Homeowners should work with experts to determine the type of homeowners insurance they need and the amount of coverage.
“Besides knowing the basics of what a standard homeowners insurance policy covers, consumers should ask a series of questions – and receive satisfactory answers to each of them – before buying a new policy or renewing an existing one,” says Michael Barry, vice president, media relations, Insurance Information Institute (I.I.I.). I.I.I. is a nonprofit, communications organization supported by the insurance industry.
According to I.I.I., there are six basic questions everyone should ask before buying or renewing a homeowners insurance policy:
1. How much would it cost to rebuild my home in its current location in the event of a total loss?
Ideally, a homeowners insurance policy should cover the cost of building a new home from scratch. In general, homeowners policies cover partial or total damages caused by fire, hurricane, hail, lightning or any other disaster if it’s listed in the policy. Flood and earthquake-related losses must be insured separately because both perils are excluded in standard homeowners insurance policies.
2. How much is my personal property worth in the event of a total loss?
A homeowners insurance policy should cover the cost of replacing all personal property (furniture, appliances, clothing) should it be stolen or destroyed by fire, hurricane or another insured disaster. Most companies provide personal property coverage equal to about 50 to 70 percent of the amount of insurance on the home’s structure. (A $100,000 policy for the structure would have perhaps $50,000 to $70,000 worth of personal property coverage.)
However, the best way to determine personal property coverage in a specific situation is to conduct a home inventory. I.I.I. provides online software to help homeowners catalog and value possessions (link underlined to: https://www.knowyourstuff.org/iii/login.html) as well as an iPhone app.
3. How much liability protection do I need?
Liability covers homeowners against lawsuits for bodily injury or property damage caused to other people, including damage caused by pets. The liability portion of a policy pays legal defense costs and any court awards – but only up to the limit set in the policy. It’s effective not just inside the home but also anywhere in the world. Liability limits generally start at about $100,000, and many insurance agents will recommend at least $300,000. Homeowners with significant assets may want more; others may want less.
4. What level of additional living expense coverage do I need?
The Additional Living Expenses (ALE) provision is found in standard homeowners insurance policies. It pays for the costs of living away from home if damage from an insured disaster makes the house uninhabitable. ALE covers hotel bills, meals and other expenses above customary living expenses.
ALE coverage differs from company to company. Many policies provide coverage equal to about 20 percent of dwelling protection. For example, if the structure of your home is insured for $100,000, you would have $20,000 of ALE coverage. Some companies impose a time limitation, such as 12 to 24 months.
5. Should I buy a separate flood and/or earthquake insurance policy?
Flood coverage is available from the federal government’s National Flood Insurance Program (NFIP) and from a few private insurers. Earthquake coverage is usually available in the form of a supplemental policy.
6. Do I qualify for any discounts?
Homes with smoke detectors, burglar alarms or dead-bolt locks often get a premium rate discount. Sophisticated sprinkler systems and alarms that ring at monitoring stations often reduce homeowners insurance premiums too. Ask an agent. If you are at least 55 years old and retired, for instance, you may qualify for a discount of up to 10 percent at some companies. If you have completely modernized your plumbing or electrical system recently, a few companies may provide a price break.
© 2012 Florida Realtors®