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Insuring The Roof Over Your Head


Jane White

Insuring The Roof Over Your Head

Author Jane White is the former personal finance columnist for Gannett News Service. Her articles on personal finance have appeared in Working Woman, Newsday and The New York Times. She is also the author of The Cost Conscious Homebuyer's Guide, from which this article was adapted.

Ever since England's first fire insurance company, The Phoenix, began insuring private houses after the Great Fire of London in 1666, homeowners have grappled with the problem of protecting their property against disaster without causing one in the family budget.

You'd think that with more than 300 years of familiarity with the concept of homeowner's insurance, every homeowner would be adequately covered. Yet in 1977, when a fire swept through Santa Barbara, California, the average home destroyed by the blaze was covered by one one-half of the amount of insurance required to replace everything that was lost? Why? The homeowners hadn't bothered to update their policies to reflect soaring housing values. What's more, occupants hadn't updated their coverage to include their possessions, especially high-tech gizmos like VCRs, computers and camcorders.

While very few homeowners can get away without insuring the roof over their head - the bank that holds the mortgage doesn't want its precious asset to go up in smoke - eight in 10 Americans don't carry ENOUGH insurance.

How much to carry: The amount of homeowner's insurance you should carry depends on the replacement cost of your house, or what it would cost to rebuild it. Don't confuse this with the concept of market value - the policy doesn't cover the land it's built on, only the dwelling, which is typically 75% of the purchase price. You'll save 20% on your policy if you only insure the dwelling.

Detached buildings, such as garages or gazebos, are usually only covered at 10%. (This might be a good argument against buying a house with a detached garage!)

In order to avoid the fate of those hapless folks in Santa Barbara, you should confirm that your policy indexes the replacement cost of your home to inflation. What's more, if you make improvements that add value to the home, you should make sure you bring your coverage up to date - just as you update your life insurance when your family expands.

Don't forget the home's contents. All homeowner's policies cover your personal possessions, but most contracts limit the amount to 50% of the amount of coverage on the house itself. So if all your prized antique furniture goes up in flames, you might not get enough cash back to replace it. The solution? Add a replacement-cost endorsement for personal contents to your policy. Your yearly premium may go up 10-15 percent but it could be worth it if you've got irreplaceable or hard-to-replace stuff.

If you call your business your home. If you work out of your home, make sure your policy covers your business. If your endeavors are only part-time, you can save money by adding an incidental business option to your policy, which for $20 a year will insure up to $10,000 of business property, including up to $2,500 worth of business equipment.

If your at-home job is full-time, however, this probably won't be enough. Check out a business owners' policy, wherein you can get $20,000 worth of property protection and $500,000 worth of liability insurance for about $150.

Cover yourself against lawsuits. For around $200 a year you can buy $1 million in excess liability coverage - also called an umbrella policy - that pays claims above the limits on both your homeowner's and auto policies.

Seem excessive? Even those of us who aren't big-name politicians, movie stars or captains of industry are vulnerable - especially those who live in a state where it's easy for auto-accident victims to bring lawsuits. Standard home and car insurance policies give you some protection. But if the court award exceeds the limit on your liability coverage, your home, your savings - even a portion of your future earnings can be at risk.

Getting the best deal on coverage:

  • If you already have auto insurance, you should be able to cut a deal by buying your homeowner's coverage from the same carrier.
  • If your house was built within the past two years you could be eligible for a 5 percent new-home discount.
  • Installing dead-bolt locks on all outside doors and smoke detectors in your home can knock 2-5 percent off your annual premium cost. If you really want to go all out, a sophisticated home protection system with fire and burglar alarms that report to a central station will lower your outlay an additional 5 percent a year.
  • Increasing your deductible will also decrease your premium. Agree to absorb the first $250 of any loss, instead of the standard $100, and you'll shave 10 percent off your yearly bill. Step up to a $500 deductible and you'll take off as much as 20 percent.

But don't get so penny-wise now that you'll spend a pound when disaster strikes. Above all, don't aim toward saving money by reducing coverage.

How to Find A Home In Your Range

Having a tough time affording a garage in your price range - much less a three-bedroom bungalow - even though you and your spouse pull down decent salaries? You're not alone. Double-digit housing price hikes during the mid 1980s managed to put the American dream out of reach for many Americans.

Now there's finally help getting your foot in the door of your first house - help you won't find anywhere else. In The Cost Conscious Homebuyer's Guide, award-winning real estate writer Jane White can help you find a dream house that won't make you house-poor.

White includes tips you won't find elsewhere, such as

  • how to find bargains in other folks' bad debts: Thanks in part to sloppy lending practices in the 1980s, it's easier than ever for homebuyers to find bank- or government-owned properties in the toniest of neighborhoods for $10,000 to $20,000 less than comparable homes in the same block. White offers the low-down on how to find a real estate agent who specializes in bank-owned properties, how to check out the house for defects and where to find cut-rate financing, either from a bank or the Feds.
  • get the lowdown on condos, the "home that's not a house." How to take the unit for a test drive, (be wary, for example, if you can hear your neighbor's toilet flushing) get the goods on the condo association's finances, (are they involved in any lawsuits, do they have adequate reserves to handle unforeseen expenses?)
  • find out your rights: are you allowed to bring pets, kids, can you rent out your unit?)
  • See page 143 of the book for developer "purchase incentives" you should be wary of, such as rent-with-option-to-buy (if the development goes into foreclosure you're out of luck) and offers to pay your points ( you may be better off paying them and getting the tax deduction).
  • get details on how to relocate to one of the 20 most affordable and fastest growing regions in the country. Read how a Washington, DC couple ditched one of the nation's most expensive housing markets and found a sumptuous 2800 square foot home in Denver with cathedral ceilings, walk-in closets and four bathrooms for a most reasonable $123,000. And how a family from an overpriced New York City suburb escaped the deep freeze for Charlotte, NC where $161,000 gets you a built-to-order five-bedroom colonial in a planned community with a clubhouse, swimming pool and jogging trails. Chapter One offers an in-depth look at typical housing prices in these regions, as well as employment opportunities and cultural and education offerings.
  • find out how to make a silk purse out of a fixer-upper. If your the sort of person who could teach the folks on "Home Improvement" a thing or two check out Chapter Five. You'll find tips on discovering diamonds in the rough that just need the right kind of TLC to be resold at a profit after a few short years or lived in for the life of the mortgage.
  • learn how to tap government and employer programs that help homebuyers. For example, sixteen states, ranging from Alaska to Wisconsin, offer cheap mortgage money to folks of moderate means.
  • plus, how to shop for a real estate agent who works for you, how to make an offer the seller can't refuse, how to save money on homeowner's insurance, why adjustable rate mortgages are hazardous to your wealth - and much, much more!

The Cost Conscious Home Buyer's Guide (John Wiley & Sons,. $12.95 ISBN # 0-471-52656-8). Can you really afford to buy a home without it?

The above information is considered accurate and authoritative with regard to the subject matter covered. It is provided with the understanding that the author is not engaged in rendering legal, accounting, or other professional service. Reproduction of any part of the above without the permission of the author is unlawful.

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