Homeowners should review insurance policies annually

Posted: Friday, July 12, 2002

NEW YORK (AP) -- Floods in Texas. Wildfires in Arizona. Tornadoes in Maryland and Kentucky.

The disasters of summer, whether natural or man-made, should serve as a reminder that it's a good time to review your renters' or homeowners' insurance.

A lot of people don't take the time to read their policies in the first place and don't know what's covered and what isn't. Or they forget to increase their coverage after making a major improvement, such as remodeling the kitchen.

The result can be insufficient compensation if disaster hits.

Policies for homes cover the building and its contents, while renters' policies are for personal possessions. Both generally include limited liability protection if someone is injured on your property.

''All policies typically cover damage from fire, wind and theft,'' said Jeanne M. Salvatore of the Insurance Information Institute, an educational center sponsored by property and casualty insurers. ''For most people, that covers the basics.''

But some disasters -- especially flooding and earthquakes -- are generally excluded, and homeowners in danger-prone areas need to consider buying separate policies to protect themselves, Salvatore said.

The federal government has stepped in to help with flood insurance, which can be purchased through private insurance agents and brokers. The National Flood Insurance Program, which is part of the Federal Emergency Management Agency, currently makes $100,000 worth of coverage available for $352 a year.

Private insurance companies will write earthquake and hurricane coverage, but increasingly, states have gotten involved to help lower costs. The California Earthquake Authority, for example, has more than 840,000 policies in force in the quake-prone state. Florida, which has been vulnerable to hurricanes, has a special Windstorm Underwriting Association to ensure coverage for coastal residents.

Aside from disasters, there are other areas where homeowners may need to consider supplementing basic policies.

Most homeowners' policies have ''special limits'' for certain personal items, like $200 for cash and coins, $2,500 for silver services and silverware, and $1,000 for jewelry.

''If people have a lot of jewelry -- or valuable coin, gun or stamp collections -- they're going to have to get additional coverage for it,'' said Phil Supple of State Farm, the nation's largest home insurer in Bloomington, Ill.

This generally is handled with a floater or rider to the basic homeowners' policy. Jewelry or collections should be appraised to established the value for coverage, Supple added.

One area of confusion, he said, involves boats.

''Some people think their ski boat is personal property and covered by their homeowners insurance,'' he said. ''Boats generally aren't covered, and separate boat owners' policies are required.''

Home offices can also be a problem because homeowners' policies generally cover little beyond replacement of your desk, chair and file cabinets.

''The traditional homeowners' policy wasn't designed to cover business risks,'' said broker Rebecca Woan of Chartwell Insurance Services in Chicago. ''If you're running a business out of your home, you should look into a home business policy. When it's more fully developed, you need to think about commercial business insurance.''

The premiums for homeowners' policies currently average about $550 to $700 a year, the industry estimates. The cost can be considerably higher for expensive houses or those needing add-on disaster coverage.

One way to hold the price down is to increase the deductible -- the amount you have to pay if there is a loss before your insurance kicks in.

State Farm's Supple says that most homeowners opt for a deductible of about $500. Woan recommends that the owners of high-value properties consider a deductible equivalent to 1 percent of the value of the home, or a minimum of $2,500.


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