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Insurance: Don’t be a bobble head

By Jay MacDonald · Bankrate.com
Tuesday, April 17, 2012
Posted: 10 am ET

The weather-related wreckage and loss of life across the Midwest last weekend serves as yet another wake-up call to make sure your homeowners insurance can handle whatever risks might wander down your block.

If you're like most, you've never actually read your policy. Instead, you probably sat bobble head-like across the desk as your insurance agent hit the high points while you waited for the low point: how much your premium was going to cost.

And if you're like most, you probably realize that's a pretty cavalier approach to take when insuring not only your No. 1 asset but the roof over your family's head and potentially your income stream should you or your family be liable for someone else's injury or property damage.

Knowing our inate bobble-head tendencies, the risk hunters at the Insurance Information Institute of California, or IIIC, have broken homeowners insurance down into three essential questions:

1. Do you have enough insurance to rebuild your home?

2. Do you have enough insurance to replace all of your possessions?

3. Do you have enough insurance to protect your assets?

If your answer to any of these is a) I think so, b) maybe, or c) probably, you probably need to schedule a review – this time without the blank nodding. An annual review is a valuable exercise that can also save you money as your circumstances change and/or new insurance products and discounts come on the market.

In addition to replacement coverage to repair or rebuild your house, IIIC suggests looking into three additional options. Extended replacement cost provides an additional 20 percent or more overage to cover additional costs of labor and materials in a widespread disaster. Inflation guard automatically adjusts your replacement coverage to reflect inflation in construction costs. And ordinance or law coverage picks up the additional bill if you're required to rebuild to new, stricter local building codes.

Where possessions are concerned, IIIC recommends doing a personal cost comparison between a cash value policy, which covers your stuff less depreciation, verses a full replacement cost policy, which IIIC estimates runs about 10 percent more than a cash value policy. If most of your stuff dates back to the Reagan administration, the latter may be the cost-effective way to go.

To protect your assets, homeowners insurance includes liability coverage, which pays for court costs and judgments to a maximum you set against lawsuits for bodily or property damage caused by you, your family and your pets. If your liability seems low relative to your risk ($100,000 is a common coverage amount), you might want to consider an umbrella policy that increases limits for both your homeowners and auto insurance.

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