is written as "all risk," it means your home is insured for all causes of loss except those specifically listed as exclusions. If it's written as "named peril" however, you are only covered for causes of loss that are specifically listed in the policy. "You want 'all risk,'" says Pollan. "It's the broader of the two."Extended replacement coverage
Simply put, replacement coverage ain't what it used to be. Thanks in large part to Hurricane Andrew, if your house is a complete loss, most insurers will only compensate you for the home value on your policy and an additional percentage (usually 25 percent) for rebuilding overruns, not for the open-ended and often skyrocketing extra cost to rebuild in the high-demand environment of an Andrew or Katrina. Instead, you can "buy up" that extra coverage as an endorsement to your "replacement" coverage to fill in the gap in a worst-case scenario.