On the House | Are you covered for that? You sure?

Posted: June 17, 2007

A few days after a trip to post-Katrina New Orleans, I reread my homeowners' insurance policy, just to familiarize myself with the coverage it affords and to make sure I had enough.

According to a survey by the National Association of Insurance Commissioners, the fact that I pay attention to this stuff before my house catches fire makes me an exception. It came as a surprise to most of the 673 homeowners nationwide who responded to the survey that the typical property and liability policy doesn't cover home damage from floods, earthquakes, water-line breaks, termites, mold, and other perils.

I can understand the confusion. Most homeowners begin their relationship with insurance because they need it to satisfy lender requirements for a mortgage, and they need it by settlement day. With everything else going on, they assume they are being taken care of by someone, and as long as they have proof of a policy, they are OK with it.

The survey found that 33 percent of the responding homeowners incorrectly believed that flood damages would be covered by standard homeowners' or property and liability policies.

Flood coverage is available from the government's National Flood Insurance Program. Excess flood insurance is often available from private insurers when people seek to insure high-value homes that exceed the limits offered by the program. (For more details, go to FEMA's www.floodsmart.gov.)

The survey also uncovered misunderstandings about these common loss situations, none of which are covered by standard homeowners' insurance policies:

Sixty-eight percent of respondents thought vehicles such as cars, boats and motorcycles stolen from or damaged on their property were covered.

Fifty-one percent believed damages from a break in the line on their property supplying water to their homes were covered.

Thirty-seven percent thought damages resulting from a break in the line on their property that connects to the municipal sewer system were covered.

Thirty-four percent believed damages from mold were covered.

Thirty-one percent thought damages from termites or other infestation were covered.

Twenty-two percent were under the impression that pets stolen from or injured on their property were covered.

Twenty-four percent of respondents indicated that their policies insured their homes for the actual cash value, while 64 percent said their policies covered the replacement cost. An additional 12 percent said they did not know which type of coverage - actual cash value or replacement cost - they had purchased.

"Actual cash value" is the amount it would take to repair or replace damage to a home and its contents after depreciation. "Replacement cost" is the amount it would take to replace or rebuild a home or repair damages with materials of similar kind and quality, without deducting for depreciation, the commissioners' group said.

In the event of a covered loss, an actual-cash-value payout could be thousands of dollars lower than a benefit calculated at replacement cost.

So what are you going to do? My advice is to check out your current policy (if you can figure out which drawer you threw it in), and then do the following:

Add insurance coverage as you enhance the value of your home and acquire expensive possessions, such as furniture, computers, stereos and televisions.

Alert your insurance company when making any major home improvements, usually anything more than $5,000. Also, update your homeowners' insurance policy to reflect the changes.

Remember that items such as trampolines or pools may require an increase in liability coverage through an umbrella policy.

As you acquire more valuables - jewelry, family heirlooms, antiques, art - consider purchasing an additional rider to your policy.

You can find more information at Insure U (www.InsureUonline.org). The entire site is also available in Spanish (www.insureuonline.org/espanol).

"On the House" appears Sundays in The Inquirer. Contact Alan J. Heavens at 215-854-2472 or aheavens@phillynews.com.

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