A lack of attention to homeowners insurance can be financially devastating, yet a recent survey commissioned by Fireman's Fund Insurance Co. has revealed a troubling lack of coverage knowledge among homeowners.
"The survey findings show a critical need for homeowners to communicate with their insurance agents and learn what their policies actually cover and when they should be updated, to ensure they are fully protected in the event of a disaster," said Scott Garfield, vice president of Fireman's Fund. "Homeowners also need to know that all policies are not created equal, and to understand the array of insurance options available in comparison to their current coverage before they are faced with costly disasters."
Although their homes represent a major component of their total net worth, even affluent homeowners fail to spend sufficient time managing their insurance coverage, Fireman's Fund noted. The survey revealed that only 37 percent of respondents could answer correctly six of the 12 questions about basic coverage on their policies. These include the maximum amount of stolen cash that would be reimbursed if a home were burglarized, and what the most frequent cause of insurance claims is for homeowners' losses.
There also is a disparity between what homeowners think is included in their coverage and what actually is covered. Of those polled, 88 percent said that they know what their homeowner's policy does and does not cover. Further questioning revealed, however, that many assumed that their homeowner's policy covered more property than would be covered in the event of a disaster.
"We found that two-thirds of those surveyed believed that their policies would provide home replacement of like kind and quality in the event of major losses," said Garfield. "Yet, we know that the most common homeowners policies sold in America (the generic HO3 policy) do not automatically cover extra construction costs caused by code changes and other unexpected costs, which oftentimes are significant, when homes are completely destroyed."
Most standard homeowners insurance policies do not automatically provide complete replacement cost coverage. "Unfortunately, many homeowners assume that they are completely covered, only to find out that they are underinsured after a dramatic loss has occurred," said Garfield.
According to the survey, most affluent homeowners spend far more time managing their investment portfolios than they do staying on top of the insurance coverage for their homes. Respondents spend an average of 4.7 hours per year managing their insurance coverage on their physical assets, including their homes, compared to the seven hours per month spent on their investment portfolios. This is true despite the fact that, for 47 percent of respondents, the value of their non-financial assets exceeds the value of their investment portfolios.
"Frankly, we believe most respondents polled nationwide probably spend more time updating their home computer virus software or even planning their vacations than they do protecting their largest personal asset, their homes," said Garfield. "This surprising lack of attention to homeowners insurance can be financially devastating, especially for those who fell victim to the recent weather catastrophes."
Although 94 percent of the survey respondents said that they were aware that the value of their homes had increased during the past five years, 27 percent had not increased their insurance coverage. Given the inflation in housing prices across the country, more people in are finding themselves in the position of having their residences becoming even more valuable assets. In some states, such as California, strong real estate markets saw housing values jump more than 20 percent from the previous year. In addition to the rise of property values, home reconstruction and replacement costs also are climbing at a steady rate. With a healthy rise in new construction, recent hurricanes, and ongoing trade disputes, the cost for lumber, plywood, and other building materials is continuing to rise.
Without the right insurance coverage, homeowners may see these extra costs coming straight out of their own pockets, Fireman's Fund warned.
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