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Smart homeowners assess insurance needs

By Kimberly Lankford
Special to The Washington Post
Saturday, April 3, 2010; E01

Homeowners in the Washington area are relatively lucky when it comes to homeowners insurance. The average cost of coverage is less than $700 a year in Maryland and Virginia, well below the national average, and slightly more than $1,000 annually in the District. And locals have plenty of coverage options -- even people with waterfront property can choose from several insurers.

With drifting cherry blossoms the harbingers of spring storms, and the start of hurricane season June 1, it is a good time to review your homeowners policy to make sure you're protected from the weather, especially since there's a 30-day waiting period before flood coverage takes effect.

One of the biggest mistakes people make is to base their home's insurance value on its market value. The numbers are totally different. You need enough insurance to pay to rebuild your home if it is destroyed, which can be a lot less than its market value -- especially in the D.C. area, where land is so expensive. You can't reduce your insurance coverage just because your home's market value has decreased, either.

"Construction costs and labor rates have not gone down," said Arthur Slade of the D.C. Department of Insurance, Securities and Banking.

Insurers used to pay whatever it cost to rebuild your home, but now most limit coverage to 120 to 130 percent of the insured value. When you take out a policy, insurers will ask a lot of questions, or send an agent or appraiser to your home to calculate the coverage amount. But it's up to you to change your limits if you make major home improvements.

It can cost less than $50 a year to boost your coverage by tens of thousands of dollars, if you need it. You can get a report with your home's replacement cost estimate for $7.95 at http://www.accucoverage.com, which accesses the same building-cost database that insurers use.

Fill coverage gaps

Most homeowners insurance policies exclude a few key risks that could mean thousands of dollars in expenses if you need to file a claim. Most insurers no longer cover sewage backups in their standard policies, which can be a surprisingly common and expensive claim. But you can add $10,000 to $20,000 in sewage backup coverage for about $50 a year, which pays for damage and cleanup if a sewage line backs up or a sump pump stops working and water pours into your home.

Building ordinance coverage can be valuable for older homes. An insurance policy generally pays to replace your home as it is but doesn't cover the additional costs to make the house comply with new building codes, unless you have this coverage.

Make sure your policy provides "replacement coverage" for your furniture and other possessions rather than "actual cash value" coverage, which only pays for the depreciated, thrift-shop cost of the old stuff.

Most policies also limit coverage for jewelry, antiques, silver, artwork and collections (paying only $1,500 for all of your jewelry, for example). But you can usually add extra coverage for about $10 per $1,000 in coverage for jewelry and $1.50 per $1,000 for other valuables, said Bill Howard, an independent agent in Alexandria.

Consider flood coverage

Ordinary homeowners policies typically cover damage that comes from the top down -- such as rain and wind damage -- but exclude damage from rising water and flooding. This became a big issue after Hurricane Isabel in 2003, when many claims were denied as flood damage.

You can buy flood insurance through the National Flood Insurance Program. This is a good time to take action; there's a 30-day waiting period before flood coverage takes effect.

Flood insurance can be important even if your lender doesn't require it. "It's not just a risk for someone who lives next to the [Chesapeake] Bay or a creek," said Beth Sammis, Maryland's acting insurance commissioner. Water-main breaks in Baltimore and near River Road in Montgomery County caused expensive flood damage last year, which wasn't covered unless residents had flood insurance.

You can get the maximum $250,000 coverage in a preferred-risk area for as little as $348 a year. Similar coverage can cost about $1,500 in a moderate-risk area, or more than $2,600 in a high-risk area. A few insurers, such as Fireman's Fund and Chubb, provide excess flood coverage beyond the NFIP's $250,000 limit.

You can buy federal flood coverage through your insurance agent, or you can find a local agent at http://www.floodsmart.gov, which also has tools to help assess the flood risk and premium for your address. The federal flood insurance program's congressional authorization has temporarily expired, and the program probably will not be reauthorized until Congress returns from recess in the middle of this month. Insurance agents are still writing policies, but such coverage is on hold until Congress acts.

Shop around

Homeowners insurance prices can vary widely. You can get a list of sample premiums for several insurers from your state insurance department (find links at http://www.naic.org) and can find an independent insurance agent at http://www.iiaba.org.

An independent agent generally works with several companies and may know from experience which ones are likely to offer the best deal and coverage for your situation. That can be particularly valuable if you live in a higher-risk area such as a coastal community at higher risk of storm damage.

Sheila Gibbons Hiebert has lived in Colton's Point, on the Potomac River in St. Mary's County, for 22 years and had homeowners coverage through Allstate. But Allstate notified her in 2007 that it was no longer selling new policies in the area. She could keep her current coverage but would have to find another insurer if she moved to a new home nearby.

"It had to do with risk management across the country," said Allstate spokeswoman Debbie Pickford. "Looking at studies, if a hurricane came up the Chesapeake, it would cause enormous damage." The company stopped selling new policies in coastal areas around the Chesapeake Bay and nearby rivers and in the Norfolk and Hampton Roads area as well as parts of the Northeast.

When Hiebert moved to a new home in Colton's Point a few months ago, about 120 feet up a gentle slope from the Potomac, she asked Brad Reeves, an independent insurance agent in Leonardtown, for help finding a policy.

Reeves works with several insurers, but some won't cover homes within 2,500 feet of the Chesapeake Bay or the Potomac River. But he still found a few options for Hiebert, who bought a policy from Brethren Mutual, which offered good rates and a low deductible to cover her house and barn. (Many insurers charge a special windstorm deductible of 1 to 2 percent of the insured value for waterfront homes.)

Bill Howard, who insures a lot of homes in Old Town Alexandria, generally chooses Fireman's Fund or Chubb for historic homes because of the companies' claims service and reputation for care when dealing with historic architectural details.

Boost your deductible

Increasing your deductible from $250 to $1,000 can reduce your premiums by as much as 25 percent and will prevent you from filing small claims that could cause an insurance company to drop you. In Maryland, insurers can't refuse to renew your policy for weather-related claims unless you have three weather-related claims in three years. But they can drop you earlier if weather isn't the cause.

Check the home's record

Before you buy a home, see if its history of insurance claims will make it more expensive for you to insure. Your homeowners rates are based on your own claims, as well as other claims connected to the home. The previous owner's claims could add an extra $80 to $100 to your premiums, says Jamahl Johnson of Johnson Family Insurance in the District. Ask the seller for a copy of the home's Comprehensive Loss Underwriting Exchange report, or CLUE report, which lists the claims record. You can look up your home's CLUE report at http://www.choicetrust.com.

Kimberly Lankford is author of "The Insurance Maze" (Kaplan, 2006).

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