NEW YORK, Sept. 1, 2005
Home Insurance And Hurricanes
Ray Martin Tries To Save Homeowners From A Few Nasty Surprises
-
(AP/CBS)
-
Special Report Ray Martin's Money Tips The Early Show money maven offers advice to keep your financial house in order.
Every homeowner needs to know that most homeowner's insurance policies no longer provide "guaranteed replacement coverage," which had provided homeowners with peace of mind that their home would be replaced regardless of the rebuilding costs.
Most homeowner's policies sold today are a form of coverage called “extended replacement coverage” or “specified additional amount of insurance” which only provides coverage up to the dwelling limits specified in the policy, plus an additional amount of up to 20 percent to 30 percent — and not a penny more.
This places more responsibility on homeowners to make sure that they have adequate dwelling coverage limits in their homeowner’s insurance policies. The concern in the industry is that many homeowners have not updated their dwelling coverage limits and, as a result, are underinsured in the event that they have a full loss.
Many insurance companies are now using Marshal & Swifts Residential Component Technology (RCT), a home valuation computer program that calculates your home's replacement value and suggests the proper coverage limits to set in your policy.
But if the assessment is incomplete, and the homeowner does not buy enough coverage, the homeowner will bear the consequence.
Ideally, the insurance agent should also visit the home to assess its replacement value and take into account the specific risks to the home, local market conditions and current building codes that would contribute to the costs of replacing the home.
The difference is that only the HO-5 policies fully cover damages and loss of the home's contents due to all risks. Having a guarantee that your home's contents will be covered, no matter what the reason for the loss, is particularly important if you have a larger home, many furnishings, expensive jewelry, art or a home office.
Homeowners with outdated policies may find that their current policy dwelling limits only insures a percentage of their homes' current replacement value. It is important to note that as long as your dwelling limits in your policy are 80 percent or more of the replacement cost of the dwelling, you are fully covered for a partial loss. But if you have a full loss of your home, and the dwelling limits of the policy are only a portion of the full cost to replace the home, you will only be paid for part of the replacement costs. Chances are, this gap in coverage will amount to a lot of money.
Many homeowners have made home improvements. These improvements will increase the home's replacement value, and the dwelling limits in the homeowner’s insurance policy should be increased accordingly.
Finally, not only have home values gone up, but the price of materials and labor also has increased. Homes lost in disaster areas typically have to be rebuilt to conform to new building codes, to protect against wind damage or earthquakes for example, adding to the costs to rebuild the home.
As more people buy vacation homes and second homes, they need to be careful to properly insure these homes, too. When buying or updating homeowner's coverage on a second home, be sure to disclose to the insurance company that the home is a vacation home, the amount of time you occupy it and whether you also offer it for rent when you are not using it. Coverage for vacation/second homes should include additional liability coverage, loss of use and loss of rental income benefits.
Many insurance companies offer a dwelling coverage escalator, which is a feature that automatically increases the dwelling limits in the policy each year. Ask your insurance company about this feature, which can cost an additional $50 or so per year — not much to pay for additional peace of mind.
It is important to know that no private insurance will cover flood damage. The federal government provides flood insurance under the National Flood Insurance Program through the Federal Emergency Management Agency, and claims are often serviced by your insurance company. Some owners of high-risk properties may have to resort to obtaining coverage through Fair Access to Insurance Requirements (FAIR) Plans, which are state-mandated insurer organizations that cover high-risk properties in about 36 states.
One thing most homeowner’s policies do cover is "loss of use." Many of the homeowners in New Orleans who have been forced to evacuate their homes need to know that their costs to stay in a hotel and other related living costs are generally covered at an amount that is typically about 30 percent of the overall policy dwelling coverage. So for instance, if your home is insured for $200,000, you may be entitled for up to $60,000 in reimbursement for your expenses associated with your loss of use.
Keep in mind that if you do want to increase the amount of coverage on your home, you can't do so when the peril is upon you. Insurance companies generally place a moratorium on coverage changes in areas in the path of a storm, typically several days before the expected peril is forecast to strike.
Written by Ray Martin
©MMV, CBS Broadcasting Inc. All Rights Reserved.
More From Ray Martin
Best-selling author Mitch Albom on his first nonfiction work since "Tuesdays with Morrie."
