Most homeowners have insurance because their mortgage lenders require them to. But two-thirds of them are underinsured, and more than 60 percent of renters don’t have insurance.
Nora Brooks was among the hundreds of New Yorkers who lost everything they owned when a gas explosion on March 26 leveled three buildings in Manhattan’s East Village. Nora and her husband, Matthew Brooks, watched their house burn for hours and eventually collapse.
“I think we’re an advertisement for getting renter’s insurance,” she told local news site Bedford and Bowery. “Oh, my God, I wish we had.”
A fire occurs every 23 seconds across the country, and a burglar breaks into a home almost as frequently. Bad things can happen, that’s why when meeting new clients, financial advisor Dan Crimmins always speaks about insuring their property.
“Once people are aware of the risk, by the next meeting, they get insured,” said Crimmins, co-founder of Crimmins Wealth Management in Woodcliff Lake, N.J.
Despite a standard policy, you may not have all the protection you need. A standard homeowner’s or renter’s policy covers things like fires, explosions and theft, but it does not pay for damage from floods, earthquakes or sewer backups.
“You want enough insurance, not just the minimum,” said advisor Sterling Raskie of Blankenship Financial Planning in New Berlin, Ill.
If you are not sure about your coverage, now is the time to dust off your policy and check if it is current and adequate. Financial advisors recommend some extra types of coverage you need:
- Floods. Homeowner’s or renter’s policies may cover an indoor flood resulting from a burst pipe, but a flood that hits an entire neighborhood is another thing.
“There’s different coverage for each, and it’s up to the owner to clarify this ahead of time,” said James Ludwick of Main Street Financial Planning in Odenton, Md.
Those who live in areas where floods hardly occur may think that they do not need this protection. However, according to the Federal Emergency Management Agency, 25 percent of all flood insurance claims are not from a high-risk flood zone.
In 2012, Hurricane Sandy flooded almost double the land size of FEMA-defined special flood hazard areas in New York City’s Brooklyn and Queens boroughs, the Urban Land Institute estimates.
Homeowners can buy additional coverage from the federal National Flood Insurance Program. There is usually a 30-day waiting period before the policy goes into effect. So you can’t count on purchasing a flood insurance policy right before a big storm is coming.
Flood policies cost on average $650 a year, according to FEMA. You can cover your home’s structure for up to $250,000 and its contents for up to $100,000.
- Sewer backups. Standard policies probably don’t cover nasty sewer backups. An overflown toilet can destroy furniture, plus the cleanup and pipeline replacement is a costly headache.
Be sure to check if sewer backup coverage is on your homeowner’s insurance either as an included benefit or a separate rider, Ludwick said. You can usually get covered for an additional $40 to $50 a year.
- Replacement cost. Having such coverage gives you enough money to replace your damaged or stolen belongings at today’s prices, without the insurance company deducting depreciation from the original value.
Raskie recalled that his clients, a married couple, woke up one morning and found water everywhere in the kitchen because of a burst pipe. The water also flooded the basement where they kept old VHS tapes and electronic devices.
Luckily, the couple had replacement cost coverage for their personal property. Otherwise, the check would have been much smaller, he said.
Remembering everything you have is difficult, so Raskie recommend that you keep inventory of your possessions by taking pictures in every room and storing them digitally.
- Umbrella liability. A standard homeowner’s or renter’s policy includes liability coverage, which pays for damages that you cause others. Even if you think your property is not worth insuring, you need liability insurance to lower the risks of an expensive lawsuit.
The minimum liability for homeowner’s insurance is $100,000, according to the Insurance Information Institute, which is most likely not enough. Umbrella policies kick in when you need more than your standard insurance provides.
Purchasing the right amount of liability depends on how many assets you have, said Crimmins. He suggests that you should have at least $1 to $2 million worth of umbrella coverage on top of your homeowner’s liability limits. A $1 million personal umbrella policy costs an average of $150 to $300 per year.
“We are trying to build a portfolio for retirement and not expecting to see it lost in a lawsuit,” he said. “A couple hundred now is worth the protection.”