HOME & PROPERTY INSURANCE TOPICS

REPLACEMENT COST COVERAGE: A WISE INVESTMENT

I just bought a home and would like to insure it against damage or destruction. How can I be sure I will financially be able to repair or rebuild it in the event of a catastrophe, such as a fire?

Insurers generally recommend you insure your home for its full replacement cost which means that it be insured under a homeowners policy for 100 percent of the cost of repairing or rebuilding it at the time this becomes necessary. If you purchase a guaranteed replacement cost endorsement you would receive the full amount you need to rebuild, regardless of inflation.

Most insurers require you to insure your home for at least 80 percent of its replacement cost to receive full coverage on a partial loss. It is wise, however, to insure your home for its full replacement cost; insuring it for less could prove quite expensive should you incur a major or total loss.

If there is a fire in my living room will my homeowners or renters insurance automatically pay for the full cost of replacing my furniture?

No. Unless you have replacement cost coverage on your personal property and possessions, your furniture is insured only for its actual cash value which is its replacement cost at the time of loss minus depreciation of its value and any deductible applying to your policy. So, that sofa and love seat you bought three years ago for $1,200 might only have a depreciated value of $700 now. Your insurance company will only pay you the $700, less your deductible, of course, for new furniture even if those items cost you $1,400 today to replace.

If you have replacement cost coverage on your personal property and possessions you would receive the $1,400 or whatever it costs to replace the furniture with that of equal value less your deductible.

Replacement cost coverage protects you from both depreciation and inflation. It usually is available at a nominal charge in addition to your homeowners or renters insurance and is well worth the investment.

What isn’t covered under most homeowners and renters insurance policies?

The following items usually are not covered:

• motor vehicles;
  
  
• commercial buildings on your property or buildings you rent or lease to others except a private garage;
  
  
• pet injuries or damage to your property caused by your pets.
  

Jewelry, coin collections, silverware, furs and other valuables that are particularly vulnerable to theft are covered up to a specified limit.

Special riders or endorsements often can be added to your insurance policy to cover some of these items.

Additionally, many homeowners and renters policies do not cover perils such as nuclear accidents, earthquakes, war, floods, mud slides and certain acts of God.

How do I determine the replacement cost of my home and belongings?

Your professional insurance agent can help you with this on an annual basis. They have information and the necessary tools including multiple types of questionnaires and personal inventory forms that can help you determine the replacement value of your home and possessions, and select the best coverage for you.

Is the replacement cost the same as the price I paid for the house?

Not necessarily. When you purchased your house you also purchased the land the house is on. Your homeowners insurance does not provide coverage for the land. Also, if you do suffer a total loss of your house included in the replacement cost are items you would not normally think of such as excavation costs and architect fees.

When your house originally was built, the contractor probably built more than one house at a time and took advantage of the economies of scale. The increased volume allowed the builder to purchase many of the necessary materials at a lower rate. When your home needs to be re-built, your builder will not have that luxury, so the cost for materials could be greater.

Also, as mentioned earlier, excavation costs now are involved before a new home can be re-built,. The old one must be demolished and removed. These are just a couple of reasons for the difference between replacement cost and purchase price. Contact your agency for further information.

HIGH RISE RESIDENTS HAVE UNIQUE FIRE PRECAUTION CONCERNS

Fire is, perhaps, the most common disaster that can befall any homeowner or apartment dweller. Those who live in a high rise building, whether in an apartment, co-op or condominium, have special concerns requiring special precautions. Fire fatalities usually are caused by smoke and intense heat, not flames. It is crucial to know how to get out of your building quickly and safely; it could mean the difference between life and death. First, always know your exit escape routes, and be sure they are clear of anything that might impede your evacuation. Then observe the following tips:

What if fire breaks out in my dwelling?

Remain calm, exit the dwelling, take your key and close the door behind you. Activate the closest fire alarm and leave the building by the stairwell. Never use elevators during a fire.

What if the building fire alarm sounds?

Before opening your door, use the back of your hand to touch the top of the door and door handle. If they feel hot or warm, don’t open the door because fire could be right behind the door. If the door is cool, open it slowly. If the hall is clear of smoke, exit and close the door behind you and leave the building by the stairwell, not the elevator.

What if my exit is blocked by smoke or fire?

Remain calm. Keep your door closed but unlocked; seal the door jamb with duct tape then place a wet towel across the bottom to keep smoke out. Call 911, tell them your location and situation. They will give you further instructions.

What if smoke already has entered my dwelling?

Remain calm and keep low, below the smoke. Call 911 and tell them you’re trapped by smoke. If you have a balcony, stay low and go outside, closing the balcony door behind you. If you don’t have a balcony or can’t get to it, go to a window and open it fully. Hang a towel or blanket out the window so the fire department will know you are trapped. Stay low and wait for rescue.

What are my insurance considerations?

Tenants of high rise buildings and owners of high rise condominium or cooperative units have the same risk of loss to personal property located in these residences. A tenant may purchase a tenants policy, and condominium and cooperative owners may purchase a unit owners policy. While personal property is covered the same by both types of policies, the unit owners policy will provide additional protection for building property the policyholder is responsible for. There are many different optional enhancements that may be available with these policies such as:

• replacement cost,
  
  
• added assessment coverage,
  
  
• scheduled personal property, and
  
  
• broader perils including the addition of earthquake protection.
  

Contact your insurance agency for details.

ANSWERS TO QUESTIONS YOU MAY HAVE BEFORE GOING ON VACATION

How can I secure my house or apartment while I’m away?

Create a lived in look to deter burglars. Do this by:

• stopping newspaper and mail deliveries;
  
  
• asking a neighbor to park a car in your driveway occasionally;
  
  
• putting lights on a timer or asking a neighbor to turn lights on in the evening;
  
  
• using a telephone answering machine or call forwarding to quiet ringing telephones. And,
  
  
• making sure all windows and doors are locked to make entry difficult for intruders.
  

If my home is burglarized or damaged by fire are all of my possessions covered?

Under a standard homeowners insurance policy for a single family home, the contents of the home normally are covered for at least 50 percent of the amount of insurance on the building ($50,000 contents coverage on a house insured for $100,000).

A renters policy is written for a specified dollar amount based on what you own to cover the loss of personal belongings in your apartment. There are, however, special limits of liability on certain items in certain situations. Typically, there is a:

• $200 limit on money and $1,500 on securities, passports, tickets and stamps.
  
  
• $1,500 limit on watercraft, trailers and outboard motors.
  
  
• For fine jewelry, furs and watches that are stolen, a usual limit of $1,500 is set. And,
  
  
• there is typically a $2,500 limit for theft of guns and a $2,500 limit on theft of silverware, gold ware and pewter ware.
  

A home inventory is important should you become the victim of a fire. The inventory is a list of possessions, including makes, models and serial numbers. Photographs or of your belongings are other ways of recording what you own. These should be kept in a safe place, a house or apartment so they would not be lost in the event of fire.

What if the items I take with me on vacation are stolen?

Your belongings generally are covered by your homeowners or renters policy anywhere in the world including items in storage facilities, suitcase contents and items lent to friends. Exceptions to this are items usually kept at another residence of yours which would be limited to the greater of $1,000 or 10 percent of the personal property limit shown on your policy. Some restrictions also apply to theft. Typically, you should have another policy to cover all the eligible property at that location including loss by theft.

Some homeowners or renters policies may limit coverage for items kept in a self storage facility. Most homeowners or renters policies would be limited to the greater of $1,000 or 10 percent of the personal property limit shown on your policy. Prior to storing items check with your agency to determine your applicable coverage limit.

We’ll be traveling by car on vacation. Do you have any suggestions?

Check with your agency to make sure that your policy is up to date, and make sure the car is in good running condition. While traveling, be sure your passengers wear seat belts and young children ride in car seats at all times. Also, keep cameras, purses and other valuables with you while on vacation; never leave them in the car.

I plan to rent a car for this trip. Is it necessary to buy the insurance the rental agency sells?

It may not be. Prior to leaving for vacation check with our agency to determine if your personal auto insurance policy covers damage to a rented vehicle as many policies do.
You may want to contact your major credit card company to ask if a rental car charged to that account is covered for damage. If you don’t have one of these pre-existing coverages, it may be wise to purchase insurance from the rental agency.

FLOOD DAMAGE: IS MY HOME COVERED?

Is my home insured for damage that may result from flooding caused by a hurricane or other storm?

Not necessarily. Generally, coverage provided by a standard homeowners policy does not include damage caused by flooding or mudslides. It is important to note this type of damage could be extremely destructive to your property and without insurance you could be devastated financially.

How can I get insurance coverage so I’m protected for flood damage from a natural disaster?

First, contact your insurance agency. They have access to comprehensive information and can help you determine if you need flood insurance. Throughout the United States, more than 20,000 communities participate in the Federal Emergency Management Agency’s National Flood Insurance Program which offers flood insurance. An NFIP policy typically includes coverage for:

• removing contents;
  
  
• sandbagging to reduce damage;
  
  
• repairing flood damage and rebuilding;
  
  
• clearing away debris and mud; and
  
  
• compensating for personal belongings.
  

How much protection can I get?

You can obtain flood coverage up to $250,000 on your home, $100,000 on its contents.

Is flood insurance really necessary?

That is a question you should discuss with your agency. However, you should know that lending institutions may require flood insurance as a condition of securing a mortgage, home improvement loan, home equity loan, etc. Flood insurance is also a prerequisite for receiving federal disaster assistance when property is located in a special hazard area.

It is important to note that not only high risk areas are prone to flooding. Flooding can occur anytime and anywhere. As a rule of thumb, a flood is defined as water which covers two acres, or covers more than the policy holder’s own property. One-quarter of NFIP claims come from outside high risk flood areas.

How can I prepare for a catastrophe such as flooding?

Along with obtaining flood insurance protection, you should heed storm warnings and follow evacuation procedures such as:

• boarding up windows and storing outside items inside;
  
  
• shutting off utilities; and
  
  
• preparing an emergency kit that contains food and water, a portable can opener, clothing, blankets, flashlights, first aid supplies and a battery operated radio.
  

Also, maintain a current household or business inventory of your property and possessions and keep it in a safe place such as a safe deposit box. An up to date inventory will prove useful when filing your insurance claim.

Can I buy flood insurance at any time?

Yes, but in most cases there is a 30 day waiting period between the time flood insurance is purchased and the time coverage is in force.

Would flood insurance cover seepage of water into my basement?

It would in certain circumstances. An NFIP policy covers the “unusual and rapid accumulation or runoff of surface waters ....” So, if there is no surface water, there is no coverage. Water that enters the home through the ground below the surface is not a covered flood if it also does not accumulate on the surface. Water that “seeps or leaks on or through the covered property” is only covered “if there is a flood in the area and the flood is the proximate cause of the ... seepage of water.” There is no coverage for damage in basements when caused by ground water seepage.

Does flooding have to occur from a storm in order to be covered?

NFIP flood coverage includes the “unusual and rapid accumulation or runoff of surface waters from any source.” This could be a broken water pipe, a discharge from an above ground pool, a blocked storm drain or a ruptured water
storage tank.

What determines the rates for flood insurance?

Besides the limits and deductible you choose the following factors will determine your flood policy rates:

1. Whether your community is participating in the Emergency Program or the Regular Program. Most are in the Regular Program.
   
   
2. The location of your home on the Flood Insurance Rate Map (FIRM);
   
   
3. When your home was built—whether before or after the first FIRM was drawn;
   
   
4. The distance (in ± feet) between the lowest floor of your home and the Base Flood Elevation (BFE); and
   
   
5. The type of home, e.g., one or two floors, split level, basement, etc.
   

Flood risk information presented on FIRMs is based on historic, meteorological, hydrologic and hydraulic data, as well as open space conditions, flood control works and development.

Using information gathered in engineering studies, the Federal Emergency Management Agency designates Special Flood Hazard Areas (SFHAs) on the FIRM. This includes those areas subject to inundation by a flood that has a 1 percent or greater chance of being equaled or exceeded during any given year. This type of flood is referred to as a base flood.

A base flood has a 26 percent chance of occurring during a 30 year period, the length of many mortgages. If your home is located in a SFHA consisting of rating zones A and V, your rates will be higher than those in low to moderate hazard areas consisting of rating zones B, C and X.

FIRMS are in the process of being revised by FEMA, particularly in communities located in coastal areas. If the FIRM changes in your community the rates you pay in the future may be affected.

How can I avoid paying higher premiums when flood maps are revised?

The most effective way is to raise the lowest floor of your home well above the minimum elevation which is the Base Flood Elevation level. A good time to do this would be when the home is being repaired, renovated or reconstructed. After an insured flood loss has occurred, your flood policy could pay up to $30,000 for costs to bring the home into compliance with building codes. Also, if your home has been designated by FEMA as a Severe Repetitive Loss property, you could be offered grants that pay up to 75 to 95 percent of the mitigation costs.

Flood facts:

On the eastern coast of the United States, flooding occurs mainly during hurricane season which runs primarily from June through October. Hurricanes affect coastal and inland areas. These areas can be inundated by torrential rains that result in widespread flooding. FEMA estimates that 75 percent of households located in federally designated special flood hazard areas carry no flood insurance.

More flood information is available at:

http://www.ready.gov/floods and

http://www.floodsmart.gov/floodsmart/

Your Professional Insurance Agent …
We want you to know about the insurance you’re buying.

Alan Plafker

• President of Member Brokerage Service LLC, A Melrose Credit Union Service Organization

• Licensed Insurance Broker

• President and Member of the Board of Directors, PIANY, Professional Insurance Agents Association of New York

• Active Member of CIBGNY, Council of Insurance Brokers of Greater New York

• Treasurer, New York Independent Livery Driver Benefit Fund Board of Directors
  

His agency insures thousands of policies for Taxi Limousine Commission insurance as well as many policies for all types of personal and commercial insurance. He can be reached in his Briarwood, Queens office at 718-523-1300 X1082, or www.MemberBrokerage.com.

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