Sufficient Coverage

By Tim Torres

October 19, 2007 8 min read

SUFFICIENT COVERAGE

Policies provide for structure, liability and more

Tim Torres

Copley News Service

Might I interest you in some yard sale insurance?

No, it doesn't safeguard you from fake antiques. It protects you in case someone gets hurt during a yard sale on your driveway.

That's right. If someone gets injured during your yard sale you could be liable. But fear not, most home insurance plans cover that, yet it's a good example of why you must read the fine print, and ask the right questions, when you purchase a policy.

Homeowners insurance provides coverage in the event of damage to your property, as well as liability for injuries and damage you cause to other people.

A standard homeowners insurance policy generally includes several types of coverage, according to the Insurance Information Institute. They are:

- Coverage for the structure of your home.

- Coverage for your personal belongings.

- Liability protection.

- Additional living expenses in the event you are temporarily unable to live in your home because of a fire or other insured disaster.

THE HOME

The main part of the policy pays to repair or rebuild your home if it is damaged or destroyed by fire, hurricane, hail, lightning or other disaster listed in your policy. It typically will not pay for damage caused by a flood, earthquake or routine wear and tear. Your policy's dollar limits are important. Make sure you have an insurance amount sufficient to rebuild at the going rate of construction in your area. In a typical extended replacement cost policy, you determine the amount needed, say $100,000, and add 25 percent just to be sure.

If you were to lose your home and decide not to rebuild, typically you will get cash value back - that's replacement cost minus depreciation, determined by the company.

YOUR BELONGINGS

Most policies cover 50 percent to 70 percent of the amount of insurance you have on the structure of your home. So if you have $100,000 worth of insurance on the structure of your home, you would have between $50,000 to $70,000 worth of coverage for your belongings. It is important to always have a good inventory of your personal belongings. Replacement cost policies give you more protection than actual cash value coverage, according to Insure.com. For example, what happens if someone steals a 10-year-old television set? With actual cash value coverage, you get only what you would expect to pay for a 10-year-old TV. With replacement cost coverage, the insurance company pays to replace your TV with a new set similar to the stolen one. In protecting your belongings, a replacement cost policy is only about 10 percent more and "a good use of your insurance dollars," says Carolyn Gorman, vice president at the Insurance Information Institute.

LIABILITY

Liability covers you against lawsuits for bodily injury or property damage that you or family members cause to other people, damage caused by your pets and pays for the cost of defending you in a court of law up to the limit of your policy. Liability limits generally start at about $100,000. However, experts recommend that you purchase at least $300,000 worth of protection. Generally, umbrella policies cost between $200 to $350 for $1 million of additional liability protection.

"People have to balance their coverage with their budget," says Linda Caudill, an agent with Allstate Insurance in Cincinnati. How much you need depends on your assets, she says. "It's my responsibility to show them what's available, but they have to choose."

A typical policy also provides no-fault medical coverage. In the event someone you know is injured in your home, he or she can simply submit medical bills to your insurance company.

LIVING EXPENSES

This part of your policy gives you money for living away from home if you can't live there due to damage. It covers room and board. Coverage differs from company to company. Many policies provide coverage for about 20 percent of the insurance on your house, but they will gladly sell you more.

CONDO LIVING

If you live in a condominium or co-op, you will need two separate policies.

- Your own insurance policy to cover your possessions, structural improvements to your unit and additional living expenses if you are the victim of fire, theft or other disaster listed in your policy. You also get liability protection.

- A "master policy" provided by the condo/co-op board that covers the common areas you share with others in your building. To get these details, you need to read your association's bylaws.

LET'S TALK DEDUCTIBLES

Your home insurance deductible is the amount you pay before insurance starts paying. You can choose a higher deductible in order to lower your premiums. You should look at price quotes for a range of deductibles to see how much you'd save.

Usually a deductible is a flat rate, such as $1,000. But some insurers use "percentage deductibles" around the country, especially for policies covering earthquakes, hurricanes and windstorms. These policies make you liable for 1 percent to 5 percent of your home's insured value before the insurance company pays. The percentage deductible is becoming widespread, said Gorman, with the institute.

Some homeowners are switched from flat-rate to percentage deductibles at renewal time and may not be aware of the change. Make sure to read special notices sent by your home insurer and your "declarations page" at renewal time, or call your agent to check on what kind of deductible you have, according to Insure.com.

"I recommend as high of a deductible as they can possibly afford," says Caudill. It will help keep your insurance premiums down. She also recommends considering purchasing extra coverage for prized possessions and items not covered under a standard policy. For instance, most policies only cover $5,000 worth of computer equipment, she said, and a family's software and hardware can easily amount to more than that. A rider to cover a home's landscaping might be needed, she says, because most policies don't cover that.

LOOK BEFORE YOU LEAP

Before you select an insurance company, do a little research on its overall rating. A.M. Best Co., Moody's Investor Service, Standard & Poor's, Duff & Phelps, and Weiss Research provide ratings. You can begin this at the reference shelf of your local library.

If you have decided to do a video home inventory, a check list is available from Wells Fargo at https://www.wellsfargo.com/insurance_center/protect/home_inventory/

Check out the Insurance Information Institute's chart on the different types of policies at http://www.iii.org/individuals/homei/hbasics/arethere/

And about that yard sale:

- Keep it a one-time thing, or very infrequent.

- Keep your pets inside.

- Keep all sharp objects out of the reach of children.

- Make sure there is room for everyone to safely walk around the items on sale.

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