Home Insurance Review a Must for Underinsured 60% of Homeowners

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Bills.com's home insurance primer.

Nearly six out of 10 American homes do not have enough insurance to replace them in the event of an emergency, according to a recent study. Homeowners must have four types of home insurance for financial security today, according to Andrew Housser, co-founder and co-CEO of the free online consumer portal Bills.com (http://www.bills.com). Is your home covered?

"With wildfires sweeping the Southwest and Hurricane Katrina wiping out swaths of the Southeast, many of us have probably made a mental note to check our own insurance policy," noted Housser. "But for most of us, the buzz of daily life gets in the way of actually reviewing those policies."

Homeowners need insurance to cover several risks, Housser explained: damage to the home and/or loss of possessions; replacement value for the home and possessions in the event of a total loss; liability to others for injuries they might receive on the property; and the cost of living expenses if residents must live elsewhere while a home is repaired or rebuilt after a disaster. A good home insurance policy covers each of these areas against damages from fire, theft and accidental damage (for example, a tree branch or hail storm damaging a roof). Here are Housser's suggestions on how to evaluate home insurance policies:

1. Structures: A homeowner who has a mortgage generally must be insured at least for the amount of the mortgage. Many properties, however, require a higher benefit amount based on personalized factors. For example, the policy should cover rebuilding costs in the area. Rebuilding costs should take into account the style and quality of the home. (For example, a basic amount will not provide enough benefit to rebuild a recently renovated, gourmet kitchen.) Be sure recent additions are covered. Also, older homes might require extensive updating to meet new building codes.

Other specialized policies include guaranteed replacement coverage, which provides for higher construction costs in times of increased demand -- for instance, following a natural disaster, when many homes require repairs -- and "inflation guard" policies that automatically increase the benefit amount to account for inflation. "Be aware that standard homeowners' policies do not cover damage from flood, earthquake or lack of maintenance," Housser said. "Separate flood insurance can be purchased from the federal government."

2. Possessions: A typical homeowner's policy covers personal possessions in the amount of 50 percent to 70 percent of the covered home value. Owners can purchase policies that cover replacement value or actual cash value (the item's worth based on its original purchase price minus depreciation). People who have valuable belongings -- electronics, jewelry, silver, furs or art collections -- can purchase insurance riders, or additional coverage.

3. Living expenses: Be certain a policy covers this important category. For most homeowners, if a catastrophe caused a situation requiring reimbursement from the insurer, they would need to live elsewhere for a period of time while repairs are completed. The costs can add up rapidly enough to lead to financial disaster.

4. Liability to others: Most policies offer a certain amount of coverage -- usually a minimum of $100,000 -- to protect a homeowner who is deemed liable for an accident or injury on his or her property. However, in today's litigious society, many experts advise purchasing higher amounts of coverage, up to $300,000. Homeowners with many assets, high public visibility or hazards on their property (such as dogs or a swimming pool) might add an "umbrella" policy that can cover millions more in liability.

Every household's position will vary, but these categories make up the basics of homeowners' insurance. "Talk with your insurance agent, financial planner and trusted friends or family to evaluate the best insurance for your situation," Housser said. "Most important is to make sure you are covered. After all, your home is your most important investment. Do your best to safeguard it."

Based in San Mateo, Calif., Bills.com is a free one-stop online portal where consumers can educate themselves about complex personal finance issues and comparison shop for products and services including credit cards, debt relief assistance, insurance, mortgages and other loans. The company blogs about consumer finance issues at http://www.bills.com/blog. Since 2002, Bills.com has served more than 40,000 customers nationwide while managing more than $1 billion in consumer debt. Bills.com is a division of Freedom Financial Network, LLC, whose co-founders and CEOs, Andrew Housser and Brad Stroh, have been named Northern California finalists in Ernst & Young's Entrepreneur of the Year Awards.

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Aimee Bennett
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