My dad was at home the other day when he heard a loud thud. Looking over the back yard, he saw that the top half of a very large tree had come crashing down onto his property, taking with it his new grill and a big chunk of the cement patio. This kind of thing happens to many of us when we least expect it -- a disaster, large or small.
These events can be minor irritants or major catastrophes. In my dad's case, he simply called his insurer, who advised him on how to proceed and explained what the company would pay. Many people, though, are underprotected by insurance on their home, their health, or other aspects of their lives. Here are three key questions to ask your home insurer, provided by the (admittedly not unbiased) Insurance Information Institute (III):
- Do I have enough insurance to rebuild my home?
- Do I have enough insurance to replace all of my possessions?
- Do I have enough insurance to protect my assets?
Many of us have improved our homes in the last few years. (The III notes that, "According to the U.S. Census Bureau, homeowners spent [more than] $11.8 billion on additions, $82.3 billion on alterations, and $28 billion on maintenance and repairs in 2004.") But we haven't always told our insurers about it. Sure, your premiums may not get hiked that way. But should you need to rebuild, you probably won't get as much money as you need. Don't assume that your home's assessed value is its true value -- it probably isn't.
Have a frank discussion with your insurer about your home and coverage. Look into adding an "inflation guard" feature into your policy, too, to keep it updated in line with materials' costs. If you're worried about damage from sewers or drains backing up into your home, you might want to add protection for this onto your policy. (And if you're suddenly worried about a tree falling on your patio, just ask how you're protected against that.)
Be prepared for losses of possessions by keeping good records of them and their costs. Decide (perhaps via a discussion with your agent) whether you want a cash value policy (which would pay to replace your losses according to their cash value less depreciation) or a replacement cost policy (which would pay you enough to replace them).
Look into how much liability insurance you need. If you have considerable assets, you might want to get an excess liability or umbrella policy.
Learn much more about the not-so-exciting-but-still-critical topic of insurance in our Insurance Center. You may not have thought about some kinds of insurance, such as disability or long-term care insurance, but they're vital for many people. And, of course, properly insuring your property is vital, too. Take a little time to learn more. You may be very happy you did, if some calamity occurs in the future.
These articles may also be of interest:
- When Your House Burns Down
- 60-Second Guide to Insurance
- Avoid Insurance Sticker Shock
- How to Insure a Bundle
- Disaster-Proof Your Prized Possessions
And if you're in the market for insurance, another way to inform yourself about options is to spend some time at the websites of insurance companies. According to data from the National Association of Insurance Commissioners, the top writers of homeowner insurance (by direct premiums written in 2004) were:
- State Farm
- Farmers Insurance
- Liberty Mutual
Combined Federal Ins. Co. and Affiliates/Chubb
- American Family Insurance
Other players include American International Group
Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.