A wayward ember from the fireplace sparks a blaze in your home, and it quickly spreads, resulting in a total loss. While it is a devastating event, luckily you have homeowner’s insurance. But is your coverage sufficient to rebuild your life? Combining a person’s individual coverage needs with the varying policies offered by each company can result in homeowners who don’t realize they are underinsured before it’s too late. “Not all homeowner policies are created equal, and it’s unfortunate that a lot of people just shop price and they don’t know the differences,” says Todd Taxman, owner of Taxman Insurance Group with Farmers Insurance. “If they just have a standard policy, they may not be covered for everything, and they don’t find out until there’s a loss.”
A basic home insurance policy will cover loss due to circumstances including fire, wind, hail, lightning and theft. From there, a policy owner can add on endorsements to increase the scope and expanse of the coverage. For example, says Taxman, if a home is insured for $500,000, the contents will be covered by a percentage of that value, but can be altered.
However, homeowners may not know that parts of their policies are not necessarily sufficient. All policies include building ordinance coverage to provide funds for rebuilding one’s house to the current standards, but most companies will only provide up to 20 percent of the house limit, says Ken Yavitz, owner of Yavitz Insurance Group. “The older the home is, the bigger the risk you have to building codes, and if you have to upgrade, that 20 percent is not going to cover it. You need to be aware of the limitations in your policy and get the extra coverage.”
There also are situations that are not covered by any home insurance policy, including surface run-off, mold or fungus and water damage by leaking pipes. Some providers don’t offer earthquake coverage, so homeowners may have to shop around to find the policy that fits their needs. “I always tell people to insure for a catastrophic loss,” Taxman says. “If it costs an extra $250 a year to insure for earthquakes, why wouldn’t you spend that money to protect a million-dollar home?”
For those whose homes are filled with expensive fine art, jewelry, silverware or other items, additional coverage is a must. “Under a regular policy, there’s going to be $5,000 worth of coverage for jewelry, with a maximum of $1,000 per item. If you have a $50,000 ring and something happens, you’d only get $1,000,” Taxman explains. “Anything that is of high-value needs to be ‘scheduled,’ or called out on the policy.”
Taxman also recommends that homeowners make sure to appraise and insure those items for the correct price, but choose wisely. “You don’t want to go broke trying to insure everything,” he says. “You want to pick and choose what makes sense.”
For owners of expensive jewelry collections, Yavitz has a lesser-known tip that can make a big difference in premium. Homeowners may have $200,000 worth of jewelry and pay $2,500 a year to insure those pieces that they only wear three or four times a year, he notes. “If you put it in a safe deposit box, you can get a 75 percent discount on the premium. It’s a win-win— the insurance company has low risk and the client gets to save, as well.” Items can be taken out of the bank with a simple phone call to the insurance company.
Personal liability is another aspect that homeowners should pay attention to. Highnet- worth individuals should carry umbrella coverage that picks up where their personal liability stops; otherwise, “they are really exposing themselves,” Taxman says. “They work all their lives to build these assets, and if one accident occurs, it could all be gone.”
After reworking a home insurance policy for sufficient protection, homeowners may balk at the premium, but Yavitz recommends the trade-off of raising their deductible in order to keep the increased coverage. “We want to look at the big picture. If disaster strikes, homeowners are not going to care about a $2,000 deductible if they have enough coverage for a multimillion dollar claim.”