NORTHVILLE TOWNSHIP, Mich., January 2004 — If you haven't reviewed your homeowners insurance policy in a while, you might consider taking a few moments to reacquaint yourself with the specifics of your coverage. Your insurance needs might have changed since the last time you reviewed your policy, which means you could have too much or too little coverage. It's in your best interest to find out what is and what isn't covered, and whether you need additional coverage on top of what your homeowners policy provides. All can be accomplished by a review of your policy and a phone call to your agent.
Changes in your insurance needs.
Certain events should precipitate a call to your insurance agent. If, for instance, you've recently married or divorced, made your home safer by adding a state of the art fire/burglar alarm system, or upgraded your home's heating, plumbing or electrical system, you'll want to notify your insurance company as soon as possible to find out how your homeowners insurance will be affected. You'll also want to notify your insurer if you've put an addition on your home. After all, you don't want to miss out on the discounts you'll enjoy for making your home safer, nor do you want to pay for more coverage than you need, if, for example, your spouse or adult child moves out with his or her belongings in tow. Last, but certainly not least, you don't want to be underinsured. The financial consequences could be devastating if you wait until after a disaster to find out your coverage isn't what you thought it was.
What are you covered for?
A standard homeowners insurance policy, according to the Information Insurance Institute (I.I.I.), typically provides coverage for the structure of your home, your personal belongings, your liability for causing bodily injury or property damage to other people, and the living expenses - hotel charges, and meals - you incur while waiting for your home to be rebuilt.
The structure of your house. A standard policy covers the structure of your home in the event your home is damaged or destroyed by fire, hurricane, hail, lightening or other disasters listed in your policy. It won't pay for damage caused by a flood or earthquake; you'll have to buy separate policies to cover these disasters. The policy won't cover routine wear and tear either. Most standard policies also cover structures that are detached from your home such as a garage or tool shed. These items are covered for about 10 percent of the amount of insurance you have on your house. If your garage has a lift or other fancy features, consider talking to your agent about additional coverage.
Your personal belongings. With a standard policy, your clothes, furniture, appliances, sports equipment and other items are also covered if they are stolen or destroyed by fire or other insured disasters. Generally companies will provide a significant percentage of the amount of your dwelling coverage limit, sometimes as much as 70 percent, depending on the insurer. And unless you've opted against off-premises coverage, your belongings are covered anywhere in the world, though they may not have the same level of coverage. In instances of off-premises losses, some companies will limit coverage.
Coverage on big-ticket items like jewelry, furs and computer equipment is also limited. To insure these items for their full value, you can purchase a "floater" or "property endorsement" policy for each item, which will reimburse you for its appraised value even if you lose it. If the item is new, hold on to the bill of sale to provide to the insurance company. Older items will need to be appraised.
Liability protection. Standard liability protection covers you against lawsuits for bodily injury or property damage you or your family members cause to other people. You're also covered if, for example, your dog chews your neighbor's Persian rug. If you're sued, the liability portion also pays for the cost of your defense as well as a court award. Ask your agent how much your liability limit is. If it's $100,000 you might consider buying more coverage. Should you ever find yourself in a drawn out legal battle, your legal fees alone could add up very quickly.
Standard policies also provide limited medical expense coverage for a person or persons who are accidentally injured in your home. Coverage may also apply if the injuries happen off your property, except in the case of an automobile accident where liability may be covered by your automobile insurance.
Living expenses. The living expenses you incur while your home is being rebuilt are covered under a standard policy. These include hotel and meal charges and additional living expenses for which many companies will provide about 20 percent coverage of your dwelling coverage limit. You can ask your agent to increase your coverage, with the understanding, of course, that your premium will increase.
Terms to know.
Extended replacement cost coverage: A standard homeowners insurance policy will pay to reconstruct your house with materials of a similar kind and quality to what was in your original home. This is called replacement cost coverage. If, however, there is a surge in the cost of building supplies, due to mass rebuilding following a hurricane or tornado, for example, you may not have enough coverage to pay for the cost of rebuilding. That's where an extended replacement cost policy comes in. It will provide coverage beyond the limits of a standard policy, 20 percent more depending on the insurer.
Replacement cost coverage for your belongings: Replacement cost coverage allows you to insure most of your home's contents for full replacement value without a deduction for depreciation. For example, if your seven-year old TV is destroyed in a fire, replacement cost coverage will pay to replace the TV with a new one.
Cash value coverage for your belongings: Cash value coverage will pay you for the fair market value of your items. With this type of coverage, your insurance company will reimburse you only a percentage of what your TV cost seven years ago.
You can find out more information about homeowners insurance by logging onto the Insurance Information Institute's (I.I.I.) Web site at www.iii.org. If you don't understand something on your policy, or feel you need additional coverage, phone your agent. When it comes to insuring your biggest asset, don't leave anything to chance.
Mary Davis manages public affairs for the Michigan Credit Union League (MCUL), a statewide trade association representing Michigan credit unions. Send your financial questions to "Your Money Matters" c/o the Michigan Credit Union League, P.O. Box 8054, Plymouth, MI 48170-8054, or stop by our Web site (www.mcul.org) to learn more about smart money management.