Do you have disaster insurance regrets?
Don't get caught flat-footed after the next hurricane or earthquake hits -- know what's in your insurance policies, and make sure you're covered.
By Emmet Pierce, Insure.com
In the aftermath of violent weather conditions, such as those caused by Hurricane Irene, affected homeowners quickly learn whether they purchased adequate policies from their insurance companies.
It often takes a major loss for people to recognize the importance of having home insurance policies that offer broad protections, says Tully Lehman, a spokesperson for the Insurance Information Network of California. Many policyholders are content to simply roll the dice, in hopes that they can save money on premiums and get by with minimal insurance.
They may get a rude awakening when a major storm, flood, earthquake or fire hits their communities.
"Whether it be a storm or earthquake or wildfire, often we see that people have not prepared themselves as fully as they might have," says Lehman. "When it comes to their homeowner insurance, they may not have updated it recently and [now] they are missing contents in their home. When they file a claim, those things are not accounted for in their policies."
Ron Reitz, first vice president of the National Association of Public Insurance Adjusters, says it often takes a tragedy for homeowners to recognize how important insurance can be. Here are some of the key things policyholders regret following major damage.
I never bought flood insurance
People who live in areas where floods are likely to occur should know that standard home insurance policies won't cover flood damage. Hurricane Irene showed that even folks who rarely have to worry about floods can be caught off-guard. Article continues after video.
To cover flood damage, you'll need a policy backed by the federal government with cooperation from local communities and private insurers.
"Flooding occurs in all states," says Lehman. "The potential risk is higher than most people realize." In the recent Japan earthquake "we saw tsunami waves in California. A lot of people along the coast did not think to buy flood insurance. You have to assess your risk."
Federal lawmakers created the National Flood Insurance Program (NFIP) to help homeowners, renters and business owners buy flood insurance. Not everyone qualifies, however, says Reitz, who also serves as president of San Diego-based Quality Claims Management. "It may not be available to you if the danger of flooding is considered to be minimal. It really depends on the community you are in."
Contact your agent, insurance company or the NFIP for more information about potential flooding in your community. And remember that flood policies don’t kick in until 30 days after you buy them. So if a river near you is already rising, it’s too late.
I didn't tell my insurance company about my home addition
Sometimes in an effort to get a low insurance quote, policyholders "forget" to tell their insurers about home additions or other remodeling projects. That may save you money in the short run, but you're gambling that a fire or other disaster won't destroy your home and take your investment with it.
"Be honest with your agent," says Reitz. "Say, 'Here is the total square feet I have.'"
Being honest will work to your advantage if you need to file a claim. Remember, all improvements increase the cost to repair or replace your home, which is why you want them to be reflected in your policy. According to the Independent Insurance Agents and Brokers of America, one-fourth of remodeling projects increase the value of a home by more than 25%.
I didn't buy earthquake insurance
Many homeowners who live near fault lines skip earthquake insurance. After a big quake hits, it's too late to change their minds: they are stuck with the damage or left hoping that the government will step in to lend a hand.
"If you are in an area susceptible to shaking -- I call it the Jell-O effect -- you should really weigh your options" and consider earthquake coverage, says Reitz.
In the U.S., earthquakes are most closely associated with California, the Pacific Northwest and Alaska. However, nearly 75 million people in 39 states face some degree of danger, says a report by the Congressional Research Service issued in early 2011.
Even living under the constant threat of earthquakes, only about 12% of Californians buy earthquake insurance, according to the California Earthquake Authority, which administers the earthquake insurance program in the state.
Outside of California, you can generally buy earthquake insurance from your home insurance company. There are also limited options for standalone earthquake policies on the West Coast, including GeoVera Insurance Co. and Arrowhead General Insurance Agency.
I didn't buy insurance because I'm a renter
Reitz says tenants often undervalue the possessions they keep in their rented house, apartment or condominium. He points out that simply replacing your wardrobe can cost thousands of dollars. Now, add in furniture, kitchenware, artwork and electronics.
"You should always have renters insurance," he says. "It covers all of your personal property, which can be very costly to replace. Renters insurance is very inexpensive for what you get."
Lehman agrees that renters insurance is a good investment. "It you don't have coverage for your contents, you will be left holding the bag," he warns.
I didn't have the correct replacement costs in my home insurance policy
Many consumers confuse the market value of their home with its replacement cost. They are two very different things. Building costs can go up even when real estate values fall, Lehman stresses. Your homeowner insurance policy should cover the cost of repairing or rebuilding your home independent of how much you could get for it in a sale. The value of the land under your home isn't a factor in replacement cost.
Some people mistakenly rely on the insurance coverage levels required by their mortgage company. Those are set to protect your structure, but not necessarily your possessions.
Reitz recommends finding a policy with guaranteed or extended replacement costs, which protect you after a disaster, when the demand for contractors and materials can drive costs higher. "A lot of companies are now offering extended replacement cost coverage," he says.
I lost my policy
Insurance agents can replace lost policies, but you are far better off keeping your own copy in a safe location, says Reitz. Keep a copy outside your home in case it is lost in a flood, fire or other disaster.
"A large number of people lose them," says Reitz. "If you have to evacuate and get out, you are not always thinking about your policy. Be sure to request a certified copy of your policy from your agent."
If you receive a generic replacement copy, it may not reflect your actual coverage, Reitz warns. In recent years, insurers have been trimming back benefits.
"The older your policy, the greater the chance that you have broader coverage available to you,” says Reitz, who recommends you check with your agent.
I didn't take photos of damage to my home
You've often heard that it's a good idea to keep a camera in your car to take photographs at an accident scene. The same holds true for your damaged home. To avoid home insurance disputes about the extent of the destruction, it's a good idea to take photographs following a disaster.
"Taking photos of the damage is an excellent idea," says Reitz. "The nice thing about today's technology is you can download the stuff into your computer. It is easy to put it on a flash drive and keep it with you or keep it in your office."
I never took inventory of my possessions
Many homeowners delay creating a home inventory until it's too late. The last thing you want to do is to construct one from memory while you are under the pressure of filing insurance claims or finding temporary housing following a disaster.
"Doing a home inventory is critical," says Reitz. "I recommend that people do it around the beginning of the year, after the holidays." That way you can include any holiday gifts in on your list of valuables, he explains.
If you don't want to write down everything you own, it's a simple task to walk through your home with a still or video camera, visually recording your possessions.
A common insurance regret occurs when people create an inventory but fail to put it in a safe location outside the home. When the home is destroyed, so is the inventory. In our digital age, creating a foolproof inventory is simple. You can create an electronic file of your list along with photographs and store it online or even e-mail it to a family member for safekeeping.
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