Are You Covered?

Seven things to check on your homeowners insurance policy

When you bought your home you most likely purchased Homeowner’s Insurance to cover against loss from fire and other losses. When was the last time you reviewed your homeowner’s policy coverage limits?

The most important thing to check on your homeowners policy is that you have “Replacement Coverage” and that the replacement coverage is based on a realistic value – preferably very close to the amount it would take to hire a professional contractor, builder or remodeler to rebuild your home, including all miscellaneous work that would need to be performed (things like demolition, tear out, temporary protection, debris removal, smoke damage odor removal) and that you are covered to replace what was damaged or destroyed with equal quality materials.

Most replacement coverage clauses include a percentage above the value you have as the basis for your insurance. For example let’s suppose you purchased your home for $500,000. twenty years ago. Let’s suppose that the insurance company increased your property coverage value to $600,000 over that twenty year period and has a 15% replacement coverage overage amount. In this case your maximum replacement cost coverage would be $690,000. ($600,000 plus 15% = $690,000.)

Let’s suppose your home is 3000 SF and has a two car garage. Let’s further suppose you had just remodeled your kitchen and master bathroom and in the past three years put in a new high efficiency furnace and ac system, upgraded your ceiling insulation and redid your 400 SF deck with Azek and a really cool cable railing system. While you were on vacation, lighting struck your home and your home burned to the ground. The estimates to rebuild your home as it was come in between $795,000. and $865,000. In this case your shortfall would be at least $105,000. This example highlights the importance of making sure that your homes coverage value is close to the real replacement cost. A month before your yearly policy renewal is a great time to review this coverage and revise as necessary. Bear in mind that insurance estimates for rebuilding are often too low and if your home has custom features and finishes, the insurance companies don’t really have the expertise to deal with it thoroughly. While its true that the insurance company will increase the premium they charge you for the higher replacement cost coverage, if indeed, disaster does strike, you will be protected and covered with enough funds to replace your home as it was, including the upgrades you’ve made to your home. My firm has helped many homeowners rebuild their homes after being damaged by fire, trees falling on the home, frozen water or fire sprinkler pipes and only once did the lack of adequate replacement cost coverage effect the homeowner, but it was devastating for the owner and I hope it never happens to you.

Replacement cost coverage is much better coverage than a standard depreciated home value/cash value approach where the insurance company calculates the depreciated value of your home and pays out on that basis. This coverage is less expensive but for something as valuable and long lasting as your home, is not generally recommended. As always, consult with professionals in the insurance industry to assess your particular needs and the pluses and minuses of various options.

Do you have Code Upgrade Coverage? This coverage rider, which isn’t particularly

expensive can save you thousands, or even tens of thousands of dollars. Building codes are constantly evolving and jurisdictions around the country frequently adopt and enforce new, more stringent codes that may effect your restoration work. There may be new plumbing, electrical and mechanical codes that may increase your projects cost which were not previously installed in your home but are now required by your local jurisdiction. If you do not have Code Upgrade Coverage these additional costs will be borne directly by you. A relevant example is a kitchen fire (one of most common home disasters) where the kitchen was last remodeled 20 -25 years ago. With todays electrical code the kitchen will likely need to be completely rewired. There will probably need to be four or five new circuits (separate circuits for microwave, garbage disposal, refrigerator, exhaust hood, multiple counter backsplash circuits, multiple lighting circuits, etc. are required today as well as smoke detectors in every bedroom and one with carbon monoxide sensor as well on each level (usually at top or bottom of stairs). Depending upon when your home was originally built the kitchen circuits may be linked to other circuits, may be wired with inadequate size wire, have too many devices on the same circuit and/or have inadequate circuit breakers for safety. These items alone represent thousands of dollars of additional cost your standard policy will exclude. Insurance adjusters are trained to enforce the limits of coverage of your particular policy and don’t usually miss things like this.

Do you have Sewer Backup Coverage? Flood Damage Coverage? Most standard homeowner insurance policies will cover water damage from an interior broken water pipe (frozen pipe being the most common), but damage from a sewer back up is not covered unless you have purchased a Sewer Back Up Coverage rider. This coverage is not that expensive, and it is well worth it if you have to deal with the cleanup, decontamination and restoration after an occurrence. Check to find out what the coverage is on your policy for flood damage from exterior water. Most policies exclude flood damage. A separate flood damage policy may be needed. Your agent should be able to assist you with this. If you are in a flood zone you likely already have some form of coverage.

You are about to start a major addition and remodeling project. Do you have a Builder’s Risk Coverage rider in place? Builder’s Risk coverage will cover the work that is being done as it in put in place. In the event of a loss during the construction or remodeling work before the work is complete where there is damage to the work done which must be removed and replaced. Who pays for that? The builder has already done it and you are liable to pay for what the builder has provided and installed. Sometimes this coverage is split between the owner and builder in the sense that the owner’s policy picks up the liability for the work that has been put in place and the builder picks up the risk for damages to uninstalled materials that are damaged by the loss. Sometimes this entire coverage can be put in place by the builder or remodeler as a rider on their General Liability policy and the premium is charged to you as part of the project. No matter which way its split up it’s very important to have this issue addressed before work begins, since after the hurricane comes through (or whatever) and blows off the newly framed roof and damages materials stored onsite it’s too late to file a claim and you and your builder/remodeler will not have any coverage on the installed work that must be replaced.

Do you have a realistic temporary lodging allowance as part of your homeowners policy? In the event of a serious loss to your home, one where you must move out while restoration work is performed, most insurance companies have a temporary housing allowance for you to use to pay for a temporary place to live. Check to find out how much that is and if it is reasonable and realistic for you and your family (including pets) based on your location and living situation.

Do you have valuable musical instruments? Heirloom antiques? Artwork? Jewelry? Stereo system? Electronics? Etc. Generally speaking, most insurance policies offer personal property coverage for up to 50% of the homes covered value. (For example if your home is covered for $600,000. then your personal property coverage would be $300,000). This is where you must read the fine print. There are usually limits of coverage for musical instruments, artwork, heirloom pieces and other high value specialty items. Check to determine if these limits are adequate for your special prized possessions. Also, sometimes your home owners insurance will extend to coverage for theft or damage while traveling with those items but there are often low limits of coverage unless you have a special rider covering the particular item(s). For more details contact your insurance agent.

Do you have adequate liability coverage included with your homeowners policy? Suppose you haven’t had a chance to get to fixing the crack in your front walkway where a tree root has caused it to heave and crack. A volunteer door knocker canvassing your neighborhood accidently trips on the crack and hurts themselves. Their brother in law is a personal injury attorney (unlikely circumstance, but possible). Unfortunately, since it happened on your property the liability falls on you. Make sure you have reasonable coverage to protect yourself from frivolous or legitimate claims. Also, be careful hiring workers to do work on your home that are unlicensed and uninsured. When a homeowner hires a worker and that person hurts themselves while working on your home, and that person is not licensed and has no liability or workers compensation insurance the liability falls onto you, the homeowner. Check with your insurance agent and personal attorney to check what coverage you may have to protect you and your family inn that situation. Hiring only licensed and insured home service companies will alleviate that liability.

I hope this article has provided something of value for you. If you have any questions about any of the issues mentioned or have any questions about how homeowners insurance might tie into a home addition, renovation, or remodeling project please feel free to contact me.

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