The insurance landscape is shifting. The days of relying on policies to cover small-ticket items like parking lot fender dings or water damage to attic relics are over. Gone too, for the most part, is the era when patients could expect full medical coverage through insurance. Except for those in a group health insurance plan, claim filers often receive jumps in premiums or notifications of dropped coverage.
If insurance has changed into a tool you hesitate to use, why should you bother? Three reasons: you, your family and everything you own. It's a means to protect yourself against catastrophic damage to your finances. Most people will need all of these five insurance policies at some time in their lives.
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Do you need homeowner/renters insurance?
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Do you need it? |
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How much coverage? |
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Which policy? |
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Renters |
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Insurance is usually designed for catastrophic losses, not maintenance issues, and nowhere is this more the case than with homeowners insurance. Not only will claims on your homeowners policy drive up your rates and possibly render you uninsurable, but those same claims might make it difficult to sell your house in the future. Both insurance companies and prospective buyers look at the CLUE (Comprehensive Loss Underwriting Exchange) report for your home, and the claims reflected there are black marks on your home's record that make it less attractive.
"If a prospective buyer is interested and a Realtor
runs a report and sees that there have been two water losses, they might
worry there's mold in the house," says Robin Olson, senior research
analyst with the International Risk Management Institute in Dallas,
as well as adjunct professor in risk management and insurance at the
University of North Texas and a CPCU (Chartered Property Casualty Underwriters)
Society member.
It's often best to have a higher deductible and set aside money in a bank account to cover small losses, according to Olson. But for big losses, make sure you have ample coverage.
"Standard mortgage requirements are not enough, as we found with the San Diego fires," Olson says, "and many people are not carrying enough coverage." Insurance companies argue their figures are only a recommendation and that their customers should get their own independent appraisal to determine their coverage needs.
It might
well be worth the $150 or so for an appraisal, but you can start by asking
your insurance agency how it determines its recommended coverage amount.
Insurance companies use quick, easy measures in determinations; however,
if your home has eight corners rather than the average four, it will cost
more to replace. The same rule applies if you have Spanish tiles or any
other higher priced features.
Make sure the insurance company tracks building costs in your community, including materials and labor. This is something insurance companies should do every year, Olson says, but if they are trying to appear competitive, they may not.
You should always have the home reappraised after
remodeling and make sure your insurer knows of the improvements. "A
lot of times people remodel but forget to tell anyone or don't tell
anyone because they're afraid their insurance will go up," Olson says.
"I don't have any hard figures on this, but I wouldn't be surprised
if one-third to one-half don't advise their insurance agency of home
improvements. Let's say that remodeling increases the value of the home
by 20 percent, they would be facing a co-insurance penalty because they
didn't have the right amount of insurance."
If the insurance company doesn't provide a satisfactory answer about how it determines coverage recommendations, ask if it offers guaranteed replacement cost, which some states require.
Home-based businesses and collections require special consideration. Very valuable baseball cards or bank notes kept in a home safe could be seriously underinsured. Don't forget to cover other structures on your property, such as a tennis court or a really nice wall. And if you're among the increasing number of entrepreneurs who operate a business out of your home, you'll need to explain to your agent the nature of your work to make sure you're properly covered.
Take out a policy with a higher deductible and use the savings from premium costs toward additional coverage if necessary or to build your emergency fund. The higher deductible will make it less tempting to file small claims, which can drive up your premiums or cause your coverage to be dropped.
Remember that flood insurance is available through
the federal government, not your homeowners policy. It's always a good
idea to get this insurance, even if you're not on a flood
plain.
A lot of apartment dwellers neglect renters insurance. Even though most landlords don't require their tenants to purchase coverage, consider $25,000 worth of electronics, clothes and furniture going up in smoke in a fire. A couple hundred dollars toward a renters policy could have covered the loss.
Personal liability coverage -- in case a visitor
slips, falls and sues or if your adorable doggy Muffin suddenly has
a Cujo moment -- is included in renters insurance.
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