Check Your Insurance Policy

By: Lew Sichelman: RealtyTimes
If August's two killer hurricanes haven't sent you scurrying to make sure you have adequate homeowners' insurance, this should: A leading expert in building costs says six out of 10 American's don't have enough coverage.

If there is anything "good" that has come of killer Hurricane's Katrina and Rita, it's that the massive storms have sent millions of home owners scurrying to determine if they have enough insurance coverage should a major catastrophe strike in their neck of the woods.

According to Marshall & Swift, an expert in building costs, nearly six out of every ten homes in Louisiana are underinsured. Similarly, the Los Angeles-based firm says almost 60 percent of all houses in the United States are not valued properly when it comes to insurance coverage -- by a whopping 22 percent, on average!

If that's not enough to cause every owner in America to re-evaluate their policies, nothing will. But it is your responsibility, not your insurance agent's, to remain up-to-date on your coverage.

What's appropriate? You want to be able to completely rebuild your house if it is destroyed, and you'll want to be able to replace everything in it. Also, you'll want to be covered for additional living expenses if you cannot occupy your home as a result of the disaster. And while you're at it, you'll want enough liability coverage to protect yourself should someone be injured while on your property.

Many agents nowadays use a square footage methodology to determine replacement costs, but Marshall& Swift, which has been estimating construction costs for 75 years, says using a total component formula is better. Such a system uses databases to analyze and select detailed parts of a house to assemble estimates in a risk-specific manner.

For $19.95, the company has a web-based program that can calculate a replacement cost estimate based on the unique characteristics of your home, local building codes and local labor and material costs. The estimate is designed to help owners discuss their policy limits and coverage with their agents when reviewing their policies.

Absent that, Marshall & Swift, which provides valuation services to property and casualty insurers, says you should ask yourself these questions to determine if you need to adjust your coverage. If you can answer "yes" to any of them, call your agent pronto:

    • Have you made a significant home improvement; added a deck, perhaps, or
      finished a basement?

    • Has it been more than 12 months since your insurer last calculated your
      replacement cost value? Also, did that calculation focus on any
      characteristics that make your place unique?

    • Have housing values in your area risen or fallen dramatically in recent
      months?

    • Is your house considered historic?

    • Does your policy include the value of the land beneath your house? If so, you
      have too much coverage. Land value should not be included.

    • Do you know exactly how much your carrier will pay for specific perils --
      fire, flood, wind -- in the event your house is destroyed.

    • Do you know what percentage of your home's contents you policy insures? Most
      policies cover contents based on some percentage of the total replacement cost
      of the structure. So if you don't have adequate coverage, it could
      dramatically impact how much is paid for your belongings.