Homeowner's insurance needs regular checkups - East Valley Tribune: Business

Homeowner's insurance needs regular checkups

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Posted: Tuesday, August 26, 2008 6:01 pm | Updated: 8:56 pm, Fri Oct 7, 2011.

There are many types of insurance - homeowner's (or renter's, if you are in a condominium or rental) is only one. But for most people it is the most important, after life and auto insurance.

Homeowner's insurance covers many things - losses due to theft; fire, water and wind damage; maybe even loss or breakage.

Most policies are written to replace possessions on an "Actual Cash Value" basis. That 4-year-old sofa you paid $1,500 for probably has an ACV of $200. If your pipes leak or you have a fire and the sofa is ruined you get $200 in cash. For 10 percent to 20 percent more premium, you should be able to buy "replacement cost" coverage. Then your sofa will be replaced. You don't get the cash, but you do get a new sofa.

If you have expensive jewelry, collectibles, guns, silver/gold or other unusual items, replacement cost coverage is not enough. You need to consider "riders" to cover these items. For example, most homeowner's insurance only covers $1,000 of jewelry. If your home is robbed, thieves are likely to make off with thousands of dollars of jewelry, but your insurance company will only pay $1,000 unless you purchased "riders."

The value of your property is composed of the value of the land and the value of the building(s). Insurance is based on the cost to rebuild your home or other buildings. This amount may be more, but is usually less, than the selling price of your home. There are two reasons for this: The value of the land is not included in the amount insured and it often costs less (but in today's market may cost more) to rebuild a house than what the "value" of the house is for resale or tax purposes.

It is easy to be underinsured for the cost to rebuild your home, particularly in a market where the price of commodities (lumber, steel, etc.) is rising quickly.

To determine if you are properly insured or underinsured, call your insurance agent and update the list of your home's features. The insurance agent can then create the estimated rebuilding cost for your home. If your insurance amount is not at least 80 percent of this rebuild cost, you are underinsured. You need to raise this to 100 percent and add inflation protection.

If your coverage percentage for rebuilding drops below 80 percent, and you suffer a loss (damage or destruction) to your home or other buildings, here is what happens: The insurance adjuster will estimate the damage/cost to repair or replace. Then you will only get the amount equal to your insurance coverage. For example, if your loss is $100,000 and your percentage of coverage is 75 percent, you will only get $75,000. If it were 80 percent or more you would get the full $100,000. Whoops!

Your home is one of your most valuable assets. Even if it's paid off, adequate homeowner's insurance is a must.

Here are some excellent Web site resources:

A calculator so you can estimate your home's cost to rebuild: https://insurance.countrywide.com.

A site that lets you compare rates: http://insweb.com.This site also has great explanations of what is and is not covered by home-owner's and other insurance.

A calculator for deciding what deductible to have is available at www.farmers.com.

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