Insurance: Things To Consider!

Every insurer offers different coverage, and yes, you must read your policy!

Q. What do most homeowner insurance policies cover, and what additional stuff might I want covered?


A. Basic coverage can include damage from fire, windstorm and vandalism. It also covers a home’s contents and liability issues like a mailman falling or your dog biting someone. Policies can cover additional living expenses after a disaster: rent, food, clothes and sometimes even lost rent from a boarder at your home.
   It does not include damage from floods or earthquakes. However, you can pay extra for that.

Q. How often do I need to update my policy?


A. Some insurers recommend looking at the policy once a year. Every other year if you’re really, really busy.
   Did you remodel? Buy more stuff? Did building codes change, making rebuilding pricier?
   "It might not be the most interesting reading on a Saturday night," said Peter Moraga, spokesman for the Insurance Information Network of California.
   But it’s not that time-consuming or that much more expensive to upgrade your policy, experts say.

Q. What types of coverage exist for structures and their contents?


A. There are replacementcost policies vs. actual-cashvalue ones.
   Replacement cost covers the actual cost to replace the dwelling in today’s dollars. If your home is underinsured, some of these policies will cover an additional 20 percent to 25 percent of the value for which the home is insured.
   Cash value is what you paid – in the case of structure, it’s the insured value of the structure – minus depreciation.
   Some insurers say they initially offer replacement-cost policies unless the customer specifically asks for cashvalue protection.

Q. What’s the difference between replacement-cost and cash-value coverage?


A. One reason a replacement-cost policy can make sense to homeowners is that construction costs, including labor and materials, increase 8 percent to 9 percent a year in California, Moraga said.
   A replacement-cost policy will help protect you from rising prices, though they do not guarantee that you’re totally covered. For that reason, replacement coverage costs more than cash-value protection.
   If you pick cash value, however, it’s important to update your policy periodically to keep your coverage in line with the cost you’d incur after disaster strikes, said Dan Fenley, insurance broker for independent Ashbrook-Clevidence in Costa Mesa.
   Homeowners don’t have to get a replacement-cost policy for both structure and content; you can purchase replacement coverage for just the structure. But in some cases, the homeowner may not have a choice.
   Depending on the age of your home and the deterioration, the insurer might only offer cash-value protection, Fenley said.

Q. How do I determine how much it will cost to rebuild my home?


A. Don’t get hung up on what your home is worth. That’s not what you’re insuring. If your house burns down, the land – which figures into the overall value – will still be there.
   If you have not reviewed your policy in years, or if you’ve recently remodeled your home, insurers recommend asking your agent to inspect the home. Most insurers use a formula for coverage that takes into account the age of your house, its square footage, number of bathrooms, type of roof and whether it has a patio or deck.
   Verify your insurer’s estimate by contacting local contractors.
   "Two opinions are always better than one," said Bill Sirola, a State Farm spokesman.
   State Farm suggests a structure be covered at a minimum of 80 percent of the cost to rebuild. If the homeowner has a replacement-cost policy, State Farm will kick in 20 percent more upon paying the policy limit, said Smith of State Farm. But for peace of mind, some insurers recommend 100 percent coverage.

Q. What are some other things I need to think about?


A. Code changes that require new plumbing, wiring or roof tiles when you’re rebuilding could increase your construction costs. Some insurance policies will cover up to 25 percent more for code updates, Moraga said. Others may offer less. This may cost more or be part of the basic insurance package.
   Inflation of building costs is sometimes covered under replacement costs, too, Moraga said.

Q. How do I determine coverage for my home’s content?


A. Take stock of what you have. There’s a good home inventory guide at the Web site www.iinc.org of the Insurance Information Network of California. Go room by room. Attach receipts for major items. Take photographs or videotape your belongings. Don’t forget the little items like canned goods in your cupboards.
   There’s a cap on how much content you can insure. Some insurers, like State Farm, will go as high as 75 percent of the structure’s coverage. And policies typically set per-item limits of $1,500 to $2,500.
   So if you want more coverage, say, for a $10,000 painting, you’ll need to add "an endorsement" or "a personal line floater" to your policy.

Q. How is a condo policy different from one for a traditional, detached home?


A. A homeowner association can buy a policy that covers only shared areas like exterior walls, roofs, clubhouses and walkways. Some homeowner associations, however, extend that coverage to the entire structure of each condo.
   Depending on what the master policy covers, the condo owner is responsible for covering the structure and contents or just contents.

Q. What kinds of coverage are available for renters?


A. Content, liability and living expenses as a percentage of content coverage, Fenley said. Again, as with traditional homes, coverage for earthquakes and floods costs extra.
   The average annual cost is $144 for about $30,000 in property coverage and $100,000 in liability coverage, according to the Independent Insurance Agents & Brokers of America. Nearly twothirds of U.S. tenants live without renters insurance, according to a recent study for the independent insurance group.

Q. What about my kid at college?


A. Homeowner insurance can extend to the possessions of a dependent student who is living in campus housing. Because that coverage doesn’t always apply to students living off campus, check with your agent.

Q. How do I get around higher premiums when I increase my coverage?


A. Making upgrades in your policy likely will raise the premium. But you can minimize the premium increase by raising your deductible. You can save 10 percent to 20 percent by increasing the deductible from $500 to $1,000, Moraga said.
   Another way to drop your premium is to lower your risk. Change your wood-shingle roof to a tile roof. Replace your steel piping with copper piping, which lasts longer and doesn’t corrode. Grow fire-resistant plants. Want more fire-prevention examples? Go to www.iinc.org .

Q. Does it pay to shop around?

A. Yes. Different insurers can charge different premiums. You can visit the state Department of Insurance Web site, www.insurance.ca.gov , to get a feel for how profitable comparison shopping can be. But remember that cheaper premiums may not offer the best service, experts say.

Q. What do I need to know about flood insurance?


A. Flood insurance is provided by the National Flood Insurance Program, which is managed under the Federal Emergency Management Agency, but it can be purchased through most local agents. If you live in a high-risk flood zone, most lenders will require it. If you don’t know if you live in a flood zone, call your city planning department.
   The flood program, which is intended for the average homeowner, caps the coverage, program spokesman Mark Stevens said. For homeowners, the structure can’t be insured for more than $250,000 and the contents for $100,000. Renters can’t insure their belongings for more than $100,000.
   If you want more coverage, your local agent can put you in touch with a provider. But it’ll cost you.
   For information, go to www.fema.gov/nfip/ or call (800) 427-4661 to get numbers of local agents who sell flood insurance.

Q. What do I need to know about earthquake insurance?


A. Quake insurance also can be purchased through most local agents. Deductibles can range from 5 percent to 15 percent of a home’s replacement cost.
   Content coverage ranges from $5,000 to $100,000 for homeowners and renters if purchased through the California Earthquake Authority, the world’s largest residential earthquake insurer. Structure coverage is different for traditional detached homes vs. condos. Additional living-expense coverage is $15,000 for homeowners and renters.
   Older homes will be the most expensive to insure. The costliest coverage will be for homes built before 1937 and the cheapest for those built in 1973 and later, Fenley said.
   Don’t wait for a quake to buy this coverage. After a quake that registers 5.0 or more on the Richter scale, Fenley’s company will issue a moratorium for 60 days on new business within a 100-mile radius of the epicenter.
   For information about quake insurance, go to the California Earthquake Authority Web site, www.earth quakeauthority.com .

I hope that this has helped answer a few of your questions regarding homeowner insurance!

-"CHILI"

 Shannon Austin Fertal

Office: (949) 831-7467 

Cell: (949) 422-0769  

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