Most people believe they have their homes and rental properties adequately insured against unforeseen disasters. The policy gaps are evident only when a problem occurs. Then you find out what is not covered.
Think of your insurance policy as a restaurant menu. The standard policy is the entree that protects the structure and your belongings against specific disasters. The standard policy also provides partial coverage of living expenses (if the property is uninhabitable) and limited liability. On the a la carte side are extra protection "riders" for such things as flood and earthquakes, higher liability limits and umbrella policies.
Does your policy cover everything you think it does? To analyze your exposure here are a few questions to think about prior to talking to your insurance agent:
1. How much value do you want to protect?
2. Do you need any special coverage for firearms, jewelry, watches, furs, collections, hobbies, and computers?
3. Do you operate a business from, or rent a portion, of your home? If you own a rental, do you have coverage for the loss of income? Remember, the mortgage payment continues and recovering may take time to rebuild and find a new tenant.
4. Will you need additional coverage for floods, earthquakes, back up of sewers and drains?
5. An older home may cost more than a new home to rebuild. Be aware of limitations because you pay the difference:
a. Structure replacement costs (90 percent of the insured value)
b. Replacement costs of contents (90 percent of the insured value)
c. Ordinance and law coverage (for code upgrades if you need to rebuild)
6. If you lose the use of your home, how much and for how long does your policy cover your expenses to live somewhere else?
To keep your insurance costs under control, here are a few thoughts. First, take advantage of any possible discount to reduce your premium. Examples include basic security (such as smoke detectors, fire extinguisher and deadbolt locks for 5 percent), a more advanced security system (10 percent) and for a new home (20 percent). Also, if your budget allows, consider having a higher deductible -- $1,000 or more. A higher deductible could save 9 percent or more.
Second, your insurance policy is for catastrophic events, not for deferred maintenance repairs. Do your maintenance repairs when they are needed to keep small problems from becoming bigger, expensive ones. Maintenance includes such items as clearing trees around the home to provide a greater fire barrier; repairing the roof to prevent leaks; and checking decks, stairs and railings for wood rot. When done on a regular basis, maintenance repairs protect your investment.
Also remember that insurance companies rate their clients using credit history and number of claims, whether covered or not. Statistically, insurance companies fit clients into one of the following two categories -- preferred market: clients with few claims, and substandard market: high-risk clients with policy costs more than twice the amount of preferred clients. Clients with few or no claims may also qualify for a "claim free" discount on their policy.
Third, re-evaluate policies every few years especially if you have refinanced, remodeled or upgraded recently. Make certain your insurance company has as much information as possible to maintain adequate coverage.
Another reason to check with your insurance company is you maybe able to take advantage of new endorsements. For example five to six years ago, who would have thought about identity theft? For $25 annually, a new endorsement assigns a specific caseworker to help get your life back. Some endorsements may even cover the fees associated with the process.
Finally, getting quotes from different companies can provide the best options, benefits and discounts. Also, check for a cost savings if you put all of your policies with one company.
Know what your insurance policy covers because your insurance company and policies will change – just as your needs will. At the minimum, make certain you have enough coverage to rebuild something similar at today's cost, not yesterday's purchase price.
Barbara and Clair Ramsey are local associate brokers specializing in residential real estate. Their column appears every month in the Alaska Dispatch News. Their email address info@ramseyteam.com.