- Do I have enough insurance to rebuild my home?
- Do I have enough insurance to replace all of my possessions?
- Do I have enough insurance to protect my assets in case of a lawsuit?"
Part of being prepared is to be able to answer that question with a resounding "yes!"
Homeowner's Insurance is designed to pay for damage to your home, its contents, protect you from financial liability if someone is injured on your property, and protects your possessions when you are away from home (i.e. stolen luggage, etc.)
Most homeowner's policies cover damage to the structure of your home, as well as personal property caused by many disasters. Fire and smoke damage, lightning, hail, explosion and theft are almost always covered. Although most homeowner insurance policies are standardized, you should examine all policies carefully and ask lots of questions before feeling comfortable with your coverage.
Flood, earthquake and sinkhole damage are almost never covered in a standard policy and need to be insured separately. Home offices, collectibles, jewelry and antiques may also need separate coverage. Homeowner's insurance only covers the structure of your home, not the land.
Two Methods of Determining Loss
Insurance companies employ two methods to determine the value of a loss--actual cash value and replacement cost.
Actual cash value is the cost of replacing damaged or destroyed property with comparable new property minus depreciation.
Replacement coverage is the cost of replacing an item with an item of the same kind and quality, with no consideration for depreciation.
Replacement value is the better of the two types of coverage because it will guarantee replacement. If your property is several years old and you have a cash value policy, your possessions may be worth nothing due to depreciation, and therefore, you are left without. If your policy does not already include replacement coverage, you can add this to your policy for an increase in premium. It may be well worth the additional premium to include this coverage.
If you are not yet a homeowner, make sure to purchase renters' insurance. This type of insurance can also protect you in case of theft, vandalism, natural disaster and liability for injury in your home or apartment. Rental properties often become victim to looting and vandalism after a disaster.
Ask Lots of Questions
An insurance policy is a legal contract that may be loaded with technical terms and hard to understand. Read it before you sign and ask if you have a question. Be very specific in the questions you ask and try to get all answers in writing. For example:
- Who is covered? If a volunteer is injured while helping to clean up after a hurricane, is he covered? How much of his medical bill would be covered?
- What is covered? Is my car covered if a tree falls on it when it is parked in the driveway? Is it covered if it is in the garage? Is the cost of tree removal covered if the tree does no damage?
- Am I covered for direct losses due to fire, lightning, tornadoes, windstorms, ice storms, hail, explosions, smoke, terrorism, vandalism and theft?
- Are my jewelry and antiques covered?
- What happens if I decide not to rebuild my home? Can I rebuild a different house plan--larger or smaller than my present home?
- If a pipe bursts and water flows all over my floors, am I covered? What if the dishwasher leaks and ruins the floor? Am I covered?
- What if water seeps into my basement from the ground due to flooding or sprinklers? Am I covered?
- If a storm causes a power outage and all the food in my refrigerator or freezer is spoiled and must be thrown out, can I make a claim?
- Are children and their possessions covered when they are away at college?
- Does my homeowner policy cover the loss if something is stolen out of my car?
- Is my boat covered if it is stolen? Am I covered if there is a boating accident and I am sued?
- Am I covered if I need to rebuild my home to a new, stricter building code?
- Exactly what is not covered? Have you ever heard that an "act of God" is not covered? What is an "act of God?"
- What personal expenses are covered after a disaster? If I can't inhabit my home because of a fire, will the insurance policy pay the hotel bills? For how long? Car rentals? For how long? Meals? For how long? Medications, clothing replacement, school supplies?
- When can you begin collecting the settlement money after a loss? Do you have to pay first and then submit receipts for reimbursement?
- Will they charge for inspector to come out and inspect the damage?
- How do you report a claim? Does your insurance company have a 24-hour hotline? In the case of a disaster, always call immediately after a disaster strikes. In the case of a widespread disaster, claims will be handled in the order they are received. If no one answers, leave a message. Always keep several phone numbers for your insurance company and agent in your 72-hour kit.
- What is the premium? How often is it due? Is there are a grace period? When will it increase? Will it increase every time I make a claim--to the point that I won't want to make a claim because of penalization?
- How much is my deductible?
- Does the policy cover actual cash value or replacement cost?
Obviously, these aren't all the questions you will need to ask, but they should help get you thinking about concerns specific to your situation.
Source: Adapted from "Insurance: Part of Being Prepared" by Carolyn Nicolaysen, Meridian Magazine