The Superbowl Sunday thaw-out after the deep freeze gave me a different touchdown as one of the pipes in our guest quarters burst. Unfortunately it took several hours before we found it and by then the place was wrecked. It caused me to consider the importance of homeowners insurance and what we need to keep in mind about our coverage.
Homeowners’ insurance is deceptively simple. We know it’s the coverage you need in the event of significant damage to your house, yet not all policies, or situations, are equal. You may be covered in the event of a fire, but what about a flood or other type of disaster?
Insurers have gradually phased out so-called guaranteed replacement cost policies, and many consumers are faced with more limited policies that may not take into account fast-rising construction costs or extensive retrofit work. In addition, these policies often require the policyholder to update the insurer about expensive upgrades such as hardwood floors or an addition.
Without periodic reassessment, victims of a disaster may find their insurance funds fall short of paying for a new home of the same quality. If your policy is five or 10 years old, and it doesn’t keep up with replacement costs, you may be under-insured.
Ideally, a good policy would cover you only for what you’d need to rebuild your home on your property. Unfortunately, too many don’t do that.
What should you buy?
Residents tend to over-insure when it comes to protection against fire and the like. But that may not be the greatest danger when it comes to homeowners’ insurance — exclusions are. Buying a policy without knowing what you won’t get, and why, is like walking into the lion’s den covered in catnip.
Consider the thousands of homeowners devastated by Hurricane Katrina. For many of the survivors, the worst damage was caused by flooding. Problem is, most hurricane coverage relates to destruction caused by high winds, rather than high water. If you’re thinking that’s a ludicrous and somewhat arbitrary line to draw, I’m with you. Just know before you buy that profit-seeking insurers usually disagree.
Therein lies the real problem for homeowners. Too many of us don’t know exactly what our insurers will and won’t pay for. And we’re not at all clear about, how, what we don’t know, affects what we pay annually in premiums.
That’s why many experts recommend a regular review of coverage. Doing so annually seems to be a good idea. As you go through the process — or seek a new policy — consider these questions:
1. What does it cost to build in your area? There’s simply no way to effectively price insurance without knowing what it would take to rebuild your home. You’ll want to know the per-square-foot average construction cost for your ZIP code. Multiply that by the total area of your home, and you have a replacement cost. Insure for that amount, and then recheck pricing annually. One caveat: This data’s rarely freely available, so be sure that your agent is relying on a credible source in writing your policy.
2. What risks does your home face? Exclusions and riders are common for homeowners’ insurance. Common exclusions can apply to older homes, where outdated plumbing or fixtures may lead to greater risks. Be sure you understand what risks your insurer is willing to accept on your behalf; they may be far fewer than you realize.
3. What funds do you have? Many suggest that the best way to save money on a homeowners’ policy is through the deductible. The higher, the better — assuming, of course, that you have or could easily raise the cash to make common repairs without involving your carrier.
Homeowners’ insurance is essential protection. So be prepared, but don’t pay any more than you have to. Know the replacement costs, and update your numbers annually.