Building Walls of Protection: Is Your Homeowner's Insurance Adequate?
- 2010 4 Aug
A fierce storm blew through our town recently. Because a tornado had been spotted nearby, we took shelter in the basement. News reports said the storm was moving quickly, so I figured we'd back upstairs soon enough.
But then I heard a disturbing sound coming from our basement bathroom, the sound of water gurgling. It was coming up through the drain in our bathtub. That prompted me to check our laundry room, where to my horror I saw water flowing quickly out of the floor drain. After asking my wife to take our three young children into the stairwell, I started frantically pulling what I could off the floor. Within a very short time, we had at least three inches of water covering our entire basement. When I took a minute to glance out our front window, I saw that our street was completely flooded.
For the next three days I spent hour upon hour pulling things out of the basement, talking to various people at our insurance company, and hiring a company to rip up our laminate flooring and dry the basement with heavy duty dehumidifiers and fans.
Here are a few lessons from the experience:
If you have a basement, opt for sewer and drain backup coverage on your homeowner's policy. This is different than flood insurance. Fortunately, we chose to have this coverage. In fact, in reviewing our policy several years ago, I found out that our coverage totaled just $2,500 and did not cover furniture. We increased this to $5,000 and I'm guessing we'll use every bit of it in paying for damage to our basement and the loss of several items.
During that same policy review, I asked about flood insurance and was encouraged to weigh the cost (about $400 per year) against the likelihood of a flood in our area. You can assess the risk of a flood in your area at FloodSmart.gov (look for the "One-Step Flood Risk Profile"). Since the nearest river is about four miles from our house and its banks are much higher than the water, and because the FloodSmart site assessed our risk as "moderate to low," we're going without the coverage. I'm still comfortable with that decision. Even though our street was flooded by the recent storm, the water never reached our foundation.
If you own your own home, here are some other items to check, some of which you can look into on your own; others are questions to discuss with your agent.
Is our home properly valued? For about $8, you can estimate the replacement cost of your home at AccuCoverage.
Do we have inflation guard? This adjusts the value of your home as the cost of building materials rise.
Do we have building ordinance or law coverage? This covers any added costs of rebuilding associated with new building codes.
How much living expense coverage do we have? Find out how long your policy will pay your living expenses if damage to your home would leave you living elsewhere while repairs are made.
Are we covered for the replacement cost of our possessions? This covers the full value of what it would cost to replace your possessions, as opposed to cash value, which factors in depreciation.
Do we even know what we've got? If you lost all that you own, would you know what you lost? Creating a detailed inventory of your stuff may not sound like your idea of a fun Saturday afternoon. However, should you ever lose your stuff in a fire or other disaster, you'll be glad to have done the job. The Insurance Information Institute offers an excellent free software program that can help with this process called Know Your Stuff.
Once you've created your home inventory, e-mail a copy to a friend or family member so there'll be a record in case your computer is stolen or destroyed. Or, save a copy on a CD or flash drive, and keep it in a safe deposit box.
It's also a good idea to use a video camera to create a visual record of what you own. Just walk through your house or apartment, capturing all of your stuff and describing it along with your estimated value as you go. Update your inventory at least every five years.
One final lesson we've learned is that when storing anything in the basement, do so with the assumption that you will one day have water. That means using shelves so you do not store anything directly on the floor. And store your items in plastic containers, not cardboard boxes.
As the Bible teaches, "The prudent see danger and take refuge, but the simple keep going and suffer for it" (Proverbs 27:12). Do the wise thing and review your homeowner's insurance policy while the sun is shining.
Have you learned any lessons about homeowner's insurance that could benefit others?
August 4, 2010
Matt Bell is the author of "Money, Purpose, Joy" (September 2008), "Money Strategies for Tough Times" (April 2009), and the upcoming "Money & Marriage: A Complete Guide for Engaged and Newly Married Couples." He speaks at churches, conferences, universities, and other venues throughout the country. To learn more about his work and subscribe to his blog, go to: www.mattaboutmoney.com.