Protecting your property

Before hurricane warnings, find out what storm damages your home insurance covers and whether you need to add more protection. If a hurricane destroyed your home, would your insurance cover the cost to rebuild?

Don’t wait until a storm is threatening offshore to find out.

If you’re like most people, you probably don’t have 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. By some estimates, close to two-thirds of U.S. homes are underinsured.

How does it happen? Sometimes people make home improvements without telling their insurance agents. Or, policy limits simply haven’t kept up with rapidly escalating building costs. Sometimes policies have special exclusions or restrictions that homeowners don’t realize are there.

Florida law now mandates that insurance companies include an easy to understand coverage checklist with every homeowner’s insurance policy.  Among other things, the list will show costs, coverage limits and exclusions. It will also detail how much the policyholder would receive [and for how long] if the home were destroyed.

Your overall insurance limit is the first thing to check since that could come into play with a destructive storm. Ideally, you want a limit high enough to cover the cost of rebuilding your house on the same site, not including the value of the land. If you have a mortgage on your home, your lender may require you to carry enough insurance to replace your home, but cannot require more than that even if your mortgage is for a higher amount.

If your limit looks too low, ask your insurance agent to evaluate your situation.  The market value of your home might be twice the limit, but that doesn’t necessarily mean the limit is wrong.  Property values are changing rapidly and it can be very difficult to separate the replacement cost of the building from the cost of the land.

If you disagree with the agent’s estimation of replacement value, you can get a second opinion.  There are valuation sites such as www.accucoverage.com or www.bluebook.net, where (for a nominal fee) you can obtain an online report.  If you have an expensive home, with many custom features, it may be worthwhile to pay for a professional appraisal.

You’ll also want to review your policy’s limitations and exclusions. Peripheral structures such as pool sheds, detached garages, pool screens and fences may not be covered at all.

Your policy also may limit or exclude coverage for items such as boats, cars, aircraft, cash, guns, silverware, jewelry, furs, antiques, electronics, business equipment and records. If you want adequate coverage for those items, you’ll probably need to buy extra coverage or a separate policy.

The biggest exclusion in homeowner policies is flood damage, which has been a huge issue for homeowners in Louisiana and Mississippi whose homes were damaged or destroyed by Hurricane Katrina. Even if wind drives the waves, homeowner policies won’t cover flood damage.

If you live in a flood hazard zone, your mortgage lender will require flood insurance. If you own your home free and clear, or you live outside the hazard zone, flood coverage is optional, but flooding is still a real risk. Many homes flooded during Katrina were not in hazard zones.

Something called “law and ordinance” coverage is optional for everyone, but without it, your policy won’t pay the extra cost of rebuilding to meet current building codes. 

A safer way to save money is to increase your deductible, particularly for non-hurricane coverage. If you’re still at $500, raising it to $1,000 is a good idea. If you have an expensive house, you might want to opt for $2,000 or higher.            The hurricane deductible - most likely 2 percent of the insured value - can also can be increased if you could afford to pay more out of pocket for storm damage.

The best way to prepare for higher deductibles is to maintain an emergency reserve in a bank or credit union account or a money-market fund. Savings bonds less than a year old can also function as an emergency fund since they can be cashed at any time.

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