Purchasing The Homeowners Policy
Dwelling Protection Coverage Preparation : Items to cover
The first thing you need to do is to make a list of the “dwelling” category items you are trying to insure. Make a written list of these questions and issues;
- Exterior Features (Landscaping Driveway, Retaining walls, Storage building, etc.)
- Construction (Expensive/Custom Features of the Home)
- Perils (see below)
- Disasters (see below)
- Liability (see below)
- Personal Property (see below)
Amount of Coverage
Estimate what it would cost to repair or replace these structures and features TODAY.
Be careful! Do not accept some arbitrary number. Make sure that your house and other structures are insured for what it would actually cost to rebuild them. Otherwise, if you suffer a loss, you may find yourself underinsured by tens of thousands of dollars or more. If you want to intentionally underinsure in order to save premium dollars, do it knowingly, recognizing the risk you are choosing to take.
Rebuilding estimates can often be obtained free of charge from qualified licensed contractors.
To estimate the amount of dwelling protection coverage needed, you should do the following:
- Obtain the total square footage of your living area.
- Obtain the total square footage of all non-living areas (unfinished basement, attic, garage, other storage areas).
- Obtain the square footage of all other areas to be covered by the policy (patios, decks, pool, driveway, retainer walls, etc).
- Get an estimate for what it would cost to repair each of the above.
Make sure this estimate is for “LIKE KIND AND QUALITY” MATERIALS AND WORK.
Pay special attention to expensive moldings and woodwork and custom cabinets, doors and light fixtures, marble, granite, limestone or other expensive finishes. You don’t want these things replaced with prefabricated materials.
Ask yourself what you need to do to ensure that the estimates you have prepared are kept current with inflation and with increasing costs for labor and materials.
Next, you need to think about the kinds of losses that pose significant concern to you. This assessment will differ from one area or region to another. Firestorms where there is a dry season, mold and mildew in areas where it is wet and humid, hurricanes in Florida, tornadoes in Kansas, hurricanes in coastal areas and floods in low-lying or mountainous areas, and so on.
In addition, there are issues that could constitute a potential problem anywhere-depending on the age and condition of your house and other factors. These might include some of the things we talked about earlier, and concerns about electrical short circuits, plumbing failures, dry rot, mold, foundation problems, etc.
Other types of coverage would you like to cover:
- Misplacement (at home or while away)
Write this list down and put it in your file.
Make a list of the kinds of issues that may prove a potential problem for you.
Store all of these notes in your insurance file or notebook. You will use them when you meet with the insurance agent.
Coverage for Natural Disasters: Flood, Hurricane and Earthquake Insurance
Do you live in a flood plain or earthquake country? Have you adequately protected yourself from damage caused by violent storms, floods and earthquakes? Storms, tornadoes, earthquakes, floods and other natural disasters can demolish homes and their contents. It is important to evaluate your vulnerability to natural disasters and to make your insurance decisions accordingly.
Do you live by the ocean? Near a river? Is your home located in a flood plain or near mountains where runoff from winter snowstorms can cause flooding? Is there a levee nearby?
Floods are caused by varied and unexpected events, including hurricanes, the overflow of inland or tidal waters, the unusual and rapid accumulation or runoff of surface waters during a heavy rainfall, the collapse of a levee or dam, or a heavy snow runoff. The Federal Emergency Management Agency (FEMA), located at http:\\www.fema.gov, can tell you the level of flood threat in your area. Local government authorities can also advise you as to whether you live in an area where flood is a potential threat.
Many people forgo purchasing flood insurance either because they think such damage will be covered by their homeowners policy, because they do not know where to purchase flood insurance, or because they mistakenly believe that floods will not occur in their area. Obviously, it is important to investigate your needs before the flood occurs.
Damage caused by floods can be extensive and expensive, and so most homeowner policies exclude coverage for damage caused by these kinds of natural disasters. As a result, the National Flood Insurance Program (NFIP) is responsible for underwriting the vast majority of flood insurance policies in this country.
NFIP coverage is only available to homeowners residing in communities where organizations or private insurance companies have agreed to participate in the program. Almost all communities with serious flooding potential have joined. To see if flood insurance is available in your community, contact NFIP at (800) 427-4661 or through its website at http://www.fema.gov/business/nfip.
Many companies, possibly including the company that already handles your homeowner’s or auto insurance, write and service flood policies for the federal government. The program is largely financed through the premiums charged to consumers.
If you determine that you reside in a flood plain or other flood threat, contact your insurance agent or the NFIP to inquire about protection. Personal property and content coverage is separate, and you do not have to be a homeowner to purchase this type of protection. Renters can insure their belongings too.
Before a flood occurs, carefully read the claims documentation, negotiation and resolution portions of this section to learn how to handle a claim should one arise.
Hurricanes may not be covered by flood policies, and they are sometimes excluded by homeowners policies too. After Hurricane Andrew, insurance companies began pulling out the marketplace because of the overwhelming losses suffered after paying claims. As a result, some hurricane-prone communities created government-sponsored insurance programs to protect insurers against catastrophic losses and to encourage insurers to offer hurricane coverage. Check with your local agent if hurricanes occur in your area.
Do you need earthquake coverage? In order to determine whether you need earthquake insurance you should first determine the likelihood of an earthquake striking in your area, and then decide whether earthquake coverage is affordable and worthy of your investment.
The problem is that effective earthquake coverage is hard to find, expensive and lacking in benefits in most places where residents most need such coverage. It’s easier to buy hurricane insurance in California and earthquake insurance in Florida than the other way around.
Today, most of the earthquake coverage in effect in California is sold through the California Earthquake Authority (CEA). The CEA is a privately funded, publicly managed consortium of insurance companies that was created after California’s infamous Northridge quake.
The problem with the CEA’s policies is in its exclusions, limitations and deductibles.
When considering an earthquake policy, pay close attention these issues under each portion of the coverage. Unfortunately, many people find that the combination of these restrictions leave little left to be paid for.
Fire damage under a homeowners policy is always covered. This is often required by state law or insurance regulations, and is usually so whether a fire was caused by a firestorm, acts of God, someone’s negligence or even by wrongdoing. The most conspicuous exceptions are fraud or arson by an insured or acts of war or insurrection. Fire Loss may even be covered if it results from an uncovered cause. For example, a flood may cause short circuits which burn a house down. Even though flood damage is excluded, damage caused by the resulting fire may be covered. Fire losses include both dwelling and apartment structure damage and personal property damage.
Personal Property Coverage Preparation
When preparing to meet with an agent to discuss the Personal Property Protection part of your insurance, the steps are similar to those with Dwelling Protection Coverage.
Items to cover :
First, make a list of your personal property. This process will surprise you. If you take a notepad and go through your house room by room, you will be shocked at how long your list is.
This is time consuming, but do it!
Highlight any personal property that may be of particular value. Especially:
- Oriental Rugs
- Antiques and other items of value.
List the value of these things SEPARATELY. In order for them to be insured, they may have to be appraised (or even photographed).
You don’t have to count every sock and pencil, but go through the house thoroughly, listing the items above, plus valuable electronics, clothing, household items, sports equipment and personal property.
This will not only assist you in calculating how much personal property coverage to purchase, it will also assist you in reconstructing what was lost if your home is ever damaged or destroyed. Again, save these notes in your file.
Amount of Personal Property Coverage
Next, list what it would cost to REPLACE these things.
Sometimes, your personal property limit is determined by simply choosing a percentage of your total dwelling protection limit. For example, if you have dwelling limits of $200,000, the company may say that your personal property limit is 10% of $200,000, or $20,000. This is not a smart way of determining how much you’ll receive to repair or replace damaged property. It’s much better to go through your home, determine what you own and calculate its worth. Then, your limits will accurately reflect what you’ll need if your personal property must be replaced or repaired.
Get out your calculator and write down in your notes realistic replacement estimates for the things you actually own.
Amount of liability coverage
Determine the total value of all your current assets. Include:
- equity on your home or other property;
- stocks and bonds;
- retirement accounts;
- any businesses in which you have a financial interest;
- earnings you (and your spouse) receive from work;
- personal property of value.
Liability Coverage Protection Preparation
Think about the issues related to Liability Coverage Preparation.
Ask yourself, if a guest or worker in your home is injured, or you are sued for other liabilities, to what extent do you want your family assets to be at risk?
Additional Living Expenses (ALE)
Many people do not know that when their home becomes uninhabitable most insurance policies require the insurer to pay for temporary accommodations of “like kind and quality.” Additional Living Expenses (ALE) coverage is critical when you are faced with living in a damaged home.
Next: Meeting with an Agent