The following column from Jennifer Pagliara, CapWealth Senior Advisor, appeared in The Tennessean on Sept. 14, 2017.
Hurricanes Harvey and Irma have wreaked havoc over the past couple of weeks. Unfortunately, none of us can escape natural disasters; however, you can be proactive and ensure that your home and personal belongings are properly insured before a disaster strikes.
Homeowners insurance is not something anyone wants to pay, especially when you have never had to file a claim. Nevertheless, it is necessary to ensure that the cost to rebuild or fix your home is covered. A standard homeowner’s insurance policy will provide the insurer costs related to damage of the interior and exterior of the home, often related to fire, hurricanes, lightning, vandalism or other covered disasters. However, damage not normally covered, which requires separate riders or add-on provisions, is that which results from flooding, earthquakes and poor home maintenance.
Even if you aren’t a homeowner. You can still protect your belongings through a renter’s policy. This policy does not provide coverage for the structure or dwelling where you live, but it will protect up to a certain amount of coverage for your personal belongings. According to a Nationwide Insurance survey, an estimated 56 percent of renters between the ages of 23 and 35 do not have renters insurance. I assume that a lot of millennials skip on this because they believe their possessions are not valuable enough to insure. However, there is a big misconception around this fact that I will discuss below.
Below are a few common mistakes and misunderstandings about homeowner’s insurance:
Underinsuring your home
A common mistake insurers make is only buying enough coverage for the remaining balance of their mortgage or the current value of their home. Both would most likely not cover the amount it would cost to rebuild their home. A professional can better estimate of how much it would cost to completely rebuild your home, and certain agents provide this service for free. That is the amount you should aim to cover.
Understanding your coverage
It’s important to know exactly what your home insurance covers and what it doesn’t. If you don’t know how to read your policy, be sure to ask your insurance agent for specifics. For example, flood insurance is not generally part of a standard insurance package. Many here in Nashville experienced the flood of 2010, where most of the areas affected were not considered in flood plains, and thus did not have the appropriate coverage. According to FEMA, more than 20 percent of flood claims come from properties outside the high-risk flood zone. You will need an extra rider for flood and earthquake coverage.
Insurance isn’t just for possessions
Homeowners and renters insurance policies don’t just cover personal property. They also protect the insurer from liability lawsuits. If your dog bites a visitor or someone falls down your stairs and breaks his or her leg, your insurance will provide protection. You are liable for what occurs in your home (if you own it or not) and need to be covered. This is where renters can benefit from a policy regardless of the value of their possessions.
Do not fall into the trap of buying the cheapest policy available. Also, understand your deductibles. You might believe you only pay one flat deductible if you file a claim, but often for natural disasters, like hurricanes or earthquakes, you end up paying a percentage of your coverage which could be up to 5 percent for flood or 10 percent for an earthquake. If your coverage is $500,000, you could be out of pocket $25,000 or $50,000.
If you’re feeling overwhelmed with picking the right policy, utilize your insurance agent or financial advisor. That is what he or she is there for. It’s best to ask questions now before you are in a situation where it is too late.