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There are five popular topics concerning homeowners insurance that we
will discuss below: types of damage covered, determining replacement
cost, determining personal property value, understanding liability coverage, and ways
to save money on your policy.
Homeowner insurance policies typically cover damages
such as: fire and smoke damage, storm damage (i.e. lightening, wind,
hail, ice and snow), water damage (other than flooding as this is
separate), explosion, vandalism, theft (some companies are now offering
an identity theft coverage option as well), civil unrest, and damage by
aircraft and vehicles. You should discuss
with your insurance provider any additional hazards you may face in your
location such as earthquakes or floods. There may also be hazards
you are not immediately aware of that could effect your insurance cost
such as your neighborhood crime rate or if you own a
 pet
that is considered to be a high liability risk (i.e. certain breeds of
dogs). Depending on the probability
of need, you may be required to get additional coverage for these
hazards by your
insurance carrier and/or mortgage lender. To find out about
special hazards in your area, talk with your insurance provider or
contact your state insurance commissioner. If you run a home business, you will need to get
separate insurance to cover business items such as computers and
liability, i.e. if you run a daycare, your standard homeowners will not
cover any accidents. Other items that are not covered by your
homeowners insurance but may be covered by additional or alternate
policies are: tenants, multiple family dwellings, land, theft by those
covered in your insurance policy (i.e. recently separated spouses), and
cars. Take a look at your policy and review your coverage.
Consider how you use your home or where your home is located. Do
you need additional or special coverage? This is a question you
should review every year.
When choosing a policy, it is important that you
consider the replacement cost of your home. The
replacement cost is the amount it would take to replace your home.
Replacement cost is not the same as the market value of your home as the
market value includes the property it stands on and the current housing
market. Because of this, it may not be equal to your outstanding
mortgage. You can get estimates for replacement cost from
appraisers, your local builder/craftsmen association or your insurance
agent. Once you have determined how much your home replacement
cost should be, you should review it and make any needed adjustments
every
 year. Most insurance companies will include an increase of
coverage every year to match inflation. However, other
items may also require you to adjust your replacement cost. Major
remodels to your kitchen or bathroom or room additions can
drastically effect the replacement cost of your home. If you use
special materials or there is a housing boom making building materials
scarce in your area, these too may affect your replacement cost.
Another item that may effect your replacement cost is the change in
building codes since when the house was built. Even with partial
damage, it may be necessary to take the whole area/structure down to
bring it up to code. If you own an older home, you should
definitely discuss this with your agent. You may also get an
extended replacement policy that will help you if your replacement
coverage is below what you need. However, it is more economical if
you take the time to review your policy and change your replacement cost
coverage each year. Finally, keep in mind your policy should also
include coverage for living expenses while the home is rebuilt or
repaired. With the structure insured for major repairs,
you can now consider your possessions.
Determining the personal property value depends on how much time
the homeowner wants to invest in itemizing their property.
Traditionally, most homeowners are covered at 50% of their home's value
to cover personal property. Some pay a bit extra and get 75% of
the homes value. Replacement costs like this cover like items, not
necessarily the same make and model. You can also make an itemized
actual cash value list that will cover items' actual cost minus
depreciation. Many opt for percentage replacement coverage and
then add a "floater" that will cover individual inventoried items.
Major items should be inventoried with make, model, original cost, and
documentation by picture or video. Items like jewelry and antiques
should also have an appraisal. The documentation of these items
should be kept in a secure location like a safe deposit box or a
fireproof safe. Even if you opt for the general 50% coverage, you
should have a list of your most valued possessions in case theft as this
may help in tracking the items down (see more in our
Home Security article).
 Liability coverage protects you, your family,
house guests and pets if they should accidentally hurt someone on
your property or hurt someone or damage property elsewhere. On
average, liability insurance usually covers up to $100,000 per incident.
However, with lawyer and medical costs high these days, many homeowners also add an
umbrella which allows for greater coverage at reasonable rates.
Although most think of medical coverage as part of their liability
coverage, it is actually categorized separate from liability because it
pays for minor injuries that do not need to prove fault or negligence to
be covered. An example would be someone twisting their ankle at
your home. Liability is an important coverage that you will want
to discuss with your agent.
Finally, there are a few things you may do to ease the
cost of homeowners insurance. One way to lower your overall
insurance cost is if you know you can take a higher deductible. If
you can pay $500-1000 instead of $300 for each instance, this will
lower your premium. Some decide to do this as the probability is
that they will not claim or use the insurance very often. In
addition to this, you may also pay your premium in larger and fewer
payments. Another method to lower costs is to itemize your
insurance to only the hazards you think most probable to happen. However, this option may not be available if you still owe a
mortgage as the mortgage company may want more inclusive coverage.
Also, you may check and see if there are any improvements you make to
the home that may reduce your premium. Installing a home security
system for example. Finally, combining policies with one carrier
will also help you get lower premiums. If you combine your home,
auto and life insurance policies, many companies will give you a
preferred rate. Talk with your agent for further ways you may able
to save money but maintain sound coverage on your home. |
More Resources
Household Checklist
There are a number of checklists available online; many are
available from individual insurance providers. We found the
following booklet from the University of Illinois to be the most
comprehensive.
www.ag.uiuc.edu/%7Evista/abstracts/ahouseinv.html
Household Papers/Records:
Taken from our earlier article about
Home Security, here again is a checklist of important papers you
should safeguard and how long you should keep them:
- Keep in Safe Deposit Box/Fireproof Safe: Birth
certificates, marriage certificates, divorce legal papers, adoption
papers, citizenship records, and other documents that are government
or court related. A copy of a will, although your attorney will keep
the original. Investment and business papers, government bonds,
deeds, titles and copyrights to name a few more. General rule is,
"Put it in if you can't replace it or if it would be costly or
troublesome to replace."
- Taxes: IRS can audit up to 6 years back. However, you can
get rid of pay stubs if you have your W2. Cancelled checks you will
want to keep if they are related to anything you claimed on your tax
return.
- Medical Bills: Keep at least 3 years.
- Household Inventory: You should have a comprehensive list
for each room and what of importance is in there. This will help you
claim losses in event of burglary or fire. The details of this list
should be shared with your insurance carrier to make sure of
coverage. It is recommended that you review this list once every 6
months.
- Deposit, ATM, Credit Card and Debit Card Receipts: Save
them until the transaction appears on your statement and you've
verified that the information is accurate. Then they may be
shredded.
- Credit Card Statements: If there are not purchases
related to taxes you may shred them once every year. However, if you
have larger purchases on the card you may want to keep hold of these
older statements. Special Note: Credit
Card Agreements should be kept as long as the card is active!
- Loan Agreements: Keep as long as the loan is active.
- Documentation of Stocks, Bonds nd Other Investments: Keep
while you own the investment and then 7 years after that.
Useful Links
National Association of Insurance Commissioners
www.naic.org
FEMA: Homeowners and Renters
www.fema.gov/individual/home.shtm
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