Few can forget the devastation when Hurricane Katrina hit the Gulf Coast, nor it’s aftermath as people struggled to rebuild their lives.
And while rebuilding is never easy, for some homeowners the process went smoothly because they had the right amount of insurance to cover their lost. But for others it was just a prolong continuation of their nightmare because of either a lack of or inadequate insurance.
This seems to be a common problem throughout the nation. A 2005 survey by Marshall & Swift/Boeckh, a building cost information company in Los Angeles, found that 59 percent of American homes are undervalued for insurance purposes by an average of 22 percent.
This is because people usually purchase just enough insurance to satisfy their mortgage lender, while others mix up the real-estate value of their home with what it would cost to rebuild it.
In this case going for the cheapest insurance may not be the best choice. Take the time to understand your insurance. Websites like InsureMe.com can help you compare multiple rates.
To make sure you are fully covered, call your insurance agent and have these three questions answered:
- Do I have enough insurance to rebuild my home?
- Do I have enough insurance to replace all of my possessions?
- Do I have enough insurance to protect my assets?
Don’t confuse the real estate value of your house with what it would cost to rebuild in case of damage. There are several different replacement cost policies, so choose one that best meets your needs. The only type of policy that will pay to completely rebuild your home is called a guaranteed replacement policy. Other types of policies usually pay the policy limit, plus a certain percentage above.
Be sure to include building code upgrades and construction cost in the coverage. Just recently in Central Florida, after two tornados tore through the area, several residents found out halfway through the rebuilding process that they didn’t have enough insurance to cover the increase in construction cost. There were also issues of cities and counties changing their building codes, and residents finding out that they would have to pay for the changes themselves.
Another thing to consider is that most standard policies do not include flood coverage. Consider buying coverage from the National Flood Insurance Program (www.floodsmart.gov), or buy additional coverage from your current carrier.
Do I have enough insurance to replace all of my possessions?
Listed separately on your policy should be items for personal property. Make sure the there is enough for what you own. Most standard homeowners’ policies will cover personal possessions for approximately 50% to 70% of amount of coverage you have on the house’s structure.
Make a list estimating the replacement cost for your items, then consider whether you want a cash-value policy — the cost of replacing your belongings minus the depreciation, or a replacement-cost policy – reimburses the full current cost of your possessions.
Do I have enough insurance to protect my assets?
This insurance is basically to protect you if you get sued. If someone is injured on your property and decides to sue, this is liability insurance to cover your legal fees and any damages you may have to pay. As with the other insurance, make sure you have enough to protect all your assets.
Once you have these questions answered, review them annually or whenever certain circumstances change such as you get a new plasma TV or make an addition to your home.