Homeowners Insurance-Getting the Right Coverage at the Right Price 5/6/07
Stewart H. Welch III, CFP, AEP
Founder, The Welch Group, LLC
Homeowners Insurance-Getting the Right Coverage at the Right Price
“Homeowners Insurance- Getting the Right Coverage at the Right Price”
As part of our continuing series on core financial planning, this week, I’ll examine the key issues involved in homeowners insurance. Homeowners insurance can be a complex product because it has so many facets. In this article, I will explain the most important provisions and suggest the best way to make certain that you have adequate coverage.
Dwelling Coverage. The biggest mistake most people make with their homeowners policy is not having adequate coverage on their dwelling. If your home were totally destroyed by fire, flood, windstorm or earthquake, would your insurance policy pay to rebuild your home back to its current condition? If your answer is ‘I’m not sure,’ then you’ll need to take steps to make certain you have 100% coverage and I’ll describe how to do this later.
Liability Coverage. Your homeowners policy will also include liability coverage which protects you should someone get hurt at your home. Real life examples include the back deck falling with people standing on it; your dog biting a neighbor; someone slipping on a mossy sidewalk and injuring his or her spine or a neighbor drowning in your pool. How much coverage should you purchase? I generally recommend the maximum coverage, typically $500,000, and coordinating homeowner’s liability coverage with a separate Umbrella Liability policy, which I will discuss in a future column.
Personal Property. The personal property portion of your policy covers all your ‘stuff’…furnishings, jewelry, clothing, etc. Many personal property items including expensive jewelry, watches, cameras, artwork, antiques, coin collections and silverware may not be fully covered under your policy. These items require separate scheduling under additional premiums. This can get very expensive so I recommend that you self-insure to the extent you are comfortable. The only item I schedule is my wife’s engagement ring because I know if something happened to it, I’d be at the jewelry store the next day buying a replacement! Everything else, I figure I can replace over time.
Renters Insurance. For those of you who rent, you will need at least basic insurance coverage for your personal property and for liability. Remember, if someone were to get hurt while in your premises, you could be held liable.
With all the complexities and nuances of homeowner’s insurance coverage, how can you make certain that you have both adequate and appropriate coverage? My preference is to write your agent a letter requesting a complete review with your goal being to make certain that your coverage is adequate in all respects. This written request has the effect of shifting the responsibility to the expert…your agent.
You want to have appropriate coverage and reasonably low premiums. The best way to do this is by raising your deductible. Higher deductibles are beneficial in two respects. First, they lower your premiums and second, it means you are self insuring the smaller claims. This makes sense because if you turn in a small claim, many companies will either raise your premiums or refuse to insure you at all. According to Farmers agent, Steven Blomeley, “Many people think they have insurance to cover events that can ruin their day. But insurance is in place to cover events that can ruin your life!” My advice, self insure the small stuff. Let the insurance company insure the big stuff.