As a Chicago couple was getting ready for bed recently, the wife noticed that some jewelry was missing from her dresser drawer, as was a $20 bill. However, an envelope of cash she had withdrawn from her account at the bank was untouched.
Her first thought was that her cleaning woman, who had been working for her for years, had moved things around. When she awoke the next morning, the envelope of cash was gone, as were other items. The underwear in her husband’s drawer had been moved, as if someone had been looking through it.
The unnerving part was that all this had happened while they were home, asleep in bed. The couple lives in a high-rise building with a 24-hour doorman.
Whether you rent or own, buying homeowners or renter’s insurance is a necessary part of life. If you rent, you need to protect yourself in case your belongings are damaged or stolen. If you own your home, you need to protect yourself financially should something happen to your home.
Simply replacing the basics, including a bed, clothes, television, stereo/CD player, VCR, sofa, chairs, kitchen table, appliances, dishes, computer, telephones, linens and towels, food, sporting equipment, tools, and silverware can cost upwards of $35,000, according to USAA insurance company.
What kind of home-related coverage do you need?
Personal property insurance will insure you for the contents of your home, including clothing, furnishings, artwork and jewelry. And if you’re like the typical American, you have far more than you realize. If your house burns down in a fire, purchasing everything new would be enormously, if not prohibitively, expensive.
Personal liability insurance insures you against accidents that happen in and around your home. If your tree falls down and crashes through the roof of your neighbor’s car, you may be the one who has to shell out for the body work. Worse, if someone is injured in an accident at your home, you’ll want the insurance company to cover that potential liability.
Homeowner’s (also known as hazard) insurance protects your house, condominium, townhouse, loft, or co-op should it be damaged in a disaster, like a fire. So if your house catches fire, and you only have your home’s contents insured, you’ll end up with a lot of brand new furniture sitting on a empty piece of land.
There are a few common, and potentially costly, mistakes that people often make about insurance:
Not buying enough insurance. Before you close on your home, your mortgage company will require you to purchase a homeowner’s insurance policy in an amount equal to your mortgage. That policy will protect the lender, should your home be destroyed. In that case, you’d be left with nothing other than the land, and building from the ground up would come out of your pocket.
Failing to upgrade your policy. Everything gets more expensive, including rebuilding your home, purchasing new furnishings, and replacing jewelry, artwork, fur coats, and other expensive items you’ve acquired. Also, some companies limit your contents insurance to a percentage of your homeowner’s policy. You may need to upgrade your house policy if you’ve bought expensive furniture.
Failing to keep an up-to-date list of items. You need to know what you have in your home. Better yet, every year, take a video camera and go through your house and garden recording what’s there, including linens and china. Then take the tape, mark it with the date and store it in a safe deposit box located outside your home.
Buying the cheapest insurance you can find. You want to buy it from a reputable company that has an excellent record on paying claims.
Thinking all insurance is replacement cost insurance. If you don’t get “replacement cost” or “guaranteed replacement cost” insurance, you might find that your policy will only reimburse you for the depreciated value of your home’s contents. If you need to rebuild, you’ll want to be certain your policy contains a clause that will cover you for upgrading your home to current building codes and standards. Otherwise, you might find yourself paying for items like insulated windows and upgraded wiring out-of-pocket.
Confusing a condo or coop building’s policy with your personal policy. Condo and co-op properties must hold policies that protect the building or development should something happen to the common areas. It might protect you up to your common walls, but won’t include anything inside your unit.
Believing mortgage insurance can replace homeowner’s insurance. Mortgage insurance will pay off your mortgage (or credit card debt, depending on the policy you buy), if you die. You pay a hefty fee for what is a declining liability, since with every mortgage payment you make, a portion goes toward paying down your balance. If you need life insurance, which is what mortgage insurance essentially is, buy a cheap term life policy. Then you can decide if you want to use the proceeds to pay off your loan or use it for something else.
Thinking you’re protected in case of a flood. Flood insurance is rarely included in a homeowner’s policy. If you need flood insurance, you should ask directly if this is included in your policy, and for how much. By the way, you’ll need flood insurance if your basement floods due to a rainstorm, unless your sump pump goes. In that case, your general policy may cover you.
Thinking private mortgage insurance (PMI) is homeowner’s insurance. Normally, you’ll buy title insurance (your policy and the lender’s), homeowner’s insurance, and, if you put down less than twenty percent on your home, PMI. But don’t mistake PMI for homeowner’s insurance. PMI covers the lender for the top 20 percent of your loan in case you default on a super-low down payment loan. It won’t do anything for you in case your home is flooded or leveled by fire.
Published: Jan 4, 1999