Homeowners customize their houses and there is no reason they cannot do the same with their homeowners insurance. Standard home polices cover four areas: replacement value of the house and detached structures such as garages or barns, personal possessions, living expenses in case of displacement and liability. There is no one-size-fits-all policy, however, and informed choices make for the most cost-effective protection.
“The biggest risk is over- or under-insurance,” said Pamela Pine, chief operating officer of Loudoun Insurance Group LLC, in Leesburg, Va. “The right amount provides the ultimate in loss prevention.”
| Resources: |
| » Insurers’ complaint records can be found at the National Association of Insurance Commissioners eapps.naic.org/cis |
| » Information and home inventory software from the Insurance Information Institute iii.org |
| » Flood insurance information floodsmart.gov |
An insurer’s estimate is based on software that takes into account the cost of a house’s building materials, square footage, age and other factors. Owners may need or want more or less insurance than the standard estimate provides, and mortgage lenders can impose coverage requirements.
Homeowners insurance can cover replacement costs rather than the market value of repairing or rebuilding a home if there is physical damage. For example, a house is covered for hail damage to a roof, if lightning sparks a fire or if a burglar pilfers the heirloom china. But standard policies may not cover every contingency so experts say it is important to carefully examine policy exclusions.
The most important exclusions for the Washington metro area are earthquakes, floods, sinkholes and water backup from sewers or drains, Pine said. These protections must be purchased separately. Losses caused by vermin, wear and tear or homeowner negligence usually are excluded as well.
For older or historic homes, Pine recommended adding “ordinance or law” coverage for repairs not covered by the policy but needed to bring the home up to code during repairs.
Contents such as clothing or furniture may be insured at 50 percent to 75 percent of the house insurance. To upgrade that protection, send an inventory of items to the insurance company and ask for an estimate, said State Farm agent James Mensah of Wheaton.
A policy that offers replacement value instead of actual cost, which is depreciated value, is best, Mensah said. A rider will be needed to protect pricey items like jewelry, furs or fine art, both at home and abroad, as the standard policy may not cover them at a high enough value.
People who are forced to relocate because of a flood, fire or other insured damage can get insurance money to cover expenses during reconstruction. Some companies offer limited loss-of-use insurance at a percentage of home coverage while others cover for actual loss sustained, Mensah said.
Liability insurance covers visitors’ medical bills or lawsuits as a result of injuries that occur on the property. Pine and Mensah said homeowners should avoid temptations to cut corners on liability protection.
Since standard liability coverage is limited, they suggested an umbrella policy that adds extra liability protection to a car, home business, travel, pet’s behavior and other risks.
For example, if a child is injured on a neighbor’s trampoline or severely bitten by their dog, their standard homeowners’ liability protection may not suffice, Pine said.
“People typically cut corners on liability coverage, but someone could lose all his assets in one negligent moment,” Mensah said.
It may be smart to increase a policy’s deductible, which lowers the premium and prevents homeowners from filing small claims that could raise payments the next year.
“But don’t increase it beyond what you’re willing to pay for a claim,” Mensah said.
Review insurance annually to ensure the replacement costs are current.
“People are getting good deals and building materials are inflating, so it may cost more to rebuild than what you paid for your house,” he said. “Make sure no one is overinsuring your home. Shop around.”
