Most homes still underinsured for hurricanes

MSB, the leading provider of building cost data to the property
insurance industry just released its findings for current estimates of
homeowner insurance coverage across the United States MSB’s research
reveals an estimated 64 percent of U.S. homes are undervalued for the
purpose of insurance by an average of 19 percent—about the same as last
year. If that’s the national average, many observers fear the numbers
could be even higher for South Florida.
With a national recession, local high unemployment and record
foreclosure rates, any insurance may seems like a luxury to many
homeowners, and not just in Florida. In Galveston, Texas, where more
than 17,000 home were damaged by last year by Hurricane Ike, there are
still a lot of vacant homes. The properties were underinsured or
uninsured, damaged during the storm and property owners don’t have the
money to rebuild according to city officials in Galveston.
Another scary statistic, you could be among the majority of
policy holders who have little more than a vague idea about what your
policy covers and what it doesn’t. The danger is that you may think
you’re adequately protected when you are not. Trying to figure out the
right amounts of insurance coverage isn’t easy. Your insurance company
or agent may be surprisingly little help and may even steer you wrong.
That’s what happened to a lot of homeowners in New Orleans prior to
Hurricane Katrina. Their agents had told them they didn’t need flood
insurance. Obviously, they did. Courts subsequently ruled that insurers
didn’t have to pay for damage caused by flooding and that helped turn
New Orleans into a ghost town.
Too many homeowners mistakenly believe insurers are pushing them
to over-insure their homes. But that is generally not the case. In
fact, homeowners are sometimes to blame by failing to report home
improvements and renovations to their insurers. Other homeowners just
assume their coverage is keeping up with inflation and replacement
costs, which probably isn’t true.
Florida homeowners have a state law that now requires companies
to print a coverage checklist on the front of every homeowner’s policy.
Among other things, the list will have to show the coverage limits and
the dollar amount of the hurricane deductible. It must also detail how
much the policyholder would receive for living expenses and for how long
if the home is destroyed.
United Policyholders, an insurance consumer advocacy group,
reports that homeowners are often lulled into complacency because they
have “guaranteed-replacement” or “extended-replacement” policies, which
sound like they’ll cover the rebuilding of a home regardless of the
cost. Unfortunately, true guaranteed-replacement policies are almost
extinct, and virtually all insurers cap their payouts at 100% to 150% of
the amount for which the home is insured.
Use Web tools to estimate replacement costs
If you think your home could be underinsured, ask your insurance
agent to evaluate your situation. If you disagree with his assessment
of replacement value, you can get a second opinion online from a
valuation site such as www.accucoverage.com or www.insuretovalue.net.
Another site, www.homesmartreports.com provides focus not only on market
value, but also the underlying trends that affect property value in
both the short and long-term. These are the trends and market conditions
you need to know when making your buy/sell decisions, but check it out
anyway.
If you have a home with many custom features, it may be
worthwhile to have a professional appraisal. Such an assessment is not
for the faint of heart. Remember to separate the value of the land from
replacement cost of the home, and ask the appraiser the price of his fee
before requesting his services.
United Policyholders, an insurance consumer advocacy group,
reports that homeowners are often lulled into complacency because they
have “guaranteed-replacement” or “extended-replacement” policies, which
sound like they’ll cover the rebuilding of a home regardless of the
cost. Unfortunately, true guaranteed-replacement policies are almost
extinct, and virtually all insurers cap their payouts at 100% to 150% of
the amount for which the home is insured.
It’s not just rebuilding coverage that is misleading. Many
policies severely restrict how much money you’d get to replace contents
and limit or even exclude some items from your policy.
If you have a policy that pays out actual cash value on your
home’s contents, for example, you’d get a check for what your
possessions were worth when they were destroyed, not what they would
cost to replace. Ask about replacement cost coverage which typically
costs some 10% to 20% more than actual-cash-value coverage.
Be on the lookout for policies that pay replacement-cost
coverage for most items but make exceptions for others. Your policy
might give you replacement cost for a rug, but will depreciate your
carpet and give you only a fraction of the replacement cost. Bottom
line: read your home insurance policy carefully so there are no
surprises after the next hurricane comes calling.