What Should Your Policy Include?
By Andrew Roth.
If you’ve ever experienced a fire, earthquake, or other natural disaster, you know it can be frightening. The limitations of your homeowner’s insurance can make a bad experience even worse. How can you be sure you’re adequately covered, but not over-insured? This month, I’ve asked State Farm Insurance agent, Joe Freund to answer that question and to provide a few tips on how to assess your own policy.
1. Be sure you have the right insurance. When considering the level of coverage to obtain, take a look at the value of your house, the replacement cost of your belongings, and the amount of living expenses you would incur if your home were uninhabitable.
If you drive a car or own a home, you may also want to consider an umbrella policy, which is designed to provide extra protection in case of personal injuries and lawsuits. Most homeowner’s liability insurance tops out at $300,000¾not nearly enough coverage for the average Bay Area family. Umbrella policies add extra coverage, are inexpensive, and are well worth the price for the security they provide.
2. Obtain replacement value insurance. Many insurance companies reimburse losses at what’s known as “cash value” or “fair market value.” These rates, however, can be substantially lower than the amount you’ll need to replace your damaged belongings. Replacement insurance, on the other hand, will reimburse your losses at today’s prices and at the original value. When reviewing a replacement policy, look for a phrases such as “like, kind and quality of materials” and “at today’s prices.”
Prior to obtaining replacement insurance, you’ll need to take an accurate inventory of your belongings. The easiest way to do this is to go through each room in your house with a video camera. In addition to recording your belongings, you’ll also want to obtain appraisals, contractors’ statements, and other types of proof to back up the value of your possessions.
Another note on replacement insurance: Be certain you understand how you’ll be compensated for your items. Some policies require that you submit receipts for the new purchases before they issue a check, while other companies will provide cash up front. Some policies also stipulate that you must replace the items within 60 days, so be sure to check into limitations.
3. Consider flood and earthquake insurance. Earthquakes and/or land movement are not included in most homeowner’s policies. While insurance is not cheap, the consequences of being uninsured can be truly devastating, particularly here in San Francisco. When it comes to shopping around for quotes, save your time and energy. Earthquake insurance is regulated, so the price will be the same regardless of where it is purchased.
Tip: If you don’t already have one, go to your local Home Depot or Lowe’s to purchase a gas shut-off valve. This is one more invaluable way of protecting your home from a fire caused by earthquakes, and it’s an item every household should have.
4. Think about obtaining floaters for expensive items. Homeowner policies typically limit the amount you can collect for expensive items such as antiques, jewelry, or computer equipment. If you want to receive replacement value on these types of items, you’ll need to purchase an additional coverage, called a floater.
5. Be sure that, in the case of a disaster, your policy pays for you to live elsewhere. This type of coverage, called “loss of use” can be lifesaving, particularly if you’re literally out on the street. Coverage should come at no extra cost, and your insurance company should pay for “like” housing until you are able to recover from your loss, sometimes up to 24 months.
6. Adjust your policy for inflation and life-changing events. Many insurance companies include an inflation guard, but you’ll want to make sure the numbers are in line with any improvements you’ve made. Also review your coverages annually to be sure they are keeping pace with the changes in your life. You should, for example, contact your insurance agent within 30 days of marrying, divorcing, or having children.
7. Have a relationship with your insurance agent. Like your doctor, financial planner, or CPA, your agent can guide you through the process of protecting your most important assets.
For more information, please call Joe Freund of State Farm Insurance at (415) 415 359-9311, or visit www.joefreund.com. Lic. # OE78379. Another information source you may want to check out is the Insurance Information Institute.