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How to Give Yourself a Home Insurance Checkup

Jeff Blyskal

Last week's deadly outbreak of 34 tornadoes in eight states is a warning to all consumers: Now's the time to check whether you're fully covered by your homeowners insurance.

The period between March and August is peak season for tornadoes. Wildfires tend to flare up in spring and summer, and the Atlantic hurricane season starts in June.

"This will be the most dangerous and destructive year for hurricanes since 2005," when Hurricane Katrina devastated the Gulf Coast, warns David Dilley, senior meteorologist for Global Weather Oscillations, an Ocala, Fla., firm that provides long-range cyclone forecasts to insurance companies and businesses.

Yet most homes are underinsured, according to Norrine Brydon, head of research for CoreLogic, which provides risk data to major insurance companies. She says that about 60 percent of homes are underinsured by about 20 percent.  

7 Steps to Full Coverage

To properly figure the replacement cost of your home, don't rely on Zillow estimates or what you paid for your house when you bought it.

"Market value is not comparable to construction cost," says Brydon. Market value includes the cost of the land and depends on things like your home's location, the economy, and the price you could sell it for. The cost of new construction to replace your home could be very different.

So Brydon recommends that you make a date with your insurance agent. He'll have software that can estimate the replacement cost of your home. To make sure you get the most accurate replacement cost, follow these steps:

Review your home's vital statistics as listed in your policy. Make sure the policy includes correct information about your home's square footage, the number of bedrooms and bathrooms, its age, and the structural materials it's built with. Also check that the type of flooring listed in the policy is accurate.

"If you've added a second story to the house or remodeled with top-of-the-line upgrades, keep your agent in the loop," says Chris Hackett, senior director of personal lines at the Property Casualty Insurers Association of America, a trade group.  Such a change would make a big difference in how much insurance you need.

Get a "new-policy" quote. Even if you're renewing your policy, ask your agent to recalculate your home's reconstruction value using the most current construction cost data and updated property details. A "new policy" estimate will likely be more precise than a "renewal" quote, which may be based on less up-to-date info.

Request a copy of the reconstruction valuation report. Review it for accuracy and make any corrections necessary. Ask the agent if you have any questions. 

Repeat this process every year or two. One reason so many are underinsured is inertia. Homeowners buy insurance when they buy their home, then they forget about it. Rising construction costs can quickly outdate your policy limits.

Buy the extended replacement cost endorsement. Most homeowners insurance provides for replacement cost up to specified limits. Hackett says you want extended replacement cost coverage, which will typically pay up to 25 percent above your limits. That costs more, but it's especially important when natural disaster strikes and the sudden large demand for construction labor and materials causes price spikes. 

Protect against other perils. Another reason homeowners can find themselves underinsured is because standard homeowners insurance policies don't cover everything. You’ll need additional policies for flooding and earthquakes. You might also need separate policies for hurricanes, wind, and hail if you live in a high-risk zone.

Consider getting a "floater" to your policy. If you own unusually valuable furs, jewelry, silverware, or artwork, a “floater” could cover the full value of those items. If you live in an older home, consider adding an ordinance or law endorsement (an extra feature), which will help pay the higher cost of bringing plumbing, wiring, or other key systems up to current codes when rebuilding.



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