Last year’s hurricanes on the Gulf Coast and the threat of more this hurricane season, wildfires in the West and experts predicting an earthquake along the New Madrid Fault are sharp reminders that home owners should have and keep homeowner’s insurance.
Insurance should be updated regularly to reflect improvements and major purchases, and to cover increased rebuilding costs, according to the New York-based Insurance Information Institute, which cites studies showing that 59 percent of homes are underinsured by an average of 22 percent.
“Hurricane Katrina was a painful reminder to homeowners that they should contact their insurance agent or company representative at least once a year to make sure that their insurance is up-to-date,” says Jeanne Salvatore, senior vice president and consumer representative for the institute.
“A major home alteration or addition — even a lifestyle change such as marriage, or a family member moving in (along with his or her belongings ) — should trigger a call to your insurance company.”
The cost of building or repairing a house has increased in recent years, the institute notes, and heightened global demand and Hurricane Katrina have driven up the price of materials like lumber, cement, gypsum and structural steel.
The institute suggests that you ask your agent or insurance company representative three key questions: Do I have enough insurance to rebuild ? “You should have enough insurance to rebuild your home in the event that it is completely destroyed,” according to the institute Web site www. iii. org.
“Most policies cover replacement cost for damage to the structure,” the site notes. “A replacement cost policy pays for the repair or replacement of damaged property with materials of similar kind and quality.”
An “extended replacement cost” policy provides coverage of 20 percent or more over the policy limits, “which can be critical if there is a widespread disaster that pushes up the cost of building materials and labor.”
Other options include inflation guard, which automatically adjusts rebuilding costs of your house to reflect changes in construction costs; “ordinance or law” coverage, in case you need to rebuild to meet new (and often stricter ) building codes, and “water back-up,” which insures property for damage from sewer or drain backup.
Consider buying flood insurance and earthquake insurance, not included in most policies. Flood insurance is available through the federal government’s National Flood Insurance Program (www. floodsmart. gov ), or through the same agent or company from whom you buy your home or renter’s insurance. The Arkansas Insurance Department (501-371-2600, 800-282-9134, or online at http: // insurance. arkansas. gov ) should be able to help if you’re having trouble finding a company to underwrite earthquake insurance. Do I have enough insurance to replace my possessions ? Most homeowner’s insurance policies provide coverage for personal possessions for 50 percent to 70 percent of the amount of insurance you have on the structure of your home. So if you have $ 100, 000 worth of coverage on the structure, you would be covered for $ 50, 000 to $ 70, 000 worth of the contents.
The institute recommends you conduct a home inventory, detailing everything you own and the estimated cost to replace it if it’s stolen or destroyed by a disaster. (You can download free home inventory software from the Web site www. knowyourstuff. org ). Do I have enough insurance to protect my assets ? Liability protection covers you against lawsuits for bodily injury or property damage that you or your family members may cause to other people and also pays for damage caused by pets, for the cost of defending you in court and for any damages a court rules you must pay (up to the limits of your policy ). Most policies provide a minimum of $ 100, 000 worth of liability insurance; higher amounts are available through an excess liability, or umbrella, policy that provides additional coverage over and above what is covered in your home (and auto ) insurance policy.
STATING YOUR CLAIM The Arkansas Insurance Department posts on its Web site “10 Things You Should Know About Purchasing Home Insurance”: Home owners need insurance to protect houses and personal property. Tenants need insurance to protect furniture and other personal property. Everyone needs protection against liability for accidents that injure other people or damage their property. Decide how much coverage is needed. The better your coverage, the less you will have to pay out of your pocket if disaster strikes. In some cases, lenders require you to buy a policy that covers at least the amount of your mortgage. The amount of coverage you buy for your house, contents and personal property will affect the price you pay for insurance. Compare deductibles. The deductible is what you pay out of pocket on each claim. Make sure, when choosing a policy, that you’re comfortable paying the deductible if you make a claim. A policy with a $ 1, 000 deductible, for example, will cost less than one with a $ 500 deductible.
Replacement cost or actual cash value ? Replacement cost is what it would take to replace or rebuild a house or repair damages with materials of similar kind and quality, without deducting for depreciation. You should insure your home for at least 80 percent of its replacement value. Actual cash value is what it would take to repair or replace damage to a house after depreciation. Shop around. A number of unbiased sources, including the state Insurance Department, consumer publications and the public library, can help you find what different insurers charge for identical products and services. Check the newspaper and telephone directory for companies and agents, and ask neighbors, relatives and friends for recommendations. You need not purchase insurance from the company your mortgage lender recommends.
Ask about discounts. Some insurers offer lower prices for insuring your home and car with the same company, installing deadbolt locks or alarm systems, or replacing a roof. Some companies offer discounts for newer homes. Basic coverage is available. Each policy package protects against a specified number of events that cause damage to property — for example, fire, windstorm and theft. In addition, each package policy usually contains four additional types of coverage: property damage, additional living expenses, personal liability and medical payments.
Read your policy carefully. A home insurance policy is a legal contract. It is written so that your rights and responsibilities as well as those of the insurance company are clearly stated. Make certain you understand its contents, keep it in a safe place and know the name of your insurer. Check with your insurance agent at least once a year to make sure your policy provides adequate coverage.
CREDIT IS DUE ? The Web site realtytimes. com recommends making sure your credit history is in order. “Insurers increasingly use credit-based insurance scores to set premiums and to approve or reject new and renewed policy applications,” the site says. It recommends that you understand what’s necessary to file a claim and what can happen to your policy if you do.
“Keep detailed property and contents records with both written descriptions and visual records — photographs, videotapes or digital images — to document property conditions and the scope of its contents.”
The site indicates you can save money by consulting an independent insurance agent. “He or she can search multiple companies and should be aware of a company’s current rating with A. M. Best Co., Standard & Poors [and ] other firms that rate insurers based on their financial status — an indicator of how they can handle widespread claims after a disaster.”
That’s important, according to the Web site www. housebuyingtips. com / insurance. htm, because “many second-rate insurance companies went out of business in Florida when Hurricane Andrew hit South Florida, which caused huge delays in insurance payouts. This left many people homeless with no way to pay for temporary living expenses.”
Among the site’s other recommendations: Get price quotes from at least three companies.
Keep your deductible high to save money. “It doesn't make sense to have any deductible below $ 500 or $ 1, 000 because you won't want to put in claims for things that cost that little anyway. Remember, homeowner’s insurance is like auto insurance. If you put in too many claims they’ll drop [you ] so fast you’ll think you’re sky diving.”
Also playing a part in how much you’ll pay for homeowner’s or renter’s insurance: The presence or absence of smoke detectors and fire alarm and burglar alarm systems, and whether they are centrally monitored or ring only at home Distance from your home to fire hydrants and a fire station Whether your home is inside or outside city limits
The site suggests you always read the fine print of your policy: “Check carefully for limitations, exclusions and deductibles — for example, landscaping, personal property, etc. Unscrupulous insurance companies can take advantage of you here.” Coming next week: How to rid your home of unwelcome wildlife.
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