The Retirement Corporation of America

Protecting Your Property

Most people who have homeowner's insurance don't think much about it until there's a catastrophe. And that's a mistake if you don't have enough coverage from a company that will handle your claim swiftly and fairly.

Homeowner's insurance can be as simple or as complicated as you want it to be, depending on what you want it to cover and how much you're willing to pay for it. In the insurance industry, homeowner's coverage is more properly called property insurance because it protects you against damages to any kind of property you own—whether it's your house, your garage or your home computer. What it does not cover is the land under them.

There are two parts to home coverage:

1. Protection against loss or damage to your dwelling and its contents.
2. Liability coverage, which protects you if someone gets hurt on your property and sues you.

The 80% Rule

About 80% of your home's current market value is represented by your house, while the other 20% comes from the value of your lot.

So, at a minimum, you should have enough coverage to pay the cost of entirely rebuilding your home, your garage and any other structures on your property at today's prices if they were leveled and all of their contents lost. Anything less and the insurance company will balk at replacing your home if it is destroyed by fire. It might, instead, offer you only the cash value of the building—which could be far lower than the cost required to replace it. You should also have at least $100,000 of liability coverage.

Floater Policy

Your homeowner's policy may cover things like your computer and other electronics, jewelry, antiques or other collectibles, but only up to a certain amount. Often the amounts can be stunningly low. Furthermore, the total contents of your dwelling will be insured to only 50% of the value of the dwelling itself—no matter what the contents are actually worth.

To insure valuables for their full worth, you'll probably have to buy a special policy called a Personal Articles Floater policy—called a floater because the original coverage was for goods being transported over water by ship. The homeowner's policy covers the house, contents and other structures on your property—everything described in general terms. The floater insures specific items, which must be described in detail.

You'll need some way of valuing the items with an appraisal or a purchase receipt. Should the item be lost or stolen, you must be able to prove what you paid for it or what it is worth today. That way, you will be reimbursed for the full value of what you lost—not just a tiny fraction.

If you live in a condo, a co-op or an apartment, your homeowners' association or landlord insurance should cover damages to the building. But if you want protection for your possessions and liability coverage, you have to buy policies that are designed for people like you—a renter or a condo dweller.

What to Look for in a Homeowner's Policy

When you shop for homeowner's insurance, make sure your policy guarantees your real replacement costs, not just what insurers call their "actual cash values." The latter will only pay you to rebuild or replace what your property or possessions were worth when they were damaged or stolen plus a bit more to cover inflation. But what you get if you have to file a claim may fall far short of making you financially whole again.

Guaranteed replacement cost coverage costs a bit more than cash-value coverage, but it's worth it when you have to file a claim.

For example, suppose you only have cash value coverage and the home computer you paid $3,000 for five years ago is stolen. Your insurance company might give you $750 for it minus your deductible, figuring the computer depreciated 15% a year for five years ($450 in depreciation a year x 5 = $2,250. $3,000—$2,250 = $750). A fairly standard deductible is $250. So, in this case, you'd wind up with just $500. Try buying a comparable computer—plus the software you probably had on your old one—for that today.

Finding this kind of coverage is getting more difficult because insurers are saying it has become too expensive. Some companies now limit their maximum pay-out to 120% of the insured policy amount, for example. So pay special attention to your replacement-cost estimates when you talk to an agent to make sure the policy you buy will fully cover you.

Unless you own your home outright, your mortgage lender is a named insured. So if you incur a loss, the insurance company will probably make the checks out to you and the lender. If that's the case, both of you will have to sign the checks before you can cash them. To save time, find out now who at your bank or mortgage company would have to do the signing.

Property Coverage

Besides rebuilding your house, a typical homeowner's policy covers your possessions up to 50% of the value of the dwelling. It also covers up to 10% of your home's value to rebuild your garage or other structures on your property and 5% to replace trees and shrubbery.

Most policies give you some money to stay somewhere else during repairs if the damage to your house is so extensive you can't live in it.

Standard policies also typically protect you in case your possessions are stolen off your property—say, out of your car at work. But watch for exclusions here too. An important one may be your laptop computer because they're expensive to repair or replace and easily stolen. You may have to buy a rider for it or a separate policy. You're also covered for unauthorized use of your credit cards.

Liability Coverage

Liability coverage is what protects you if a guest is injured in your home or a worker you have employed is injured on your premises and sues you. It's smart to boost your protection from the standard $100,000 to $300,000—considering the huge awards personal injury lawyers often win for their clients these days.

Home Offices

If you work at home, you may need extra coverage, too. Most basic homeowner's policies cover about $2,000 of office equipment damaged or stolen from your home. But it has to be property you own in your name, not your company's name.

And most home insurance doesn't provide liability coverage for home-based businesses. So if a UPS driver slips and falls in your driveway bringing you a new copier for your home office and decides to sue you, you aren't covered.

You can buy a home-office rider for your homeowner's policy that typically insures business property for up to $10,000 and gives you $300,000 of liability protection. There are also so-called "business packages." These provide as much as $50,000 of coverage for business property stolen on or off your premises and up to $1 million of liability coverage.