Understanding your insurance policy

Most of us probably find reading an insurance policy boring, but understanding the terms of your home’s hazard insurance policy is critical to make sure there is adequate coverage in the event of a claim.  To be under-insured and

not know it, is all too possible; regular ‘check-ups’ with your insurance agent are quite important.  Here are some tips to get you started:

  • Check the coverage on the policy and review all exclusions.  Make sure replacement value is included, but note that even with replacement value, there will be a limitation how much the insurance company is required to spend to rebuild your home.  The replacement value limit is based on a property value established by the insurance company (which is not the same as the property value that the property might fetch if sold, as it doesn’t include a value for the land), with a percentage limit over this value that they deem ‘replacement’.  If the home costs more to build than the replacement limit, the extra cost will be the responsibility of the property owner.  As an extra precaution, you may want to employ a contractor to give you an estimate of replacement value for your home and insist that the replacement value be raised by your insurance company if you feel your home could not be adequately rebuilt within policy limits.  Of course, raising your policy value means higher premiums.
  • Look at the deductible on the policy; this is the amount that you are responsible for in case of claim.  The lower the deductible, the higher the insurance premium; consider at what point you would make a claim on the insurance and select a deductible accordingly.
  • Make sure building code upgrade coverage is included- this should cover some necessary code upgrades in older homes which may not be able to be rebuilt in the same way in order to comply with current code.
  • Check on how personal belongings are insured; whether at replacement value or actual value.  Actual value means that items would be claimed at their depreciated value, not their replacement value in today’s dollars.
  • Check on your liability coverage-this is a personal decision based on personal needs and assets.  Your insurance agent, financial planner, or attorney should be able to make suggestions.
  • Take a complete home inventory.  List major items in each room, note serial numbers, purchase prices with receipts and date of purchase and take photos if possible.  A flexible way to store the inventory, would be to itemize the personal property on an excel spreadsheet on your computer.  Inputting data this way will allow you to add to and subtract from the list over time and it will continually tabulate items’ values.   Keep two copies of the inventory; one in a safe deposit box and the other in another location.
  • If you are a landlord, a landlord protection policy that covers such things as loss of use (i.e. no rent), personal property (i.e. appliances) and unlawful eviction is a must.  Consider this coverage even if you rent a room or in-law in your home.
  • Think about whether earthquake insurance should be considered.   The deductible on earthquake insurance tends to be high (perhaps 15% of your loss) and it is intended for catastrophic loss, so you might find that personal items are not covered.
  • If you employ anyone that is unlicensed or uninsured, or both, you may have liability for workman’s compensation if they get hurt, or liability for damage they cause to others while working for you.  Talk to your insurance agent or attorney about necessary coverage and liability risk.  Be sure to ask if sole practitioners are covered under workman’s compensation-they may not even if they are insured.  Ask your contractor to name you as an additional insured on both their liability and workman’s compensation policy as a further protection.

After a claim:

  • Report any theft or loss to the police
  • Phone your insurance agent immediately
  • Make temporary immediate repairs to protect your property from further damage.
  • Save all receipts for claim to your insurance co.
  • Prepare a list of your lost or damaged articles, keep damaged articles for your insurance adjuster to see
  • If you have to move out of your home because of severe damage, save all your receipts of any additional living expenses you incur
  • Monitor the contractors doing the repair work on your home to insure that similar grade work and materials are being used.

This partial list is intended to get you thinking about your insurance policies; by all means, contact your insurance carrier to make sure you have adequate coverage tailored to fit your needs.