Is Your Insurance Coverage Enough for Disasters?
This was originally published on Suze Orman’s site: https://www.suzeorman.com/blog/Is-Your-Insurance-Coverage-Enough-for-Disasters
I think this is so important, especially for anyone who’s been affected by the recent wildfires or storms, that I’m sharing what she wrote on my blog.
Before I get into the details I want to stress that even if your home or car has been damaged/destroyed, keep making your premium payments. Your policy must be “in force” when you are making claims. This is doubly important if you also have a mortgage, given that insurance is a condition of your legal mortgage agreement.
Okay, now let’s talk about the different types of insurance coverage:
Homeowners
Pull out your homeowner’s insurance policy. There are four basic types of coverage within a policy: Coverage A, B, C and D. Right now I just want to focus on Coverage A, which is called the Dwelling Coverage. This is the amount of insurance you are eligible for if there is damage/loss of your primary home (not other structures on the property such as a detached garage or a shed.)
Under Coverage A I want you to look for the explanation of the type of coverage you have. There are three types of coverage:
Actual Cash Value
Replacement Cost Value
Extended Replacement Cost Value
If you have a Cash Value homeowner policy you are not properly insured. Cash value only covers the depreciated value of your home and your possessions. That’s not good enough as it won’t be enough to cover the current (think about inflation) cost to replace things. The value of a 10-year old roof is a lot less than the amount you will need to put on a new roof.
Replacement Cost coverage is much better. Replacement cost coverage will provide payouts for losses based on the current cost to replace the construction. You can also add extra replacement-cost coverage that will pay for any upgrades based on building code changes since you originally purchased your policy.
There is typically a dollar limit to the total value of Replacement Cost coverage. You should review your maximum every year to make sure it is sufficient.
In some parts of the country, you may be able to purchase Extended Replacement Cost coverage. With this level of coverage, your insurer agrees to cover expenses that exceed your policy’s stated limit by 10% to 25% or maybe even more. This feature is extra coverage to deal with surge pricing for construction, materials, and labor in your area—which sadly often happens when there is a widespread disaster.
Replacement Cost Value and Extended Replacement Value will have higher premiums than Actual Cash Value. I strongly recommend aiming to have at least Replacement Cost Value. The big mistake I want you to avoid is the frustration of only having Actual Cash Value, which will not pay you enough to buy the goods (and labor) to rebuild/repair a home.
Once you review your current policy, I want you to contact your insurer (or agent) and get written confirmation of your current coverage. And if necessary, ask for new quotes to increase your coverage.
Car Owners
If you have an older car, you may have dropped the comprehensive coverage to save on your premium. I just want to make sure you understand that if your car is lost in a disaster, you will not receive any insurance payout if you don’t have comprehensive coverage. If that is not what you want, time to contact your auto insurance and ask about adding comprehensive coverage.
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