When was the last time you reviewed your homeowner’s insurance policy with your agent? How do you know that you are adequately covered by your current policy?
Most homeowners are underinsured, says Tamara Norton, personal lines broker at Westland Insurance Brokers Inc. Why? Because in Orange County, property values have increased dramatically over the past few years, so most homes may not really be covered for their full market value. Not only have homes increased in value but the price of building materials and labor is up as well. As the monetary value of your home and material goods increase, so should your insurance.
“It is of the utmost importance to review you homeowner’s policy each year with a professional insurance broker,” says Norton. “A complete risk analysis should be conducted to make sure you are properly protected.”
Smart Business spoke to Norton about common mistakes that occur with insurance coverage and how you can properly protect your home and assets in your home.
What are common homeowner’s insurance problems?
Homeowners are often lulled into complacency because they have ‘guaranteed replacement’ or ‘extended replacement cost’ policies. These policies sound as if they provide an owner with full coverage for rebuilding a home regardless of the cost. Unfortunately, true guaranteed replacement policies are rare. Most insurance companies cap payouts at 100 percent to 150 percent.
For extended replacement to be effective, a home must be insured 100 percent to value. If reconstruction costs then run over, you have an additional 25 percent to 50 percent payout to rebuild your home. If your home is not insured to value, you may have coverage gaps that leave you underinsured without the money necessary to rebuild your home.
Homeowners also rely on the personal property limit on their policies to fully replace all belongings. But there are specific policy limits on specialty items like jewelry, fine arts, furs, guns, coin collections and antiques. These items need to be scheduled on your policy to properly protect them.
What steps should homeowners take to ensure they have adequate coverage?
You should contact a broker to talk about the types of coverage necessary. A broker will then conduct a complete property evaluation, including detailed information on the home’s construction, square footage, number of rooms and inside features. For higher-valued homes, the insurance company usually will send out a professional appraiser without charging an extra fee. Then, based on all that information, a replacement cost estimate will determine the cost to rebuild your home should a total loss occur.
Communication is necessary. Any time work is done to the home, you should contact your broker. If you’re about to remodel a kitchen or change floor tile to hard-wood or marble, you need to contact your agent before work even starts.
Always work with an A-rated carrier. For company ratings, you can visit the Web site A.M.Best.com. You also want a carrier that can provide you with the type of coverage that meets your individual needs. These needs should be determined from the risk analysis.
Do consumers have any other coverage options that offer more protection?
In today’s world, everyone should have an umbrella policy, which protects your liability over and above your current liability limits on automobile and homeowner’s policies. It provides protection when seemingly minor accidents turn into major legal liabilities. These policies are very inexpensive.
What are some effective ways to reduce policy premiums?
The best way is to use the same provider for all policies. Consolidation provides multiple discounts on all policies. Purchasing your homeowner’s, automobile and umbrella policy with the same carrier makes sense and saves time and money.
Another way to reduce premiums is by increasing your policy deductible. Most homeowners today are increasing deductibles to $1,000, $2,500 and more. You would be surprised how much lower your premium will be by simply increasing your deductible.
How can homeowners protect against natural disasters such as earthquakes?
The truth is, not many homeowners carry earthquake insurance. Now, with property values higher than ever, it is crucial to be protected. We do not know when an earthquake will occur, but we know it will happen. These policies are a necessary investment when you consider the alternative. Without this protection in an area such as California, a 15-second natural disaster could wipe away all the assets and memories for which you have worked your entire life. This type of protection is worth the peace of mind it offers.
TAMARA NORTON is a personal lines broker at Westland Insurance Brokers Inc. Reach her at TNorton@westlandib.com or (949) 553-9700.