Flirting With Disaster : Be Sure You Know What Is, Isn’t Covered
The typical homeowners policy covers a number of different risks. Here are some points to consider when evaluating your policy:
* Dwelling coverage. This insures your home and any attached structures, such as a garage, for a specific sum. The coverage should be equal to the cost of rebuilding the house, not the home’s fair market or sale value, which could be substantially more (in a desirable neighborhood) or less (in a poorer neighborhood) than the cost of rebuilding.
Consumer advocates recommend policies with automatic inflation adjustments that increase coverage as building costs rise. You should also consider building code upgrade insurance, which pays some or all of the cost of rebuilding an older home so that it meets current codes. Without the coverage, you may have to pay the cost of bringing your home up to code. For example, new rules require retaining walls or deeper pilings for certain homes built on bluffs.
You should review your coverage at least once a year with your insurance agent, and alert the agent whenever you remodel. If you aren’t comfortable with the agent’s assessment, you can hire a home appraiser at a cost of $150 to $300 for an independent review, and change your coverage accordingly.
* Coverage for other structures. This applies to buildings or structures separated from the house by a clear space or connected only by a fence or utility line. The coverage can apply to pools, patios, detached garages and fences and is typically limited to 10% of the dwelling cost coverage, although higher limits may be available.
* Personal property coverage. This covers the possessions inside and around your house, from your dish towels and lawn furniture to your big-screen television. The coverage is typically limited to 50% of the dwelling coverage, but higher limits may be available. Some items, such as jewelry, furs, antiques and collectibles, may require purchasing additional insurance, since regular limits for high-cost items are typically low. Home office equipment also may need to be insured separately. Consider updating your contents coverage whenever you make a major purchase, such as new furniture or electronic equipment.
* Loss of use. If fire or other damage renders your home uninhabitable and the damage is covered by your insurance, loss-of-use coverage pays the cost of accommodations in an apartment or hotel while your home is repaired. This coverage is typically limited to 20% of the dwelling coverage, although some insurers have higher limits and a few have no limits.
* Liability. This protects you if you get sued or if you have to pay expenses for someone hurt on your property because of your negligence, such as a visitor who slips and falls. Financial planners recommend a liability limit equal to or greater than your net worth (your assets minus your liabilities), preferably two or more times your net worth.
* What is not covered. Damage from floods or earthquakes (these require separate insurance policies); damage to renters’ property (this requires renters’ insurance); damage to land; damage from landslides; and widespread catastrophes such as war or nuclear disaster.
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What They Offer
California’s major insurers have eliminated guaranteed replacement-cost coverage, which promised to rebuild policyholders’ homes, regardless of how much insurance they carried. The insurers’ new policies limit coverage to the amount a home is actually insured for, plus an additional 20% to 50%. The new policies typically have inflation riders that increase the amount of insurance as building costs rise, and most also offer some form of building code upgrade, which helps cover the expense of rebuilding a damaged home to modern building code requirements. Here’s a look at what is offered by the three dominate home insurers in California.
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Market Inflation Building code Company Share Coverage limit rider upgrade State Farm 24% 120% Yes 10% Allstate 15 150 Yes 10* Farmers 15 125 Yes 10
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*Upgrade is built in to company’s “deluxe plus” plan and can be purchased separately with “deluxe” plan.
Sources: The companies, California Department of Insurance
