If a man’s home is his castle, then homeowner’s insurance is the modern equivalent of a moat and an armed fortress.
The analogy to property ends here, thankfully, because today’s perils are a lot less menacing than an attacking enemy army. Still, losses due to fire, flood, theft or other modern mayhem can be equally devastating.
Lately, Mother Nature has been responsible for a considerable amount of that mayhem. The Insurance Information Institute, a New York-based trade group, reports that 9 out of 10 of the worst natural disasters in the United States have occurred during the 1990s. Chicagoans, especially those who live in those western suburbs hardest hit by last spring’s flooding, don’t have to be reminded that the weather has been unpredictable.
Now, as we hunker down for the onslaught of winter, it’s a good time to review the adequacy of your home’s protection against the elements (and other hazards) provided by your homeowner’s insurance. Your mortgage lender and/or condominium association board may require you to have homeowner’s insurance, but they are not going to select a policy for you that fits your particular risks.
By shopping for the right policy, you may save money on premiums, as well as ensure that weather or other calamities don’t blow the roof off your finances.
Although no two insurance policies are alike, notes Bill Eschker, president of Koenig & Strey Insurance Agency in Wilmette, the industry standard is that damage that results from flood or earthquake is never covered unless the homeowner has made specific provisions.
Chicagoans might want to talk with their insurance agents about flood insurance, if they deem that the extra in premium is worth the added protection against this threat. “You have to first assess the perils that might afflict you, and then decide if you are willing to absorb any losses personally, or if you’d rather insure for the risk,” notes Brent Neiser, director of public education for the National Endowment for Financial Education, Denver.
“Flood insurance can be purchased from your regular insurance agent, but it is actually underwritten by the National Flood Insurance Program,” explains Jayna Neagle, spokesperson for the Insurance Information Institute. She suggests homeowners assess their own risk by asking their municipality if their property is located near a designated flood plain. It’s also helpful, suggests Neagle, to talk with neighbors about the frequency of such events as big spring thaws.
In fact, only homeowners who live in a community that participates in the national flood program by maintaining flood plain management ordinances are eligible to purchase flood coverage, says Mark Stevens, public affairs officer at the Federal Emergency Management Agency, Washington, D.C. You simply need to live in a qualifying community, not in or near a flood hazard area.
Fortunately, notes Eschker, most Chicago area communities participate in the federal flood management program. Unfortunately, as too many homeowners lamented last spring, only a minority of property owners purchase coverage.
“Of the estimated 10 million households nationwide situated in flood plains or hazard areas, only about one-quarter have flood insurance,” relates Stevens. Flood coverage for a single-family dwelling is limited to $250,000 for structural damage and $100,000 on content damage,” says Stevens. Nationwide, premiums average $300 annually for $100,000 in coverage.
Don’t expect flood coverage to bail you out, though, when the water starts to rise in the basement. Flood insurance coverage for basements includes cleanup expenses, reports Stevens, and it will pay for damage to structural elements in the basement as well as for damage to furnaces, hot water heaters, and other items used to service the entire house, but it will not pay for valuables that get soaked.
And if you ever do suffer from water making its way in, consider yourself lucky if it’s coming from a leak sprung in a pipe, rather than rain seeping through, contends James Walsh, of Merrit Publishing, Santa Monica, Calif., publishers of “What Do You Mean It’s Not Covered?” You’ll probably feel anything but lucky, but Walsh says that standard policies will typically cover damage from burst pipes, but not from rain that makes its way in.
Neiser adds that water rushing in from a sewer backup will be covered if the homeowner has a special provision or endorsement in his policy.
Let it snow
Even for those who curse Chicago winters, there’s a silver lining in those snowstorm clouds: Ice and snow damage is generally covered under homeowner’s policies.
However, you might be in for a squabble with your insurer if heavy snow causes a roof that was already cracked to let in melting snow. “Homeowner’s insurance is not a home warranty,” warns Eschker.
If you haven’t already, clean out gutters, recommends the insurance institute, so that melting snow can find an escape path.
Special coverage
A standard homeowner policy may not be enough to insure your home and/or possessions against risk. Special “endorsements” may be necessary. For instance, warns Neiser: “If you have a home office, there will be limitations (in a standard policy) for coverage of specialized office equipment. You have to consult with your agent about extending coverage to computers, files and other things if your business is disrupted.”
An endorsement is only as good as the language it’s written in, however. That’s the painful lesson Naperville residents Peter and Kathie Vandeleuv discovered when a special endorsement they had purchased to cover sewage backup backfired on them, because their insurance company pointed out that the endorsement clause contained an exclusion whereby damage wouldn’t be covered if a flood occurred within 10 days before or 10 days after the damage.
“We started to get water in the lower level from the sewer before any flooding,” says Kathie. Still, even after taking their dispute to the president of the company and the Illinois Department of Insurance, the Vandeleuvs were unable to collect because of the 10-day catch buried in their policy. “We didn’t even know that 10-day provision was in there. Their policies are so long and complicated.
“Our neighbors also had sewer backup riders, but they didn’t have that exclusion clause in their policies, and we heard some of them had checks from their company right away.”
Company policy
Indeed, a homeowner should not only carefully study his policy, but also carefully shop for an insurance company, say experts. Walsh divides insurance companies into either “Tier One” or “Tier Two.” He suggests consumers talk to brokers, friends and neighbors to find out which companies have the best reputation–and may be worth a little extra in the annual premium.
Once a homeowner selects a company, one of the key decisions in buying coverage is to determine what dollar limits will be provided by the policy. “The best coverage is `guaranteed replacement cost,’ for your home, and `replacement cost’ for your possessions,” notes Neiser. This means that your home’s structure could be rebuilt at today’s costs, or that the insurance company would pay you to replace damaged items at today’s prices. An actual cash value policy, on the other hand, pays you for what that sofa you bought five years ago is worth today.
Most policies will also offer liability coverage up to $100,000, says Walsh. If a visitor slips and falls on your property and sues, the liability coverage will kick in. Insurers will be happy to sell you more coverage, says Walsh, and it’s usually done in the form of an “umbrella” policy that covers liability judgments involving both your auto and homeowner’s insurance.
