Home Insurance Articles
Why Most Home Owners Do Not have Adequate Coverage
2010-05-31
While everyone who buys a home buys a home insurance policy, there is no guarantee that this policy will result in sufficient home insurance coverage. There is one main reason for this.
The main reason home insurance coverage falls short is because homeowners take a "set it and forget it" approach to their policy. The buy it, put it in the box with the important papers, and pay the premium, but never really think about it again. Because a home insurance policy will cover some dozen basic named perils; i.e., fire, lightning, wind, hail, theft, aircraft crashes, vehicle crashes, vandalism, smoke, explosion, volcanic eruption, and riots, coverage would seem to be pretty comprehensive and the homeowner may feel that he can relax. Well, here are a few more perils that wouldn't be covered: condemnation (public domain), earthquakes, floods/water damage, neglect, power failure, nuclear hazard, and war. In hurricane territory, it is almost criminal not to add flood coverage (and wind, as well, because in such areas wind damage is often listed in the exclusions), and of course, if the insured property is in Southern California, earthquake insurance is imperative. A power failure that renders a sump pump useless in a torrential downpour can cause expensive damage that isn't covered. While nuclear war has receded as a possible risk in the last twenty five years, living near a nuclear power generating station can expose the home to sudden emergencies.
While reviewing a home insurance policy for places where coverage should be increased, there are also other considerations apart from the categorical ones just mentioned. Is the liability limit set too low? A large judgment can wipe out an underinsured homeowner. Does the homeowner operate a home-based business? Loss of use coverage can help. Are the homeowner's possessions insured for actual cash value or for replacement value? Actual cash value pays what the possession was paid for, less depreciation, while replacement value replaces the possession with a similar one. Is there enough coverage to insure all of a homeowner's possessions after years of accumulating new ones? An updated catalog of what the owner owns would be advisable. While the standard level of home insurance coverage is enough to protect the mortgage lender from loss of the remainder of the loan, does the policy protect the homeowner by insuring that the house will be rebuilt in case it was destroyed? If not, then the homeowner is underinsured.
Clearly, to be defended against some of the catastrophes that can suddenly wipe out a homeowner's investment, careful perusal and judicious alteration of the homeowner's insurance policy is advisable in order to maintain adequate home insurance coverage.