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Five tips to ensure your homeowners insurance stands up in a worst-case scenario

Consumer ReportsYonkers, NY – The first six months of 2011 were a tough time to be a homeowner: wildfires in Arizona, New Mexico, and Texas; damaging snow in the Midwest; floods in the Midwest and the Plains; and tornadoes, hail, wind or lightning everywhere east of the Rockies.

Thank goodness for homeowners insurance, right? Yes, provided your insurance coverage was adequate. Consumer Reports Money Adviser spoke to industry groups who found that at least two-thirds of the victims of natural disasters were underinsured.

“Fixing the problem after the fact is a lot harder than taking steps before a loss to make sure you’re properly insured,” said Noreen Perrotta, editor, Consumer Reports Money Adviser. “If you’ve been spared this year’s wicked weather, take your good luck as a sign that you should review your coverage.”

The experts at Consumer Reports Money Adviser have compiled tips to help make sure your coverage stands up in the face of a disaster.

The full story is available here.

Here are some of them:

1. Buy sufficient coverage. According to CRMA, about 64 percent of the homes in the U.S.—48 million — are underinsured. That means the face value of the policy will not be enough to completely reconstruct the dwelling. The average home is now worth 33 percent less than it was at the peak of the housing bubble in 2006, your insurance needs are based on replacement cost, not market price.

Ask your insurance agent for a customized estimate of your home’s replacement cost that accounts for its unique features, construction details, and age. Or for about $8.00, you can compare the results with your current policy at www.accucoverage.com. You should reassess and update your home-insurance needs every few years.

2. Cover major local risks. Standard homeowners policies can leave you hanging in some big ways. They don’t cover damage from floods, earthquakes, sinkholes, and landslides. In some states insurers have hiked deductibles for wind damage from hurricanes, tornadoes, or severe windstorms. To protect your home from those perils, you might need to buy separate coverage, which comes with more caveats; for example, insurance for a specific event could have a specific deductible. And the additional coverage could be expensive.

Don’t forget flood insurance. Even if you don’t live near a river or lake, your home could still be at risk from heavy rains, nearby construction, or accumulated snow and ice that melt in a snap.

3. Shop for the best rate. Check your state’s insurance department website to see if it provides similar rate comparisons. You can also compare rates on insurance-shopping websites like Insure.com, InsWeb, and NetQuote. Or work with an agent who sells policies from multiple carriers. Once you zero in on the companies with the best premiums, scrutinize what they do and don’t cover. Ask your agent or an insurance company representative about policy limitations and exclusions, and find out whether you can buy back any excluded protection with endorsements or riders.

The best way to trim costs is to take the highest deductible in exchange for a lower premium. With this strategy, you’re paying a lower premium year in and year out, betting that you won’t ever need to file a claim. You can also save by taking advantage of discounts for buying auto, home, and other insurance from the same company.

4. Take steps to prevent losses. You can and should take steps to prevent your risk of loss, and insurers might offer discounts for them. For example, eliminate fire and tripping hazards; use surge suppressors to protect electronic equipment from lightning and other damage; and install a burglar alarm. In earthquake-prone areas, make sure your home’s building frame is properly bolted to its foundation.

Chances are that you’ll never need to file a major claim, but if you do, experts say a difficult part of the process is recalling what was lost or stolen. So do an inventory now of your belongings. Include receipts, with videos or photos. Keep copies of important documents in a fireproof safe, a bank safe-deposit box, or with someone you trust.

5. Be smart with claims. The shock of a major disaster can put you at a disadvantage when dealing with an insurance company. Here are some safeguards to reminder:

Stop further damage. If there’s a hole in your roof, have it covered with a tarp to prevent additional damage. But don’t do any repairs until the damage can be assessed by an insurance adjuster.

Read documents carefully. If you get up-front payments for temporary living expenses, don’t sign anything that surrenders your right to collect everything you’re owed.

Work with your insurer. Don’t be combative. First, assess the situation and size up the insurance adjuster, who will be much mores savvy at this negotiation than you.

About Consumer Reports Money Adviser

Consumer Reports Money Adviser is a monthly, subscription-only newsletter that answers tough money questions and provides expert financial advice. Its proven information and successful strategies can make any financial decision an easy one. Each month, CRMA provides feature articles and helpful investment, savings, and spending advice that will help prepare consumers for anything life may bring them. For more information visit: www.ConsumerReports.org.

About Consumer Reports

Consumer Reports is the world’s largest independent product-testing organization. Using its more than 50 labs, auto test center, and survey research center, the nonprofit rates thousands of products and services annually. Founded in 1936, Consumer Reports has over 8 million subscribers to its magazine, website and other publications. Its advocacy division, Consumers Union, works for health reform, food and product safety, financial reform, and other consumer issues in Washington, D.C., the states, and in the marketplace.


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