Hurricane Katrina swept away all the old rules about homeowner’s insurance. These days, filing a single small claim, switching insurers to save a few bucks, or assuming your coverage hasn’t changed can expose you to huge financial hardships.
But that doesn’t mean you can’t put together a package to help you protect your home from disaster. Spend a minute with us and learn more about the steps you need to take.
0:60: Appraise your coverage
Surveys show that more than half of U.S. homes are underinsured by an average of 22%. Coverage based on generic formulas ($65 to $150 per square foot) won’t cut it if you’ve renovated or failed to account for rising building costs. Many policies also lack flood insurance (assess risk and find providers at floodsmart.gov), sewage backup coverage, and adequate liability coverage, which run as little as $250, $50, and $25 a year, respectively, according to Kimberly Lankford’s The Insurance Maze.
0:53: Do a dry run on your claims
If your home were wiped out, could you prove how much any lost, stolen, or destroyed belongings were worth? The free software at knowyourstuff.org can help you catalog your possessions. Note whether you have “cash value” (based on depreciation) or “replacement cost” coverage, and consider that most policies cap payouts at 50% of the home’s total coverage.
0:45: Fill in the gaps
“Extended replacement cost” coverage (which pays out about 20% more than a standard policy) and riders for valuables provide a bigger safety net for your belongings.
0:43: Keep up appearances
Today’s insurers are skittish. Just asking about filing a claim can put your insurability at risk. Avoid the chopping block by paying for claims of $1,000 or less out of pocket, upping your deductible, and buying your home and auto coverage from the same carrier. If insurability is an issue, ask if a few fixes (e.g., replacing a leaky roof or old boiler) will help.
0:30: Check your risk reputation
Your premiums and eligibility are based on the five-year claims history in your home and auto insurance files. Your personal claims history and your property’s history will be on file if you have one. In some states, your credit history plays a factor in setting rates. ChoicePoint (an Equifax spinoff) is the dominant insurance-records bureau. Pull your homeowners and auto records for free once a year at ChoiceTrust.com and check them for accuracy.
0:24: Check up on your insurer
See how it performs under pressure by reviewing the ratings (particularly the “complaint ratio”) at naic.org/cis/index.do and ambest.com. Higher-than-average premium hikes and policy cancellation rates are signs that an insurer wants to exit a market. But before you bail …
0:16: Rate-shop with care
Switching carriers can cost you more than what you might save on annual premiums. You will give up any good-customer discounts you’ve earned over the years (typically 5% each year you are claim-free, maxing out at 25% to 35%). Instead …
0:09: Cut your existing costs
Three moves can cut your premiums by as much as two-thirds, according to The Insurance Maze: Raise your deductible to $1,000 from $250 (15% to 30% savings), purchase your auto insurance from the same company (15%), and keep a claim-free record (5% to 35%). That would save $245 to $560 on a $700-a-year policy.
0:02: Enjoy your home
Remember, insurance is all about protecting your most prized possession. So sit back, kick your feet up, and be confident that your insurance will do its job if necessary.