Insurance For Your House And Personal
Possessions
Source: Insurance Information Institute
If your house burns down or if your possessions are stolen, you
don't want to find out that your homeowners insurance policy pays
less
than you thought it would.
The information in this brochure can help you avoid such unpleasant
surprises.
Here are some things you can do to make sure you're not underinsured.
1. Find out how much it would cost to rebuild your home.
The
amount of insurance you buy should be based on rebuilding costs,
not the price of your home. The cost of rebuilding your house
may be higher (or lower) than the price you paid for it or
the price
you could sell it for today.
Your insurance agent or company representative generally can
calculate rebuilding costs for you or you can hire an appraiser
to do the job.
Your local real estate agent will be able to give you the names
of appraisers.
The cost of rebuilding your house is based on local construction
costs and the kind of house you own. This includes the type of
exterior wall construction -- frame, masonry or veneer; the square
footage
of the structure; the style -- ranch or colonial, for example;
the number of bathrooms and other rooms; the type of roof and
the materials
used; and whether it was custom built. Other things that affect
the rebuilding cost are an attached garage, a fireplace, exterior
trim
and special features, like arched windows.
A good way to get a ballpark estimate of the cost of rebuilding
is to calculate the square footage and multiply it by local
building costs per square foot for your type of house. For example,
suppose
your home is 2,000 square feet (1,200 square feet on the
ground floor
and 800 on the second floor) and that building costs in
your community and for your type of house are $80 per square
foot.
The cost to replace
your home would be approximately $160,000. You can ask
a real estate agent or appraiser for average building costs in
your
area.
2. It's a good idea to insure your home for the cost
of rebuilding it.
Few homes are totally destroyed by a disaster,
but yours could be one of those few. If it's insured for less
than the
rebuilding cost,
you run the risk of not having enough money to replace
it with one of similar size and quality.
Make sure your insurance agent knows about any improvements
or additions to your house since you last talked about
your insurance
policy.
If you don't increase your limits to cover the cost of
rebuilding a new deck, a second bathroom, a larger kitchen
or other improvements
that have increased the cost to rebuild your home, you
may save a little money on your insurance premium but
you risk being underinsured.
If you don't have sufficient insurance, your insurance
company may
only pay a portion of the cost of replacing or repairing
damaged items.
Look at your homeowners insurance policy to see the maximum
amount your insurance company would pay if your house
was damaged and
had to be rebuilt.
The limits of the policy typically appear on the Declarations
Page under Section I, Coverages, A. Dwelling. Your insurance
company will
pay up to this amount to rebuild your home.
Some banks require you to buy homeowners insurance to
cover the amount of your mortgage. If the limit of
your insurance
policy
is based
on your mortgage, make sure it's enough to cover the
cost of rebuilding.
3. Make certain that the value
of your insurance policy is keeping up with increases in local
building costs.
If the limits of your policy haven't changed
since you bought your home, then you're probably underinsured.
Many insurance
policies
include an inflation guard clause that automatically
adjusts the limit to reflect current construction
costs in your
area when policies
are renewed. If your policy doesn't include this
clause, see if you can purchase it as an endorsement.
4. Find
out whether you have a "replacement cost" policy
for the dwelling.
Most policies these days cover
replacement cost for structural damage, but it's wise to check
with your
insurance agent
or company representative.
A replacement cost policy will pay for the
repair or replacement of damaged property with materials
of similar
kind and
quality. The insurance company won't deduct
for depreciation -- the decrease
in
value due to age, wear and tear, and other
factors.
If you own an older home, you may not be able to buy a
replacement cost policy. Instead, you
may have
a
modified replacement cost
policy. This means that instead of repairing
or replacing features typical
of older homes, like plaster walls and hard
wood floors, with similar materials, the policy will
pay for repairs
using the
standard building
materials and construction techniques in use
today.
Insurance companies differ greatly in how they
insure older homes. Some won't insure older homes
for the
replacement cost because
of the expense of re-creating special features
like wall and ceiling
moldings and carvings. Other companies will insure
older homes for the replacement cost as long
as the dwelling
is in good condition.
If you can't insure your home for the replacement
cost or choose not to do so -- in some cases,
the cost of
replacing a large
old home is so high that you might not want
to replace it with a house
of the same size -- make sure the limits of
the policy are high enough to provide you with a
house of acceptable
size and quality.
5. Find out whether building
codes in your community have changed since your home was built.
Building codes require structures to be built to minimum standards.
If your home were damaged,
you
might have
to rebuild it to comply
with the new standards. In some cases,
complying with the code may require a change in design
or building materials and may
cost more.
Generally, homeowners insurance policies
won't pay for the extra expense but insurance companies
offer
an endorsement
that pays
a specified amount toward these costs.
(An endorsement is a form attached
to an insurance policy that changes what
the policy covers.)
6. Consider buying an extended or guaranteed
replacement cost policy.
An extended replacement
cost policy will pay a certain percentage over the limit
to rebuild
your home --
20 percent or more depending
on the insurer -- so that if building
costs go up unexpectedly, because there's a shortage
of
building
materials or
construction workers,
for example, you will have extra funds
to cover the bill.
Some companies offer a guaranteed replacement
cost policy that will pay whatever
it costs to rebuild
your home
as it was before
the fire
or other disaster, even if it exceeds
the policy limit. This gives you protection
against sudden
increases in construction costs but
it generally doesn't cover the cost
of upgrading the
house to
comply with building codes. A guaranteed
replacement cost policy may not
be available if you own an older home.
7. Your homeowners insurance policy does not cover flood damage.
Ask your insurance agent or insurance company representative if
your home
is in an area
that is likely to be flooded.
If it is, your agent
may be able to help you get flood
insurance, or contact the National Flood Insurance
Program (NFIP) by telephoning
(800) 427-4661
or by accessing its Web site
at www.fema.gov/nfip. Flood insurance is available
from the NFIP.
8. Make a list
of all your personal possessions and keep it up to date.
Include
everything you own in your home and in other buildings
on the property.
Don't
forget to list indoor
and outdoor
furniture; appliances, stereos,
computers and other electronic
equipment;
hobby
materials and recreational
equipment; china, linens, silverware and kitchen
equipment;
and jewelry, clothing
and other
personal belongings.
If you have a claim, the more
information you have about
the damaged items
-- a description of each
and the date
and place
of purchase
-- the faster the claim can
be settled. Videotape or take
photographs
of
rooms and their contents.
Note
where and
when you bought each
item. Write down the brand
names and model numbers of
appliances
and electronic
equipment.
Add new
items as
you buy them.
Keep receipts with the list.
If you have a
computer, you can download
the Insurance
Information Institute's home
inventory software at www.KnowYourStuff.org.
This software program
makes
creating a home inventory
easy and is the ideal solution
for keeping the information
up
to date.
Be sure you store your home
inventory somewhere safe
off the premises
-- in a bank deposit
box or with
a neighbor or relative
-- so that
it isn't destroyed if your
home is damaged.
9. Estimate
the value of your personal possessions at current
prices.
The total is the
amount of insurance you would need
to replace the contents
of your
home with
new items
if everything
was destroyed.
10. Find
out how much insurance you have for the contents
of your home
in your
homeowners insurance
policy.
The limit of
the policy is shown on the Declarations
Page under
Section I, Coverages,
Personal
Property. Most
companies provide
coverage
for 50 percent
to 70 percent of the amount
of insurance
on the
dwelling.
Now compare
the Personal
Property
limit with the
total value of the
items on your list
of personal possessions.
If you think
you're underinsured,
discuss this problem
with
your insurance
agent
or insurance company
representative.
11. Consider replacement cost insurance
for your personal possessions.
There are two ways
of insuring your
personal possessions.
If you already
have a homeowners
insurance policy,
find out whether
claim
payments for
damage to
your personal
property would be
based on replacement
cost or actual
cash value.
Check
your policy under
Section I, Conditions,
Loss Settlement,
or ask your agent. As
with insurance
for the structure,
a replacement
cost policy
generally pays
the dollar
amount needed
to replace a
damaged item with one of
similar kind
and quality
without
deductions
for
depreciation.
An actual
cash value policy
pays the
amount needed
to replace the item, minus depreciation.
Suppose, for example,
a fire destroyed
a five-year-old TV set.
If you
had a replacement
cost policy
for the contents
of your home,
the insurance
company would
pay to replace
the TV set with a new
one.
If you had
an actual cash
value
policy,
the
company
would pay
only a percentage
of the cost of a new TV
set because the
TV had been used for five
years
and would be
worth less
than its
original
cost.
12. Check
the limits on certain
kinds
of personal
possessions, such as
jewelry, silverware
and
furs.
This
information
is in Section
I, Personal
Property,
Special
Limits of Liability.
Some insurance
companies also
place
a limit on
what they'll
pay for
computers.
If the limits
are too low,
consider
buying
a special
personal property "endorsement" or "floater." (A
floater is
a form of insurance
that allows
you to insure
valuable items
separately.)
If you have any questions regarding your claim,
contact your insurance agent.
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