Homeowners insurance: Reassess coverage

Robert DiGiacomo

At least once a year, it's a good idea to review the insurance coverage on your biggest asset: your home.

Your homeowners insurance coverage should start with a replacement cost policy that covers the entire expense of replacing your home if there is a loss. You also can opt for what's sometimes called a "guaranteed" replacement policy that typically includes around 25 percent of additional coverage over the estimated value to replace your home.

No matter what type of home insurance you have, there are many ways to adjust your coverage, whether you need to add to your policy to cover Grandma's diamond brooch or buy separate protection to guard against flood damage.

These tips will help you determine whether you have a sufficient amount of home insurance coverage.

Ask the experts

Supplement figures generated by your insurer for the replacement cost of your home by getting a second opinion from a local contractor. Ask for an estimate of the real-world cost of rebuilding your home, including the expense of demolishing the structure, says public adjuster Robert Freitag, president of AmeriClaims Inc. in Indian Trail, N.C.

"The agents plug in square footage and construction materials, and (the computer) spits out a figure," Freitag says. "Sometimes it's on, and a lot of times it's off."

Natural disasters can also drive up replacements costs, says Ed Charlebois, vice president of personal insurance for Travelers.

"With building costs, you can't anticipate everything that could happen," Charlebois says. "If you think about the tornadoes in Missouri and Alabama, I'm sure there were surges in pricing that were higher than you would have thought possible."

Check your contents coverage

Replacement cost policies usually don't include the same level of coverage for contents -- instead, the reimbursement amount for furniture, clothing and other possessions is typically based on a percentage of the replacement value for the entire house.

For those who determine their contents are underinsured, it's "pennies on the dollar" to buy additional coverage, Freitag says.

If you live in a condominium, be sure to read the fine print of the association bylaws to determine which portion of the building is covered by the association policy and which part you must insure yourself.

"Typically, the association will cover everything in a unit, except improvements and betterments made," Freitag says. "The association will never cover contents."

New kitchen, more coverage?

Additions and interior renovations, such as a new kitchen, remodeled bathroom or finished basement, could push your home past its current insured value.

Some improvements may also come with unexpected insurance costs, according to Kevin M. Lynch, an assistant professor of insurance at the American College in Bryn Mawr, Pa., and a former insurance agency owner.

"If you put in a pool, you may need to upgrade your homeowners (insurance), but you also may need umbrella liability insurance," Lynch says.

Protect your valuables

Even under a replacement cost policy, there typically will be limits on certain categories of possessions, including fine jewelry, watches, fur coats, silverware and firearms. Typical policies will cover $1,500 for each of these types of categories, according to Charlebois.

"If you have jewelry that costs more than $1,000, you will want to think about an additional endorsement, or you can buy a separate policy," Charlebois says.

If your policy only covers items stolen from your home or destroyed by fire, then another strategy is to purchase a so-called floater policy for high-value items for coverage at home and away, Lynch says.

"These (floater) policies cover you for loss or mysterious disappearance 24/7, everywhere," Lynch adds.

However, forget about stashing your cash under the mattress -- home insurance will only reimburse you for small amounts of the green stuff.

"If you have thousands of dollars in cash and the house burns down, you might be able to recover $200," Charlebois says.

Control the floodgates

Unless you live in certain coastal areas, damage from wind and hail is covered by most homeowners insurance policies. However, flood damage is not. Those who live in a high-risk flood plain and have a federally backed mortgage are required to buy a separate flood insurance policy through a program run by the federal government.

However, at least 1 in 5 floods occur in an area the government hasn't designated a high-risk flood zone. If you live in such an area, Charlebois recommends you consider buying a preferred-risk policy from the federal government.

Take the bite out of coverage

Certain breeds of dogs, such as Rottweilers and pit bulls, may not be a homeowner's best friend, because they may not be insurable.

"If you fail to disclose you have one of these breeds, chances are that if your pet injures another person, and you get sued for liability, the claim could be denied," Lynch says.

Whatever your home situation is, when in doubt, consult with your home insurance company or agent.

"There's no such thing as too much communication with your agent," Lynch says.

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