By Bill Howard
The dilemma of insurance advertising is that companies target cost over coverage, yet at claim time, the exact opposite is important.
For many families, their home is their single greatest asset. Make sure your insurance policy will replace that asset in the event of a significant claim. In this article, we will explain the basic coverages provided under a homeowners insurance policy and questions you should ask.
The basic sections of a homeowners policy include:
The dwelling
The limit should be the replacement cost of the dwelling, not the appraised or market value. If you have a historic home, will your insurance company pay to replace with the same quality building materials or less expensive alternatives?
Other structures
This covers detached structures on your premises. These could include items such as a garage, fence, pool, shed, barn or gazebo.
Personal property
Personal property coverage applies to everything inside the home: furniture, appliances, clothes, etc. The policy should pay for replacement cost of your personal property and not a depreciated value. Watch the small print.
Additional living expense
In the event of a loss, this coverage pays for temporary housing and living expenses until your home is repaired.
Personal liability
This covers defense costs and judgement in the event someone is injured on your property. Liability coverage is not limited to your home, and will also respond to incidents away from your home.
All policies have limitations on certain types of property. Understanding the policy limitations and how to remove them will help you avoid surprises at claim time. Some of the most common limitations involve jewelry, furs, firearms, sewer and drain backup and items harmed by water damage.
A significant claim can be very disruptive, even when covered by insurance. A majority 45% of property claims result from water damage. This is greater than claims for both fire and burglary.
Risk management – avoidance or reduction of risk – is your first line of defense. Proper insurance is the best backup. Understand the most common causes of loss and what you can do to reduce the risk.
What about cost? What drives the rate? Numerous factors affect the cost of insurance, including but not limited to: credit score, past claims, coverage limits, deductibles, location, construction and protection. There are numerous credits available on homeowners policies that can reduce the cost of insurance.
When purchasing insurance, you are looking for the best value. Value is a combination of: the quality of the insurance contract, the reputation and claims payment practices of the insurance company, the experience and responsiveness of the agent and the cost of insurance.
My advice is to find an agent you trust, review your exposures and understand the coverages. Together, with your agent, review the insurance companies and coverages to develop an insurance program that best meets your needs. All companies and policies are not the same.
In partnership with your agent, answer the following questions: What steps can I take to reduce my chance of loss? What factors drive the cost of insurance and what credits are available to reduce the cost? What is the best deductible for my policy? What company is best for my situation? Does the insurance company specialize in the type of property I own? When should I file a claim, and when should I not file a claim?
Your insurance policy is not important until you have a claim, but then, it is really important.
The writer is the managing partner at Clarke & Sampson Insurance.
