published Thursday, September 8th, 2011

Inside Insurance: Homeowners and renters; what you need to know

By David Colmans

The onslaught of severe weather and other unanticipated dangerous scenarios such as earthquakes and wildfires provides real-world examples of why preparedness is so important, not just something to put off for another day.

There are lessons to be learned for renters, vehicle owners and homeowners from the recent turbulent weather and other disasters that can save time and money when the cleanup begins.

Renters are not protected financially from a catastrophe that befalls the apartment complex, condo units or even single-family detached homes unless they have secured a renters insurance policy. The landlord is responsible for the building, but the renter is responsible for the contents they own.

Sadly, less than 50 percent of renters nationwide purchase a renter’s policy, according to the Insurance Information Institute. Another benefit of a renter’s policy is the liability coverage for incidents such as a pet bite or an injury to a visitor inside the rental unit. Also, personal items that may be stolen off-site are usually covered such as a computer stolen at school or at an Internet café.

Homeowners typically have insurance, especially if the home is mortgaged since the lending institution requires it to protect the lender’s investment. However, in both a renter’s and a homeowner’s policy, personal belongings can be covered in one of two ways. Under the actual cash value coverage depreciation is figured in to the reimbursement from the insurer, so a 10-year old bedroom set would be worth much less than a new one.

Under the replacement value coverage, that costs more than actual cash value coverage, the damaged or destroyed items can be replaced with a like-item and the coverage will reimburse the policyholder for the cost of the item once a receipt is provided to the insurer. A similar bedroom suite, as in the previous example can be replaced with a similar suite without depreciation.

Homeowners have also received mixed messages by reports of the declining value of real estate over the last few years due to problems in the nation’s economy. While it is true that home usually don’t sell for what they did a few years ago, this factor does not apply when it comes to repairs or total rebuilds following a fire or other disaster such as a tornado.

The cost of construction materials has continued to rise and the insurer must also factor in the cost of demolition before a rebuild can begin. The important point for the homeowner is to understand what is factored into replacement cost by the construction industry and to no lower the amount of coverage based on the presumption that the resale value and the reconstruction cost are related.

Another important factor for the homeowner is the coverage provided by additional living expenses (ALE) should the home become unlivable due to damage. Over the period of time to rebuild or repair a heavily damaged home, the cost of a rental property and reasonable expenses for meals are typically covered under the ALE coverage.

A Home Inventory is vitally important for both renters and homeowners when a property is burglarized, damaged by fire or damaged in another disaster situation. In both cases, the best way to be protected financially when belongings are destroyed or stolen is for the homeowner to provide reasonable proof of loss. The inventory must be kept up-to-date.

While few of us have receipts for everything we ever purchased, the reasonable proof can be found in a home inventory that includes a room-by-room detail, including pictures and/or video, of all items.

The most basic way to create a home inventory is to list each room in the home or apartment and then list each item in each room to include a picture, item description, the approximate date of purchase, purchase price and description. There is, however, a much easier way to create the inventory.

The Insurance Information Institute (I.I.I.) offers a no-cost home inventory web-based program available at http://www.knowyourstuff.org. Just released is a free iPhone app also called Know Your Stuff that allows the user to take photos of each item, and enter the necessary information categorized room-by-room. When the data is saved, it automatically transfers the information from the iPhone to the web-based version of the program for safekeeping. Even if the iPhone and/or the home computer is destroyed or stolen, all the data is safe in the on-line password protected program.

What’s Not Covered is important to know. Rising water, also known as flooding, is only covered if a flood insurance policy is purchased through the National Flood Insurance Program. Water damage from inside a home usually is covered such as from a broken water pipe or rain that comes in through a wall or roof from a downed tree. Coastal properties often are required to have separate wind and hail coverage due to a higher risk of tropical storms that usually carry higher deductibles.

Earthquake damage is not covered without an addendum to a homeowner’s or renter’s policy. In the Eastern U.S. a separate policy is not required as it is in the West, but the addendum must be in place.

These issues, brought to light most recently due to the numerous disasters that have struck across the South in the last year, provide good reason to talk with your insurance company or agent to make sure you know what is and what is not covered, and how to obtain coverage you may not have. These conversations should take place at least every year or two.

David Colmans is the executive director of the Georgia Insurance Information Service. Contact him at (770) 565-3806 or by email at dcolmans@giis.org.

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