Home Owners Insurance Coverage? What You Should Know!
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The Top Ten Things you need to know about Homeowners Insurance
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Why should you wait until after a
disaster to discover your homeowners insurance doesn't really
have you covered? Here are ten important things to do so you can
have peace of mind -- and full protection -- right now:
"You should know what you
have, and you should know ahead of time that you are
covered," says Jeanne Salvatore, vice president for
consumer affairs with the Insurance Information Institute, a
nonprofit industry trade group.
She recommends looking at your
insurance coverage in four key areas: the structure of your
house, your belongings, your liability to others and your living
expenses if you're forced out.
"If there's a disaster,
you want to be able to rebuild your house and replace everything
in it. And you need enough liability coverage to protect you in
case you do get sued." Living expenses would cover the
cost of making the house livable or living elsewhere while your
home is being repaired or rebuilt.
Face it, this is an insurance
policy, not a garage sale. You don't really care how much your
possessions would fetch on the open market, the so-called
"cash value" or "fair market value." You want
to be able to replace everything you lost with similar, new
items. And make sure that your policy spells out that both your
home and its contents are covered by replacement-value insurance.
When it comes to replacing the
house itself, look for extended or guaranteed-replacement-value
coverage. Guaranteed replacement, which covers rebuilding no
matter what the cost, is not offered much any more, says Don
Griffin, assistant vice president of commercial lines for the
Property Casualty Insurers Association of America (PCI). Many
companies offer extended-replacement-value insurance, which will
cover up to 100 percent of the value of the home, plus a certain
percentage to cover rebuilding the home in today's market.
Two policies can promise the same
amount of coverage, but they can be vastly different when it
comes to covering you and your family after a loss. Have your
insurance agent explain exactly how claims are handled,
especially when it comes to writing you a check. Do you receive
your entire claim upfront, or just a fraction? Does the company
pay you for all the things you've lost, or only those things that
you replace?
Some policies will give you the
cash value of your possessions right after a loss, but wait to
cover the replacement value until after you've replaced your
items -- and have the receipts to prove it. This could be a
problem if you're wiped out and have no cash reserves.
Equally important is the timetable
on replacement. If you go from living in a five-bedroom home to
sleeping in a motel room with four kids and a dog, you might not
want to go on a shopping spree right away. How long do you have
to replace your things?
Filing a claim involves two steps
-- proving you owned certain items and verifying their worth.
This is a lot easier to do when you still have your things. Go
through your entire home with a video camera (rent one if you
don't already have one.) Walk through each room, do a quick sweep
and get everything you own on tape. Don't forget the attic,
basement, closets and offsite storage locker, if you have one. Or
take the low-tech method: make a list and shoot a few rolls of
film. Stash your video or photos in a safety deposit box with a
copy of your policy. If you keep your inventory at home, make a
second copy to give to a friend or keep at the office.
Many times, homeowners insurance
and renter's insurance policies limit the amount you can collect
on some big-ticket items -- usually things like computer
equipment, jewelry, furs and fine collectibles -- to a fraction
of the replacement value. If this is the case, you need to pick
up a special policy known as a "floater" or
"endorsement" for each of those items. A floater will
also reimburse you if you simply lose the article. In the case of
something new, save the bill of sale with your inventory, and fax
a copy to your insurance agent. If the item is older, have an
appraisal done. Again, save one copy and send another to your
agent. That way, you'll never have to worry about proving you
owned an item, and there will never be a dispute over what it's
really worth.
This is especially important with
a homeowners insurance policy. It may have cost you $100,000 to
build your home 10 years ago, but it might cost $120,000 to
replace it today. "Many insurance companies have
inflation guard, which covers the increasing cost of
rebuilding," Salvatore says. When your policy comes up
for renewal, talk to your agent to verify that your coverage
amounts are still realistic. And when you make an improvement,
add it to the total.
Make sure that the condo board or
association has a policy that covers the common areas, and get a
copy. Also look at the association bylaws to find out what
portions of the home you must cover. "It's usually from
the drywall in," Griffin says.
Since condo owners need their
contents policy to cover things like cabinets and fixtures, they
need a bit more insurance than the typical renter. Sometimes you
get a price break if you go with the same company that wrote the
policy for the condo association.
"Plus they are familiar
with what they cover, so they know what to sell you,"
Griffin says.
You also may want to consider
assessment coverage. If the condo association's policy is not
large enough to cover a loss, or if there is a hefty deductible,
the association will split the additional costs among the members
in the form of an assessment. With assessment coverage, your
insurance company pays the tab.
Granted, this is not for everyone.
But if you live in an area prone to floods or earthquakes, it
pays to know that most property policies do not cover these
disasters. Some independent carriers offer both. For flood
insurance, you can also contact the National Flood Insurance
Program. In California, you can get earthquake insurance through
the California Earthquake Authority.
Liability insurance, which picks
up the tab if someone gets hurt on your property or through the
actions of your family members, tops out at $300,000 on most
homeowners insurance policies, according to Griffin. "But
nobody sues for $300,000," he says. "That
usually starts at $1 million." His recommendation: if
you have assets, pick up an umbrella policy that would add extra
liability coverages to your homeowner and auto policy.
"Umbrellas are cheap --
usually starting at about $200 to $350 a year."
Getting married or divorced? Are
the kids moving out -- or back in? The amount of ins you need --
and the items you want to cover -- change over the years. Be sure
you keep your policies and inventories up to date.
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