Homeowner Insurance Puzzles Many Who Must Purchase It : Loss protection: Natural disasters such as the Midwest floods are prompting many people to evaluate their coverage.
The deal on your new home is about to close. You hire the movers, contact the utilities, forward the mail . . . and pick out your homeowner policy.
Homeowner insurance is the broadest coverage most people will ever buy, since it protects against loss or damage to your home and worldly possessions. Yet, some home buyers wait until the last minute to decide on a policy. Many others already with coverage aren’t fully aware of the extent of their policies or the company that insures them until it’s time to file a claim.
“There’s a lot of confusion in terms of coverage,” said Jeanne Salvatore, a spokeswoman for the Insurance Information Institute, a New York-based trade group. “People do not know what they’re covered for . . . unless they have an emergency or they’re savvy consumers.”
The Midwest floods and last year’s hurricane damage in Florida and Hawaii did prompt more people to take stock of their insurance coverage.
Mortgage lenders require such coverage, but even renters who don’t have to buy home insurance increasingly take out policies against property theft or damage--41% in 1993 as opposed to 26% five years ago, a recent Insurance Information Institute survey found.
Still, only half of all policyholders in the institute’s study had recalled giving any thought to just how much home insurance they should get, while the majority had an unfavorable opinion of insurance companies in general.
A survey conducted by the Miami Herald six months after Hurricane Andrew struck parts of southern Florida also found that 17% of policyholders who filed damage claims thought that their coverage was inadequate. Another 31% said they planned to increase their coverage.
One way to avoid any costly surprises is to do a little research before moving into a new home. Review the policy at least once every two years and make necessary modifications to reflect things like home improvements or changes in market conditions.
J. Robert Hunter, president of the National Insurance Consumer Organization in Alexandria, Va., says that before committing to a policy, consumers should collect price quotes from at least three companies.
“I think it’s best to do your own shopping,” he said. “Sometimes the mortgage company will offer to help you get insurance. But that’s a bad idea. You probably won’t get the lowest price . . . because they get a commission.”
Some companies market their policies through direct agents who work for a salary and small commission. Others use independent agents who earn hefty commissions of between 10% to 20% on the premium. Only a few do business directly with the public.
All insurance companies offer six types of homeowner policies, ranging from the basic service for single-family homes, known as HO1, to coverage for condominiums, or HO6. Nonetheless, price and service for the same category of policy can vary greatly.
Home insurance rates are based on several factors, including the type of dwelling and location. Hunter said the average suburban homeowner pays between $200 and $250 a year per $100,000 appraised value of a home. Rural property owners usually pay less, while urban dwellers pay more.
One way for everyone to keep premiums down, Hunter said, is to increase the annual deductible, which typically starts as low as $250.
“You don’t want to file small claims anyway,” he said. “If you break a $250 lamp, would you want it on your record?”
Hunter’s group provides other consumer tips, along with information on insurers with good histories. The insurance institute trade group offers a toll-free hot line, (800) 942-4242, to answer questions about property and casualty coverage.
A.M. Best Co. rates the financial condition of insurance companies and publishes Best’s Insurance Reports every year. Consumer Reports periodically rates insurance companies based on readership surveys. The last survey was published in 1989; the next appears in the company’s October issue.
Experts recommend buying enough insurance to cover the cost of rebuilding a house, excluding the value of the land and foundation. To avoid the possibility of under-insuring, they suggest buying a guaranteed replacement-cost policy. An “insurance guard” in such a policy will automatically adjust the amount of your coverage based on the rate of inflation.
Read the fine print, though, for exclusions. Most policies, for example, don’t cover losses to vandalism if a property is vacant for more than 30 days or for damage connected to floods, earthquakes or war. Liability coverage is usually limited to $100,000 on a basic policy.
There are also limits for personal property. While belongings are covered anywhere in the world, you’re usually only entitled to their actual cash value, not replacement value. Insurers place limits on many items: $200 on coin collections or silverware; $1,000 on jewelry and watches; and $2,500 on home-office equipment.
Those wishing additional protection can purchase auxiliary insurance for personal articles, known as floater coverage, which means the items are insured wherever you take them.
Salvatore, of the insurance institute, suggests keeping a running inventory of valuables, including their price and date of purchase.
“This helps with filing claims. It also helps determine how much” insurance to buy, she said.
