Prepare for the Unexpected – Homeowner’s Insurance

Sometimes life goes in a direction you don’t expect—either positive or negative. So this week, I thought I’d write about one way to prepare for surprises of the unpleasant variety. (Most of us can handle the happy surprises without too much preparation.)

Whether you’re a homeowner or renter, I strongly recommend investing in homeowner’s or renter’s insurance. Why? Because it can help prevent a natural disaster or other crisis from also becoming a personal financial crisis. The standard policy will cover loss from fire damage, which is what most people think of when they think of homeowner’s insurance. However, it will also cover things like having a camera stolen out of your car or the health care bills for the paperboy slipping on your driveway or the UPS guy getting bitten by your dog. It will often cover acts of vandalism and even worker’s compensation for a landscaper who is injured on the job (at your house). The only difference between a homeowner’s policy and a renter’s policy is that the structure is included in the coverage if you own your home.

A home’s insurance value is based on the cost to rebuild the house, not the market value. And even though market values are still down in many areas, rebuilding costs are on the rise. There’s a Guaranteed Replacement Cost endorsement, which is relatively new in the insurance industry and started as a result of the Oakland Hills fire in California several years back. This endorsement is generally 125 percent, 150 percent and up to 200 percent of the dwelling coverage on the homeowner policy.  The purpose of the endorsement is to protect the homeowner against a sudden increase in replacement cost caused by shortage of labor or materials (e.g., a large disaster that causes sudden overcharging due to demand). The coinsurance clause in a policy is generally 80 percent, 90 percent and 100 percent — it requires the homeowner to insure the structure for those amounts in order to be eligible for “replacement cost” protection (no depreciation).

So, your policy will cover part of the cost of replacemeent, and you are responsible for the rest. It’s typically a decent gamble because usually in a disaster, let’s say you’ve got a policy that covers 80 percent. You can probably salvage 20 percent of your home and/or its contents. However, this is also why the insurance company only pays 80 percent of the damage, if only part of your home is damaged. You can pay less for insurance if you have less coverage or a higher deductible, but it’s a risk.

Even more important than getting insurance is reading your policy (even though no one does). The rule is simple, “The large print giveth, and the small print taketh away.” It really is worth knowing not only that your policy will cover worker’s compensation, but the crucial detail that the worker in question must be a licensed contractor for the type of work being done. Your brother’s friend may not be covered to replace your deck, for example.

It’s also important to know exactly what is included. Flood and earthquake insurance are separate and cost more. If your home is in a flood plain (even a 100 year flood plain that hasn’t flooded in anyone’s memory), your lender will likely require flood insurance. For more information, go to

Earthquake insurance is often very costly, and honestly, hard for me to recommend. Typically, there is a 15 percent deductible. This means, if your house is worth $300,000, you’ll pay for the first $45,000 worth of damage. That’s a lot of dough. If the earth opens up and swallows everything you own, then you’ll wish you had earthquake insurance. Otherwise, you’ll be paying expensive premiums and still be on the hook for tens of thousands of dollars if an earthquake hits. (I do feel a little quiver of fear from Murphy’s Law right now – hoping my home will not be shaken to the ground any time soon.)

We have some excellent insurance brokers in Ukiah. If you’re new to homeowner’s insurance, you can ask for a quote from the company that insures your car. If you want to do a little independent research, go to to see if people have filed complaints about the insurance company. If you’d like a recommendation, ask your realtor to provide one.

Next time I’ll write about mediation and arbitration. If there’s something you’d like me to write about or if you have questions about real estate or property management, feel free to contact me at or visit our website at Dick Selzer is a real estate broker who’s been in the business for more than 30 years.


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