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Is
Your Home Underinsured?
The
truth is that two out of three U.S. homes don't have enough
insurance coverage in case of disaster. Find out if yours
is one of them.
You check the balance
on your 401(k) regularly and watch the ups and downs of the
stock market on CNN. But when was the last time you checked
whether the insurance on your home -- which may be worth more
than all your savings accounts combined -- was adequate? About
59 percent of U.S. homes are undervalued by an average of
22 percent, according to Marshall & Swift/Boeckh, a company
that tracks building costs. That can add up to serious financial
trouble. See if you fit into one of these common categories
of underinsured homeowners.
THE
REMODELERS
Elizabeth and Jonathan Ray might as well call the home
improvement store in Savannah, Georgia, their second home.
In 2002, after buying a 36-year-old, 1,800-square-foot fixer-upper,
this young couple put on their tool belts and got to work.
"It was, for lack of better words, just terrible," says Elizabeth.
"It had no flooring, the previous owners were smokers, the
front door wouldn't open, the air conditioning was nonfunctional
and the roof was leaking."
The couple
gutted the kitchen, removed walls to improve the floor plan,
remodeled all three bathrooms and installed a roof and new
electrical wiring. Three years later, they finished the house
and their most important project -- the addition of daughter
Kirsten Elizabeth to their family.
But one
day Elizabeth looked around and wondered about the limits
on their homeowners policy, which was based on the condition
of the house when they bought it, leaks and all. "I guess
it had to do with the hurricanes in Florida," says Elizabeth.
"We've had hurricane threats, but we haven't been directly
hit since Hurricane David in '79. We've been saying we're
blessed, but we're way overdue."
She called
MetLife Auto & Home and was shocked when calculations showed
that the cost to rebuild her house was more than double the
limit on her existing policy, which was with a different insurance
company. Increasing her house's limit in turn bumped up her
contents limit, which is typically estimated at 50 to 70 percent
of a building's value. "If I'd had a fire, I'd have been completely
out of luck," she says. "It could have destroyed us."
Every
day there are more people like the Rays in the home improvement
center aisles. According to the Joint Center for Housing Studies
at Harvard University, American homeowners spent $176 billion
on home remodeling in 2003. Record-low interest rates have
helped fuel the home improvement craze.
Potential
Problems. When home improvements aren't reported to the
insurance company, your home may be left undervalued and underinsured.
If you've kept quiet to save on your premium, that plan would
backfire: In the event of a disaster such as a fire, all your
hard work may literally go up in smoke, and there might not
be enough money for the improvements to be covered.
"Underinsurance
has become a front-burner issue," says Robert P. Hartwig,
chief economist for the Insurance Information Institute (III).
He says that awareness of underinsurance has grown because
of "major natural disasters -- such as the recent wildfires
in California or Hurricane Katrina -- and tales of people's
recovery, which has been impaired because of inadequate insurance
in many cases."
Smart
Solutions. Once a year, do a policy review with your insurance
representative or agent. They can calculate how much it would
cost to rebuild your house -- including that upgraded master
bath and gourmet kitchen -- then make sure your insurance
policy covers you for 100 percent of that amount. "When you
buy a car, the first thing you do is call your insurer because
you can't drive a car without it," says Hartwig. "But when
many people spend the equivalent of a new car on their home,
they don't call their insurance company. That's a prescription
for disaster."
THE
BEEN-THERE-FOREVER NEIGHBORS
When Teresa Hoopman of Hastings, Minnesota, built her
custom home back in 1987, she was instantly smitten with the
property. "It's location, location, location," says Teresa,
who retired in 2004 and married her true love, Dale. "I overlook
the bluffs of the Mississippi and can see the river." More
than 18 years after moving in, she's amazed at the recent
surge in real estate prices: Several houses in her neighborhood
have sold for more than $400,000.
With prices
soaring, Teresa wondered if her house was underinsured, especially
because she hadn't updated her policy in years. Teresa isn't
alone: Almost 40 percent of Americans haven't updated their
homeowners policies within the last three years, according
to a 2004 poll conducted for the Insurance Information Network
of California. Although Teresa's policy review with MetLife
Auto & Home showed that she was properly insured, other homeowners
discover problems not because of their home's higher market
value but because of today's higher costs of construction.
Potential
Problems. If the last time you looked at your homeowners
policy was when you bought your house, chances are that the
limits on your policy haven't kept pace with current construction
costs, which continue to rise. Take this example from III:
A house purchased 10 years ago and insured for $100,000 would
cost $134,000 to rebuild today, assuming a modest 3 percent
annual inflation rate in costs.
The super-heated
real estate market does bear an important reminder: The insured
value of a house is not the same as its market value. "People
need to understand that they're insuring their home for rebuilding
or replacement -- not the land -- and that land is what's
driving up real estate costs in this day and age," says Hartwig.
He says it used to be common practice to insure a house for
80 percent of the purchase price. "That's gone out the window,
because the land has become more of a share of the value."
What does that mean to you? A house that is located in southern
California where land is scarce may sell for $750,000, but
the actual cost to rebuild it may be only $400,000.
Smart
Solutions. When you do your policy review, add an inflation
guard clause to your policy. This automatically adjusts your
policy each year to keep pace with construction costs in your
area. Also ask if your policy offers replacement cost, which
covers the cost to rebuild your house. Policies that offer
actual cash value are less expensive, but they will only reimburse
you for the depreciated value of your house, and that will
never be enough to rebuild from scratch.
THE
OLD-HOUSE LOVERS
The appeal of the 1930s Chicago-area bungalow was clear
to newlyweds Michelle Ziemba and Steve Wascher, who bought
their first house five years ago. "It has great wood floors,
crown moldings and stained-glass windows in the living room,"
says Michelle. "The appreciation has gone up so much that
we were able to refinance and get rid of our private mortgage
insurance. We've refinished all the floors, redone closets,
renovated the kitchen and replaced windows, and we did a big
plumbing job last summer."
Although
Michelle was sure that her policy was out of date, a review
by MetLife Auto & Home showed that her house had adequate
coverage.
Potential
Problems. Older homes, especially if they are historic,
present unique insurance challenges. Often, these homes feature
better craftsmanship and higher-quality materials than those
used in homes built today. And details such as high-grade
wood floors or an elaborately detailed and painted Victorian
wood exterior can be much more expensive to replace than modern
vinyl tile and siding. That's why it's important to discuss
unusual architectural details with your insurer and make sure
there is enough insurance to cover their replacement.
Smart
Solutions. Calculating the cost to rebuild a house is
as easy as multiplying the local building cost averages per
square foot times the number of square feet in a house. But
that's far from the entire story. Tell your insurance company
about the presence of items such as wood floors, high-end
wall coverings and custom windows.
Owners
of older homes also should consider ordinance or law coverage.
It covers the added costs of bringing an old home up to current
building codes and laws, if necessary. So if that 1920s Craftsman
house doesn't have a foundation that's up to code, this coverage
pays to get it there.
DO
A FREE HOME CHECKUP TODAY
Whether or not you currently have your homeowners policy with
MetLife Auto & Home, you can benefit from a policy review.
The review will take about 20 minutes, and the customer service
representative will determine the proper cost to rebuild your
home. You'll want to have the following information on hand:
- Year
built
- Square
footage
- Interior
wall finishes (drywall, knotty pine or tile, for example)
- Floor
finishes (carpet, wood, ceramic, etc.)
- Recent
upgrades · Number of bathrooms
- Roof
type (slate, composite, shingles, etc.)
- Anything
that makes your home unique, such as arched windows, hand-carved
moldings or ornate fireplaces
MetLife
Auto & Home is one of the few insurance companies that offers
replacement cost settlement (Coverage A Plus*), which covers
the full cost to repair or rebuild your house. MetLife Auto
& Home also offers inflation guard protection. Ask about these
additional coverages when you have your policy review or speak
with your MetLife Auto & Home agent or representative for
details, or call 1-800-GET-MET1.
*Available
in most states.
GET
THE ADVANTAGE WITH METLIFE AUTO & HOME
FEWER WORRIES WITH COVERAGE A PLUS!
With MetLife Auto & Home's Coverage A Plus, your homeowners
coverage automatically equals the replacement cost of your
home at the time a claim is made. That's true even if that
cost exceeds the limit of liability shown on the declarations
page. You have less to worry about in the event of a disaster
because your insurance will cover the current cost to rebuild
your home. MetLife Auto & Home is one of the few insurers
to offer this valuable coverage. In addition, all of our home,
condo and renters policies include Inflation Protection to
keep your coverage in line with rising building costs.
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Special
Offer!