If you are like most Americans, you probably don’t know what’s covered in your homeowner’s insurance policy. That’s right, the thing that protects your single largest investment. A recent MetLife survey as reported by US News and World Report showed that almost half of all homeowners don’t know how much coverage they have for the contents of their home, and 1 in 3 don’t even know how much their home is insured for. This could cause you to end up paying a lot more than you expect after your home is damaged. Not exactly the time you need any added stress.
Listen to this reported story. An older couple finally purchases their dream home. One day while they were out, a lamp overheated causing a fire. Not only was part of their house destroyed, but they also lost a family pet. The insurance company arranged to have repair work done, but the hired contractor accidentally caused a major flood in the basement which led to black mold. In all, the insurance company offered far less than the estimated cost to repair their home. The couple was distraught and eventually hired a public adjustor to negotiate a higher settlement. Did they get what they thought they were paying for?
Here are just a few of the questions you should be asking. Will your insurance policy reimburse you for earthquake damage? In most cases the answer is no unless you purchase a separate earthquake policy. Are you covered if your sump pump backs up and your house floods? Most people say yes, but unfortunately you would have needed to add coverage for sump pump failures. How about if you take a vacation, or go away for a few months during the winter and your pipes freeze and break, are you covered? It depends. Did you take all the proper steps to minimize the chances of it happening? Did you keep the heat high enough and drain the pipes before you left? If you didn’t, you may be in for a nasty surprise. And the biggest one, if you have a fire, will the insurance pay the full cost to rebuild? The answer is no unless you have full replacement costs written into your policy. Most basic insurance policies cap their coverage and take depreciation into account when calculating the value of your personal possessions. And even with full replacement cost on contents, most companies pay you only for the depreciated amount and make you whole only after you repurchase the item and submit receipts. This is known as holdback.
On the positive side, there is coverage for things that many people don’t realize. Policies usually cover your children while they are at college and living on campus. And often they cover electronics and damage to appliances caused by a power surge.
The moral of this story, take the time to read and understand what you are paying for. If you don’t know what something means or don’t know if it would be covered in a loss, ask your agent to explain it to you. After a loss is not the time to learn if a check is coming from your insurance company or out of your own pocket.
