Sherri Richards, Published July 17 2010
Homeowners advised to review insuranceAn influx of first-time homebuyers taking advantage of federal tax credits also means a whole lot of new insurance policies being purchased.
In the push to close by a June 30 deadline, some of these buyers may not have taken the time to research homeowners insurance.
“People spend so little time with it. They call their auto agent, get a quick quote,” said Joshua Huffman, a credit counselor with the Village Family Service Center in Fargo. He teaches home-buying classes.
“The one thing we’re always encouraging people to do is take this a bit more seriously. Sit down with your agent and talk about it,” Huffman said.
People shouldn’t make assumptions about what is covered without looking at the terms of their policy, said Manny Munson-Regala, deputy commissioner of Market Assurance with the Minnesota Department of Commerce Insurance Commission.
Even longtime homeowners can be caught unaware. As Country Financial agent Jorin Johnson said, “A lot of people don’t know what they’re choosing. Until a claim is filed, a lot of people don’t care.”
Larry Maslowski, property and casualty division director for the North Dakota Insurance Department, recommends consumers re-evaluate their coverage every three to five years.
“If your agent isn’t already doing that every three to five years, give them a call. Walk through that stuff,” he said.
These insurance regulators, agents and educators each emphasized the same issues homeowners need to know about their policies. In the end, it’s all about balancing coverage and cost and deciding how much risk you’re willing to take.
- Replacement cost vs. actual cash value. Homeowners insurance coverage may cover the replacement cost of the home and its contents, or it may pay actual cash value, a depreciated amount.
Actual-cash-value policies are less expensive but can leave people short in the event of a disaster.
After a tornado devastated Northwood, N.D., in 2007, Huffman said many homeowners received checks for a half to a third of what it would take to replace their homes.
“We’d always recommend replacement value on the property,” Huffman said.
Most insurance companies use an estimator that factors in square footage, building materials and other features of the home to estimate today’s replacement cost, Maslowski said. Homes need to be insured to 80 percent of the replacement cost, or the homeowner will face a penalty, he said.
This can be an issue if homeowners base coverage on the price they paid for the home, especially in a depressed housing market.
Even if the homeowner has replacement-cost coverage, he or she should double-check the details. Some companies are putting age limits on roofs, so once the shingles reach a certain age, the coverage changes from replacement to actual cost value.
“People need to be aware so they don’t get caught,” Maslowski said.
- Know what’s not covered. Every spring, residents of the Red River Valley are reminded that their homeowner policy does not cover flood damage. But home insurance policies also don’t cover sump pump and sewer backup. This sort of coverage is often sold as an endorsement, a form attached to the policy that alters its provisions.
Homeowner policies also exclude earthquakes, neglect, mold, settling and wear and tear.
Maslowski said one area of frequent dispute is maintenance issues. For example, if the pipes burst, the policy will likely cover the damage to the walls and floors. But if a pipe leaked for several months onto the ceiling below, that’s a maintenance issue and isn’t covered.
“The policy generally is designed to respond to sudden and accidental breakage or damage,” Maslowski said.
Home-based business activity generally isn’t covered under a basic policy and would need an endorsement.
Some companies will also not provide liability coverage for certain breeds of dogs.
- Modern-day coverage options. More insurance companies are offering optional coverage that relate to 21st-century concerns.
Identity theft coverage can be sold as an endorsement or incorporated into a policy. It does not reimburse the victim for the losses sustained but for the expense of restoring identity, such as legal fees or lost wages.
Some companies offer endorsements for green construction. In the event of damage to the home, these policies would provide coverage for the current generation of environmentally friendly standards.
“They tend to cost a little bit more, but some folks think it’s worth it,” Munson-Regala said.
- Scheduling personal property. Most policies have limitations of coverage for personal property. Homeowners may want to schedule more expensive items, listing them separately and adding them to the policy.
This provides additional coverage to things like jewelry, guns, computers and musical instruments, increasing the payout and broadening the reasons for coverage, such as accidental loss.
“If you’ve got valuable items, it’s something to discuss with the agent. You may decide at the end of the day it’s not worth it for me,” Maslowski said.
- Higher liability limits. Homeowner policies cover more than roofs and siding. Most offer personal liability protection, such as if someone slips and falls on your property and sues you.
Homeowners should consider increasing their amount of liability insurance. “A lot of time, you can significantly increase your coverage for very little,” Huffman said.
“I lean toward suggesting a higher limit,” Maslowski said. “What can you afford to lose if you were sued?”
- Do a personal inventory. It’s a good idea for homeowners to take inventory of what items are in their home. In the event of a disaster, they would need to make a claims list.
“It’s very difficult to remember what you’ve got during a tragedy,” Huffman said.
The personal inventory doesn’t necessarily need to be a written log. Photos or video can document possessions.
“It can be as simple as videotaping your house and storing the videotape someplace other than your house,” Munson-Regala said.
Readers can reach Forum reporter Sherri Richards at (701) 241-5556