MADELYN FLANNAGAN GOT THE SHOCK OF HER LIFE IN two installments. The first came when a friend visiting her at home began looking at two figurines from her $25,000 porcelain collection. "One minute he had them in his hands--the next they were in pieces on the floor", recalls Flannagan. No big deal, she thought. While the pieces were worth $5,000, having appreciated more than 200% since she bought them in 1974, Flannagan assumed her homeowner's insurance would cover the loss.
Not so. Flannagan was in for a second shock when she filed her claim. Her insurer would pay no more than $750. "Anything you think of as part of your everyday life, you really don't consider insuring," admits Flannagan, a consumer advocated for the Independent Insurance Agents of America. "I made a big mistake just assuming my coverage would take care of it."
Sadly, Flannagan's story is a typical one. True, she did have homeowner's insurance. In fact, most lenders won't issue you a mortgage unless you're covered for the price of their investment, which just happens to be the value of your home. But after years of accumulating appliances, stereos, televisions and even a few luxury items like jewelry, furs, collectibles or objects d'art, you'll find that whatever coverage you have quickly falls short of the replacement value of your prized possessions. "The thing is, people are usually to tolerant of risk until they've had a loss," says Deborah Gaunt, an instructor of risk management insurance at Georgia State University in Atlanta.
Deciding whether you need additional insurance coverage doesn't have to be a daunting process. Actually, according to the Insurance Information Institute, there are three triggers you should consider to determine if you'll need to up your coverage: any major home improvements (e.g., upgrading fixtures or appliances in a bathroom or kitchen), a lifestyle change (an adult child or parent with possessions moving into your home) or major new purchases (dining room furniture, expensive appliances, jewelry or furs, for example). Here's what you'll need to know to shore up your coverage and save money while doing it.
ARE YOU AT RISK?
Essentially, the standard homeowner's policy protects you if your house is damaged or destroyed. It also protects you from being sued should someone be injured on your property. At the same time, homeowner's policies go one step further to cover what's inside your home. Typically, personal belongings such as clothes, valuables and appliances are insured for 50%-70% of the amount of coverage you have for your home's structure. So, if your home is covered for $100,000, then you can count on an additional $50,000-$70,000 coverage for the items inside.
Where homeowner's insurance gets complicated is in valuing what you own. Under your basic policy, you're probably automatically covered for what's, called "standard dwelling replacement cost." That means if by some catastrophe your home is destroyed, the most an insurance company is obliged to pay out is only "stated value" -- the amount insurers determine your home is worth, factoring in the style, structure and location. Using those criteria, a $100,000 policy with the standard deduction of $250 will cost about $400 a year.
The problem in the real world is that the cost of rebuilding your castle and replacing your cherish, items isn't static. Construction costs rise. Jewelry increases in value. Art appreciates. And although those prices may climb, your standard policy won't budge a bit to cover the bill. That's when it pays to review your coverage.
Jeanette Gilchrist Cary, 43, a pharmacist in Columbia, South Carolina, had been married just over a year when she lost her $3,000 marquis-cut diamond engagement ring. Although she scoured every inch of the house for weeks, nothing turned up. That's when she turned to Lorenza Breedlove, an agent with Nationwide Insurance.
"Cary was fortunate enough to have had the ring appraised soon after she received it," says Breedlove. At the same time, she had boosted her homeowner's policy with additional jewelry coverage for another $75 a year. Within two weeks, Nationwide had replaced her engagement ring. According to Breedlove, if Cary didn't have additional insurance covering her engagement ring, she would have recouped only $1,000 or so.
BUYING ABOVE AND BEYOND THE BASICS
Like Cary, you shouldn't settle for the shortcomings of the most basic of homeowner's policies. To start, you should carry guaranteed replacement coverage, an enhancement that generally adds no more than 10% to your premium. Under guaranteed replacement policies, insurers agree to pay 100% of the cost of completely rebuilding your home--even if it exceeds the amount listed on the policy. The cost of the insurance depends on a variety of factors, such as the age of your home, the material it is made of and whether it is located in a high-risk area prone to natural disasters like hurricanes or earthquakes.
That covers the four walls, but what about Your creature comforts? For that, you also have the option of getting replacement-cost coverage for your personal items. The problem for many people is figuring out when to get additional coverage for personal items. As you accumulate more family heirlooms, jewelry or antiques, or start collections, standard coverage can quickly fill short of your needs.
As a launching point, consider this: ordinary homeowner's policies assume that whatever you have covered will not be worth more than what you paid for it. Insurance companies generally pay actual cash value, a way of calculating depreciation into whatever they have to fork out for your claim.
For example, let's say the winter wardrobe you've collected over the years was destroyed in a fire and it would cost $20,000 to replace it. Your insurance company would probably pay less than $10,000 because of the rapid depreciation of clothing over time. But just as you can buy replacement cost coverage for your home, you can do the same for your possessions, which would pay you the actual $20,000 it costs to replace the same or comparable items.
While that works for clothing and other basic items, it's probably not enough for your most prized possessions. What if you've bought an important piece of art, or you have an antique lamp whose coverage isn't limited? Even replacement cost coverage of your home won't cover jewelry, money, guns and other items that are worth more than the special liability limits written into standard policies.
For example, coverage of jewelry losses is limited to about $1,000 (depending on the insurer) on most policies. So, if you lose your $3,500 diamond engagement ring, even if you have replacement cost, the most you can recoup is around $1,000. Lose your coin collection and the most you can collect is about $200. Say you had a 100-year-old 2 cent stamp. The replacement for that stamp would be a 32 cent stamp. If the stamp were a collectible and had increased in value beyond 32 cents, you'd be out of luck.
The fact is, most homeowner's policies limit coverage of items like jewelry, stamps, guns and silverware. Jewelry, for example, is covered for $1,000-$2,500. For additional insurance on these types of valuables, you have to buy enhancement insurance with your basic policy.
A NEEDED BOOST
One way to get additional coverage for your property is to purchase what's called a "floater" or "endorsement." Endorsements basically expand your homeowner's policy to provide broader coverage. Additionally, there is usually no deductible applied in the event of a loss. And when you purchase an endorsement, there's usually no haggling with the insurance company when you place a claim. "With a standard policy, the insurance company may try to buy a replacement for the least amount of money possible," explains Bill Glascock of Independent Brokers and Agents of the West.
But beware of the extra cost. In exchange for broader coverage, you have to pay an additional premium every year based on the value of the item. At some companies, for instance, coverage of jewelry costs an additional $10.20 per $1,000 insured. For collectible items (wine, dolls, sports memorabilia, trains, etc.), you can count on shelling out less--around $4.50 per $1,000 worth of coverage annually. For furniture and art, the cost ranges from 90 cents to $4 per $1,000. That's because both furniture and art are less expensive to insure since they aren't as susceptible to loss.
In the case of the Smiths, a Brooklyn, New York, couple, a floater added only $100 to their policy premiums to insure a $75,000 antique collection that included 19th century antique furniture. "Over the last 10 years, we started buying furniture that went along with our 1884 brownstone," recalls wife Tonia. "It's furniture we use every day, so we never thought of insuring it until we realized we had some museum-quality pieces."
You should be sure, however, that the item you're covering really is appreciating in value. Your grandmother's first friendship ring may be of great emotional value to you, but paying extra to insure it only makes sense if its value increasing. "It's a waste of energy and money to get additional insurance when contents are not gaining significantly in value and possibly depreciating," explains Richard-Raymond Alasko, a fine arts specialist and vice president at the American Society of Appraisers in Chicago.
DETERMINING WHAT IT'S ALL WORTH
That still leaves one question unanswered before you start paying an extra premium. Just how much are your valuables worth? Count on having your valuables appraised regularly to document the value of each item once you decide to pick up a floater to boost your coverage. Otherwise, you can't get an endorsement or floater until you've done so. Although having your possessions appraised is not required for regular homeowner's policies, you must adjust the limits as your property value changes regardless of which insurance carrier you have.
For Edward and LaRue Howard of Yorba Linda, California, appraisal is a process they've repeated several times over the years. That's because the couple have moved every three or four years for the past 15 years due to Edward's job as a regional president for J.C. Penney. Each time they move and buy a new house, LaRue, a semi-retired teacher, has her $15,000 jewelry collection reappraised for the endorsement on their homeowner's policy.
It's a habit they got into 10 years ago when Edward presented LaRue with a new wedding set for their 25th wedding anniversary. The two-karat diamond solitaire ring with baguettes was valued at over $10,000. But their State Farm Insurance homeowner's policy limited jewelry coverage to $2,500 in total and a maximum of $1,500 for any one item. There was no avoiding an upgrade.
The Howards have additional coverage only for LaRue's major pieces; all other jewelry is covered under the standard homeowner's policy. The Howards' State Farm insurance agent, Roy Jefferson, says chat's the best way to do it. "Insuring jewelry can get very expensive since it's one of the main items thieves look for. It can cost more to insure $50,000 worth of jewelry than it would to cover an entire house full of furniture."
So, just how do you go about appraising material, and how do you find someone you can trust? Often, it's possible to get a written description and appraisal of your treasure--be it a musical instrument or a diamond necklace--from a shop chat specializes in that merchandise. You can also opt to send it to a professional appraiser. The American Society of Appraisers (703-478-2228) or the Appraisers Association of America (212-889-5404) can put you in touch with a reputable appraiser in your area.
ENDORSEMENTS VS. STAND-ALONE POLICIES
While increasing your coverage with an endorsement works in many cases, sometimes it's impossible to get insurers to back up certain types of property. That's what happened to one of Bill Glascock's clients, a couple who inherited an original Tiffany lamp with an appraised value of $500,000. At first, the couple tried to get an endorsement attached to their home insurance policy, but the insurer refused. "No homeowner's policy would cover it because it could be easily stolen, marred, scratched or broken during an earthquake," says Glascock. "We suggested that our client put it in a museum, but they didn't want to." So, to safeguard their prize, the couple got a stand-alone policy separate from what they had on their home with a $5,000 deductible that covered against anything that could happen to the lamp. "It was the most unusual situation I've had." says Glascock. "Their lamp was worth more than their home."
You might also get a stand-alone policy if you prefer working with a company that specializes in insuring items like yours. That's what Madelyn Flannagan did after her porcelain pieces were destroyed. "I bought a policy through American Collectors Insurance Agency after seeing an advertisement in a trade publication," she recalls. Flannagan compared what the special policy offered to what she'd get in an endorsement policy from her home insurance company. She decided to go with American Collectors' stand-alone policy for $750 annually, even though additional coverage via a floater with her homeowner's insurer, Erie Insurance Co., would have cost only $500 a year. "They [American Collectors] helped me find appraisers to get the accurate value of the collection, and they offered repair/replacement services and an all-risk policy," she recalls. While an Erie Insurance Co. endorsement would have covered all risks, Flannagan would have had to track down any replacement pieces on her own if there were a loss.
While stand-alone policies are similar to endorsements, their premiums are generally higher. But there are times when a stand-alone policy is the only option. For example, if you own an item or a collection your insurance company doesn't have experience in covering, your request for a floater might be denied. Another thing to keep in mind is that many insurers won t extend your stand-alone coverage unless you have a homeowner's policy with them. That's because there isn't room for much profit. For example, if you have a $5,000 stamp collection, many insurers won't cover you because they'll charge $200 to $300 a year, but it will cost the company the same amount to issue the policy.
Whether you're looking for homeowner's insurance with an endorsement or even a stand-alone policy, it makes sense to shop around. Be sure to check with an independent agent who works with several insurance companies. He or she will be able to compare prices and coverage, since in some cases standalone policies are less expensive and offer better terms and conditions.
According to Bill Feldhaus, an insurance instructor at Georgia State University, premiums aren't always steep. That's because companies offering these kinds of specialized policies usually don't lose money. "People who have this insurance have appropriate loss-prevention methods to protect that property," he explains.
For more information, the Insurance Information Institute has updates, a consumer helpline and a bulletin board with a list of publications available at www.iii.org or call 800-942-4242. Three helpful brochures you can download are Insurance for Your House and Personal Possessions: Deciding How Much You Need, Am I Covered? and Taking Inventory.
RELATED ARTICLE: INSURANCE FOR RENT
What renters need to know
Most renters don't carry or don't know that there is renter's insurance to protect their personal belongings. While your landlord may have insurance to cover the building, it won't cover your destroyed belongings. That goes for co-op or condo owners as well.
Mattie Goode knows this firsthand. The Columbia, South Carolina, resident lost her home to fire 10 years ago. Luckily, she was able to wake her sleeping grandchildren and get them out of the house safely. She lost all her personal belongings, which she estimates to be worth over $50,000. That included antique furniture--bedroom sets, dining room sets, an antique buffet and china closet that had been in her family for two generations, along with all her clothing, linens and kitchenware, Ironically, she had made an appointment to buy renter's insurance that same day. "When the agent came by to see me, he sat down in my daughter's kitchen and cried with me," she recalls.
Renter's insurance also covers liability. If you opt for about $40,00 worth of coverage for your possessions and $300,000 in liability, expect to spend about $150 a year. You have the same choice as homeowners do between replacement cost and cash-value coverage. And, if you own jewelry or antiques that won't be fully covered, consider getting an endorsement policy as well. The Insurance Information for renters also has brochures for renters and owners, including Here Today, Gone Tomorrow.
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|Title Annotation:||Insurance; also includes advice on what renters need to know; when to increase your homeowner's insurance coverage|
|Article Type:||Cover Story|
|Date:||May 1, 1998|
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