Herb Denenberg Column for week of September 2, 2002.


Your home is probably your largest investment. Even if you're a renter, your property at your apartment or rented house is probably one of your largest investments. So you better be sure your home and personal property are properly insured.


Don't wait until a loss or some other natural disaster to discover your insurance mistakes. After most natural disasters or man-made catastrophes, a high percentage of those who suffer losses find out they have the wrong coverage or the wrong amount.


Here are some of the most common mistakes in buying homeowners insurance and how to avoid them:


ASSUMING YOUR AGENT IS DOING THE JOB.  Agents and companies are most proficient a collecting premiums and commissions. But don't assume they're reviewing and checking out your insurance program, as they should. Ask for a review every year or two, and be prepared to ask questions. Many questions are suggested by what appears below.


WRONG AMOUNTS OF COVERAGE. This is the number one mistake of those buying homeowners insurance, according to Jim Fitzpatrick, president of the Woodring-Roberts Agency of Bethlehem, Pennsylvania. The typical homeowners policy requires that you purchase replacement value (at least 80 percent of it) on your home, and that replacement value may be far different than the home's market value or purchase price.


You can ask your agent or company for help on how to establishment replacement value.


INADEQUATE LIABILITY INSURANCE. The homeowners and renters policy both cover not only property but also liability. These policies often contain only $100,000 in liability. That sounds like a lot of money, but in an age of million-dollar verdicts and medical-cost explosions, the jumbo verdict can happen to anyone. Consider raising your liability limits. Ask you agent or company for advice.


RENTERS FAIL TO BUY COVERAGE. Renters often think they don't need property insurance on their belongings. Perhaps they think their landlord's insurance will cover them. It won't. If you're a renter and have any substantial amount of property, consider a renter's policy, similar to the homeowners, but not providing protection on the structure.


WRONG FORM OF COVERAGE. Make sure you have the right form of the homeowners policy. There are variations that vary by premium and comprehensiveness of protection. One of the most widely recommended form covers personal property on a named-peril basis (fire, windstorm, etc.) and the structure on what used to be called an all-risk basis, which means it covers all risks subject to a long-list of exclusions. It is far from all-risk but it is far more comprehensive than the specified-perils approach.


NOT BUYING FLOOD INSURANCE. Consider buying flood insurance, especially if your property is in a flood plain. However, Mish Ganssle, Vice-President of the Woodring-Roberts Agency, told me the Federal Emergency Management Administration now recommends flood coverage for all property owners. One of the reasons is that maps of flood plains are often obsolete and it is difficult to determine the flood risk. USAA, one of the blue-chip homeowners companies, also makes this recommendation.


FAILING TO KEEP PROPERTY INVENTORY. It is one thing to take out insurance. It is quite another to collect on it after a loss. One way to make the claims process easier and more successful is to keep a detailed inventory of your property, including date of purchase, costs, and other details. Many video tape their belongings or take still shots to supplement the inventory or serve as the inventory.


FAILING TO CARRY HIGH ENOUGH DEDUCTIBLE. There was a time when the $100 deductible was in vogue for both homeowners and auto collision insurance (with no deductible for auto comprehensive coverage). But inflation and tougher insurance markets have made those low deductibles quaint reminders of a bygone era. Consider higher deductibles after looking at what each will provide in savings. If you put in many small claims, you insurance company will be likely not to renew you homeowners when the expiration date rolls around. So you might as well take the savings on the deductible, and perhaps save it to pay for losses within the deductible.


OTHER MISTAKES. Failing to check the financial strength of the insurance company. Failing to consider the special coverage required if you run a home-based business. Failure to take out extra insurance on those items subjects to special limits in the policy. For example, many homeowners policies limit coverage for theft of jewelry to $1,000. Failing to take necessary loss prevention measures. Companies are now doing more home inspections and insist on appropriate repairs and other loss prevention measures. For example, if you have stairs leading up to your front door, the company may insist on double handrails. But that kind of measure makes sense, whether or not it comes from an insurance company.



(Herb Denenberg is a former Pennsylvania Insurance Commissioner and consumer advocate.)

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