Here’s part two of Kitty Werner’s article on avoiding costly home insurance mistakes (Part 1). Just to recap, Werner argues that you could save hundreds of dollars per year on home insurance, and perhaps many thousands of dollars in the event of a serious mishap, if you just take a few simple precautions. Included here are the three remaining ‘traps’ to look out for…
TRAP #4: GAPS IN COVERAGE
As a general rule, homeowner’s policies cover most common types of damage, including that caused by fire, smoke, rain, lightning, wind, hail, snow, ice, sleet, vandalism, theft, explosions, civil commotions, vehicles, planes and problems stemming from the malfunction of the electrical system, plumbing, heating, air conditioning or appliances.
Not covered in standard policies is damage from earthquakes and floods, both of which are far more prevalent — and costly — than most homeowners believe. For example, some of the nation’s most destructive earthquakes in the last 200 years were centered in the Midwest, not California.
Hurricane coverage is tricky — you may find that you are covered for high winds, but not for flood. Check with your agent.
In areas where earthquakes are rare, insurance is usually available for under $50 a year with deductibles of $200. Premiums and deductibles rise fast, however, in areas where earthquakes are frequent.
Big mistake: Believing that coverage for rain damage will automatically reimburse you, say, if the back porch collapses after a two-day downpour. In fact, the insurers might argue that this type of damage is the result of a flood and not of the rain itself.
Safeguard: Even if you don’t live in a flood-prone area, consider flood insurance.
Information: Federal Emergency Management Agency(800-480-2520).
Premiums vary widely, from a few hundred to a few thousand dollars a year, depending on the location of a house, its age and type of construction.
TRAP #5: THE WRONG DEDUCTIBLE
As you compare prices, it might seem that policies with a zero deductible or a very low one are the way to go. The additional cost of a low-deductible policy in some cases wouldn’t even be as high as repairing one broken window caused by a kid who carelessly throws a baseball.
Pitfall: Home owners with low-deductible policies often file a claim each time there’s the slightest damage to the house or its contents.
Result: The insurance company will hike premiums — and may even cancel the policy.
Safeguards: Opt for coverage with the highest deductible you can afford. You’ll save a bit on premiums — perhaps 5% to 10%. Even more important, you’ll make fewer claims, and this will help keep your rates from rising in the future.
Order a copy of your CLUE report, the database that lists the claims history of home owners, from ChoicePoint Asset Co. (866-527-2600). Insurers use this information in calculating your premiums. Federal law entitles consumers to one free report every 12 months.
If there’s an error in the report, federal law also provides a procedure for home owners to correct it. Contact ChoicePoint Asset for an explanation of the procedure.
Data in CLUE reports are maintained for five years. If you can’t escape high premiums because of your claims history, cut down on filing new claims until your records expire. Then ask for new quotes. It’s likely that they will be lower.
TRAP #6: IGNORING SAFETY DEVICES
Ask your insurance company or agent what home devices can reduce premiums. Most insurers offer lower rates for houses with working smoke detectors, carbon monoxide detectors, fire extinguishers, burglar alarms that automatically notify authorities and sprinkler systems that fight fires.
Installing safety devices can cut premiums by 5% to 15%.
My thoughts: We live near a river and, while we’re not in a flood zone, we went ahead and purchased flood insurance until we had a chance to see a couple of floods and judge the true level of risk. We’re now confident that we really are out of danger, and we therefore decided to cancel the policy. But it was well worth it at first, at least with regard to the peace of mind that it provided. When it comes to deductibles, ours is relatively high. We’re not going to claim relatively low dollar amounts, so why should we carry a low premium? This really boils down to my #1 rule of insurance: Insure that which you cannot afford. Finally, the costs savings afforded by safety devices is one area in which a home alarm system can prove to be valuable (although the discounts don’t typically offset the costs of monitoring).
[Source: Bottom Line/Tomorrow]