INSURANCE: Ignorance is Not Bliss on Home Owners Insurance Coverage

Your home owners insurance policy probably isn’t something you review as often or as closely as bank statements or tax documents—but staying in the dark can cost you, experts say.


Nearly a third of consumers polled by MetLife last June didn’t know how much their home, condo, or townhouse was insured for.


Checking up on a home owners insurance policy isn’t typically on an average customer’s to-do list, but it doesn’t have to be hard, says Madelyn Flannagan, the Independent Insurance Agents & Brokers of America vice president of agent development, education, and research. Insurers are required to send renewal notices each year, reflecting changes in coverage and premium charges. And insurance information often comes with annual interest statements from your mortgage company, she says.


“That’s a great opportunity to take a look at your home owners policy,” and can help determine if you need to adjust coverage to reflect changes in your home or lifestyle in the past year, Flannagan says.


Home owners need to track construction costs more closely than real estate values when determining how much to insure a home for, industry experts say. The price to rebuild has surged in the past few years due to labor, materials, and energy costs, while home values have fallen. Some consumers have mistakenly lowered the amount of coverage they’re buying for their home to reflect how much it would sell for now that the housing bubble has burst, leaving them underinsured. “It has been a trend in areas hit hard by a bad real estate market,” says Amy Danise, senior managing editor of consumer website Insure.com.


There are smarter ways to save on coverage, says Jeanne Salvatore, senior vice president of public affairs at the Insurance Information Institute. “The biggest issue, I think, recently is that some people are very misguided and have thought, ‘Well my home is not worth so much anymore, I can safely drop or reduce insurance,’” she says.


The housing market has also pushed many home owners to build additions or make improvements when they can’t sell their home. Not getting this new construction added to insurance policies is a common error. “They get wrapped up in the remodeling and never even think of picking up the phone to let home insurance companies know,” says Danise.


The risk of disaster or insufficient coverage surges when those improvements take place in the basement, insurance experts say. Flood insurance doesn’t come standard with most home policies, and basements are also susceptible to seepage and pump backups.


If the new construction and possessions within, such as fancy TVs and furniture, aren’t covered, home owners will come up short in the case of a natural disaster or break-in. A finished basement automatically adds to the usable square footage of a house, affecting the cost to rebuild if home owners needed to start from scratch.


Consumers are particularly misinformed when it comes to knowing how much money they’ll get from insurers to replace belongings in the house, MetLife found. Close to half of those polled didn’t know how much their belongings were covered for, and nearly three-quarters said they would be reimbursed for the full cost to replace personal belongings in case of disaster.


The average home owners policy covers possessions at a fixed percentage (typically, 50% to 70%) of the value that the home is insured for, according to the Insurance Information Institute. Consumers should still pay attention to the worth of their belongs, though, as the allotted coverage for personal possessions can easily fall short if a house is a stocked with costly art, furnishings, electronics, and other valuables.


Home owners insurance typically covers inside possessions in two ways: replacement value or cash value. The latter takes into account how items such as furniture and electronics have depreciated, while replacement value gives you the money to repurchase an item at its current cost.


Cash-value insurance costs less in premium payments, but could leave home owners strapped if they’re forced to replace their goods after a fire, flood, or break-in. If you’re looking to save on monthly payments, raise the deductible rather than opting for the cash-value coverage, says Salvatore.


Experts suggest regularly photographing and videotaping possessions to know what you have and whether you’re coverage is sufficient. There’s an app for that. The National Association of Insurance Commissioners offers a free iPhone mobile application called myHOME Scr.APP.book for taking an inventory of possessions. The application lets users capture and store images, descriptions, and product serial numbers. It can sort the information room by room, and provides a backup file to be shared via e-mail.


John Waggoner’s column appears Fridays. E-mail: jwaggoner@ustoday.com. Follow him at www.twitter.com/johnwaggoner.


Erin Kutz, Special for USA TODAY (c) Copyright 2011 USA TODAY, a division of Gannett Co. Inc.


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