With all of the recent publicity regarding insurance companies denying or limiting claim payouts on homeowners’ policies, many people are asking how they can protect themselves from being a victim of their own insurance company at a time when they most need the protection.
Here are a few thoughts on how to make sure you at least have adequate insurance. When you purchase insurance coverage for your home it is your intent to cover yourself for;
1) the cost of rebuilding your home,
2) the cost to replace your personal possessions within your home, and
3) the cost of having to live elsewhere while your home is being rebuilt.
First, decide how much it will cost to rebuild your home. This is not the price you paid for your home nor is it the amount of your mortgage. If you are unsure of how to determine this amount ask your agent since he has more expertise in this area. Give him the exact square footage of the residence, the specific location of the residence, the type of construction, whether the house is a custom home and any other unusual features of your home. Once your agent has this information, have the agent determine the cost per square foot to rebuild your home. In order to determine the amount of dwelling coverage you should carry just multiply the square footage by the cost per square foot. Always confirm in writing what figures the agent quoted you so that if the question of adequate coverage or co-insurance becomes an issue you are protected since you relied upon the agent’s expertise. However, beware that insurance agents typically under estimate the cost of rebuilding your home. Agents want to sell you insurance and to do so they believe they need to keep the premiums as low as possible which means keeping the coverage low.
In addition to determining how much coverage you need you must decide what kind of insurance to buy. A homeowners policy protects you against numerous perils, such as fire, windstorm, theft, etc. A fire policy is limited to protection only against fire. There are various types of homeowners policies and each type needs to be explored with your agent. Remember, policies that insure you for anything less than replacement cost will not cover the cost of rebuilding your home.
With regard to the amount of coverage you should carry for the personal possessions in your home, a typical homeowner policy will calculate that amount based upon a percentage of the dwelling coverage. Policies will vary as to whether the personal property coverage will be replacement cost or actual cash value (which applies depreciation). Immediately after you take out your policy and for every year thereafter, videotape the contents of your home (open drawers and videotape what is in them). When you have a loss, insurance companies will require you to file a proof of loss in which you will have to make a list of your personal property. A video recording will not only help you remember what was in your home but it will also prove to an insurance company that you had the item and the specifics of the item. Remember most homeowners' policies have a limit on items such as furs, jewelry, silverware, etc. If you want full coverage for those items ask your agent about a floater policy.
If you have a loss and are displaced from your home the additional living expense coverage on your policy will reimburse you for hotel bills, restaurant meals and other items that are over and above what you would have spent if you were living in your home. Additional living expense coverage is limited in your policy to a set maximum amount and limited in the time you are covered. Thus if you have 12 months of coverage and it takes 18 months to rebuild your house you will not have coverage for the last 6 months. Know your coverages and plan accordingly.
For more information on Homeowners Insurance and what you need to do when you have a loss see our insurance law website.