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With Insurance, the Risks of Ignorance Are High
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"There were a lot more incorrect and 'not sure' answers than we would like to see," said Matthew Cullina, director of product management for MetLife Auto & Home in Warwick, R.I.
Nearly one-third of those surveyed by MetLife believed their homeowners policy would reimburse them for the market value of their homes if they were destroyed by fire or in a storm.
In fact, the payout would reflect the cost of rebuilding, also known as replacement cost. It's generally capped at a lot less than the market value because it doesn't take the cost of the land into consideration, Cullina said.
A homeowner can determine a rough replacement-cost equivalent by "asking a contractor in your area the cost per square foot for building a home" and running the calculation for your residence.
Meanwhile, some 72 percent of those surveyed said they expected their insurance to cover the full cost of replacing personal belongings destroyed in a fire or natural disaster.
When it comes to contents, the standard homeowners policy covers cash value, which is the cost of an item minus depreciation, Cullina said.
"You have to ask for replacement-cost coverage, but I think it's worth the extra money," he said. Replacement cost is today's market value without deducting for depreciation.
Homeowners also need to think about coverage for special items, such as jewelry, fur, fine art and heirlooms, he added.
Most policies put limits on payouts for special items like these, Cullina said.
"If you've got something special, say your grandparents' silver, and it's valuable, you may want to get a rider" to cover the items, he said. Often, such items must be appraised by a professional, and the customer and insurance company reach an "agreed value" for coverage, he said.
Cullina suggested that consumers "do some research online" to educate themselves about coverage. He also suggested that they ask insurance agents: "What isn't covered? Where are the gaps?" so they know what extra protection is needed.
