"War and Peace." "Crime and Punishment." "The Sound and the Fury." All great books you've probably never read. If you're like most homeowners, you can add another unread title to your must-read list:
Your Homeowners Insurance Policy. "So many people never look at it because their mortgage company pays their premiums," says Madelyn Flannagan, vice president for education and research at the
Independent Insurance Agents and Brokers of America, or IIABA, in Alexandria, Va. An August 2009
IIABA survey found that at least 32 million U.S. households had ill-fitting insurance policies. Some were over-insured, others had major gaps in coverage. Fewer than 60 percent of respondents had performed "a comprehensive review" of their insurance coverage in the last two years, 16 percent had not done one since 2002, and 16 percent had never done one at all. (The remainder couldn't recall.) If you haven't peeked at your coverage since the Clinton era, you might suddenly find yourself reading a real-life thriller. For starters, there have been sweeping changes to the home, property and casualty industry over the last five years, stemming from the 1995 Hurricane Katrina. Robert Hunter, director of insurance for the
Consumer Federation of America, says home casualty companies have also shifted more of the
risk to consumers. Some companies now cap what they're willing to spend to rebuild your home but allow you to "buy up" additional coverage to protect against Katrina-esque skyrocketing rebuilding costs. Spiking liability claims for dog bites, mold and risky swimming pools and trampolines have caused further pullbacks in coverage for those hazards, as well.
*** Renewal time is the best time to read your policy, review your homeowners coverage with your agent, and perhaps shop around for a better or cheaper 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: Your homeowners policy, which is regulated by your state, features three main components: 1) Home (loss to structures), 2) Contents (loss to personal property), and 3) Liability Coverage.
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.
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: 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.
"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.
Shop Around- Unhappy with rate hikes? Losing confidence that your insurer will be around when you need it? Shop around for a new policy. Although the insurance industry has not made it easy for consumers to compare apples to apples, many state governments have by providing easy-to-access buyer's guides where you can view your state's major insurance underwriters and compare features and prices.
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