So you've redone the kitchen, added a deck or, maybe, put in a home entertainment center. Finally, your renovation work is finished.
But are you really done? Have you updated your insurance policy?
According to consulting firm Marshall & Swift/Boeckh, which tracks home construction costs for many insurers, most homeowners are underinsured. That means that if a disaster occurs, the policy would not provide enough coverage to pay for fully rebuilding the house.
The Wisconsin company says that last year about 64 percent of policyholders were underinsured by an average 27 percent of what they would have to pay for complete reconstruction after a disaster.
That's an improvement, though. Before 2001, about 73 percent of policyholders were underinsured by an average 35 percent.
The company's spokesmen and others say many insurers have taken steps in recent years to pin down more accurately the value of the homes they cover.
Nationwide, for example, since 2001 has required a home visit for new policyholders. The nation's fourth-largest home insurer then "attempts to physically inspect the house every three to five years," Nationwide spokesman Kevin Craiglow said.
"We think it's good for the policyholder -- to help provide the appropriate coverage at a fair price -- and good for the insurer because we need to understand the exposure that we're being asked to insure," Craiglow said.
Insurers in the past seven years have also shifted more responsibility to homeowners to figure out their home's value by limiting what had been considered traditional standard coverage. Most insurers used to pay full replacement value in the event a house was destroyed. That means they would pay the bill no matter how high it went.
Now, all but a few companies offer standard policies that will pay only for the estimated value of the house or that cap payments at 20 to 25 percent more than the estimated value.
The estimated value is set by the insurance companies with computer models or software programs, such as those sold by Marshall & Swift/Boeckh. The value includes details about your particular house -- such as the building materials used, the number of rooms and the cost of your furnishings and other contents -- that you provide to the agent when you get the policy.
If policyholders want full replacement coverage, they can still get it from most companies, but they have to pay more.
It's not clear, though, whether policyholders have been paying attention to how important they are in the process now, and how critical it is that they routinely reassess their property's value.
Some insurers are sending special reminder letters with renewal notices about the importance of reassessing value.
Marshall & Swift/Boeckh says it makes millions of phone calls to policyholders each year on behalf of insurance companies to help pinpoint underinsured customers. The company also sells insurers estimating software that is more sophisticated than the old method of calculating replacement costs by multiplying the square footage of a house by the going construction rate.
Senior Vice President Peter Wells predicts the firm's next survey will show another drop in the percentage of underinsured policyholders because of the industry's new push. But, he said, the company is still "concerned about undervaluation."
Valuation is not a simple concept. Typically if you insure a house for 80 to 100 percent of its estimated value, the insurer will consider the house fully covered. But if you insure a house for less than 80 percent, the insurer may repay you for only a percentage of the loss.
"If a house is worth $1 million [to replace], for instance, and you insure it for only $500,000 and then have a $400,000 loss, they'll cut their payment in half and only pay $250,000, instead of $400,000," said Lawrence H. Mirel, head of the District's Department of Insurance, Securities and Banking. That's because you only insured half the value of the house -- $500,000 instead of $1 million.
"Most people don't pay attention" to the details of their insurance coverage, Mirel said, "but they should."
Because the rules have changed on guaranteed full-replacement coverage, Mirel and other regulators say homeowners should keep agents informed of improvements that affect their home's value.
Remodeling, said insurance consultant Wells, "has the largest impact" on an insurer's portfolio and calculations of risk. "About 5 percent of a book of business changes every year due to remodeling and most of that is not reported to insurers," said Wells.
With remodeling spending at a record $130.4 billion in 2003, that's a big potential impact, said Wells and other industry experts.
Homeowners in the Washington area don't seem all that worried about underinsurance, according to local insurance regulators. They say consumers complain more about how particular claims were handled than about the amount of coverage they have.
"We get about an equal number of complaints from people that think they are underinsured and from those who think they are overinsured," Maryland Insurance Commissioner Alfred W. Redmer Jr. said in an interview this week. He said some homeowners hurt by flooding during Hurricane Isabel have protested that they have to carry too much coverage under the national flood insurance program.
Others, he said, have contended that they didn't have enough coverage on the contents of their houses. "They allege that nobody ever offered it to them," Redmer said. Content coverage is typically 50 percent of the house's value.
Redmer said his agency handled about 2,500 complaints last year after the hurricane.
"The most important thing for homeowners, I believe, is that periodically all of us, regardless of our circumstances, need to sit down with an educated, trusted adviser and identify our personal exposure to risk, not just for our homes, but for our automobiles, our life insurance and our health insurance," Redmer said. "And then we need to make informed decisions about what we're going to do about" those risks.
That, he said, "can range from doing nothing, and accepting that risk, to transferring that risk to an insurer" for a specific dollar amount of coverage at a specific premium.
The District's Mirel said most complaints to his agency come from policyholders who say they are not being reimbursed quickly enough after a loss or "who claim a certain loss, and the insurance adjuster says it's not as much as they thought."
Underinsurance, however, has drawn big headlines on the West Coast, where several hundred Southern Californians who lost homes to wildfires last fall have protested that their coverage was inadequate.
The fires destroyed more than 3,600 homes. At least 219 families filed complaints about being underinsured.
While the Washington area isn't prone to the kinds of disasters that lead to widespread destruction of homes, industry officials say homeowners here should still make sure they have the appropriate coverage.
Insurers recommend annual reviews of coverage, and updates whenever needed. It costs $4 to $5 for each additional $1,000 in coverage, experts said.
"I do believe there are people who are underinsured here because the market is so hot here, construction costs are so high and so many people are updating their homes," said Carolyn Gorman, vice president of the Insurance Information Institute, a research group of the insurance industry.
"If they add on to their house, they probably have told their insurer, but if they're upgrading or renovating existing spaces, they probably have not," she said.
Gorman noted that when a mortgage loan is refinanced, insurers are notified of the new appraisal and the new loan value. That may prompt discussions of whether it's time to increase coverage. If a homeowner uses a home equity line for renovations, however, the insurance agent doesn't have to be called.
The institute recommends that homeowners contact their agent before or shortly after a renovation begins rather than waiting until it is complete. If the new addition is destroyed or damaged before the coverage has been increased, the policyholder may be responsible for the cost of repairing or rebuilding the addition.
Gorman stressed how important it is for homeowners to tell agents about their particular homes. "The insurance company can tell you what they think your house is worth, but they don't know your house as well as you do," she said. "If you have hardwood floors, nice tile work and top-of-the-line appliances and artworks, you need to be sure that this is part of your policy and that you are insured for them. Insurance companies use models to estimate value."
She added that policyholders should get policy endorsements, or extra coverage, if they own fine jewelry, furs, artwork, or family heirlooms that exceed the standard coverage in their policy.
Consumer advocates caution that homeowners don't want to be overinsured, either.
"Actually being a little underinsured is good if you're a consumer" because most homes aren't in disaster-prone areas, where they could be demolished, said J. Robert Hunter, director of insurance for the Consumer Federation of America and former Texas insurance commissioner.
"If I lived in Arlington, I'd rather be insured between 90 and 100 percent because the chance of a total loss is almost nonexistent," Hunter said. Not only are such disasters rare in the Washington area, he said, "but the fire departments here are very good."
But Hunter does agree that homeowners may not be up to date on the estimated cost of rebuilding, in part because they haven't adjusted their coverage to reflect renovations and because construction costs have jumped.
Standard policies usually include inflation indexes, but Hunter warned: "They can be inaccurate. Or you could be in a pocket where costs are going up faster" than the insurers' estimating software indicates.
Consultant Wells takes issue with Hunter's belief that homeowners in most areas don't need 100 percent coverage. "I personally think that's a shortsighted view," Wells said. "A lot of problems and disasters occur where they weren't expected. . . . And you don't want to be the one that has one."
The experts agree that the amount of coverage should never be based on the market value of the property. Market value includes the value of the land under the house, which in some neighborhoods can be much more than the value of the structure. If the land and structure aren't valued separately, that can lead to having more insurance than necessary. To double-check your insurer's estimated value, Gorman suggests hiring an independent appraiser, which costs about $300.
The Consumer Federation's Hunter said he usually just "calls a friend who's a builder." In exchange for dinner, the friend tells him the going construction cost per square foot.
Gorman and Hunter advise consumers to shop around. The federation has found through focus groups that "spending an average of an hour" in comparison shopping can save $100 for the average homeowner.
Gorman also suggests raising the deductible, or the amount that the homeowner agrees to pay on any loss. She cites rates provided by her State Farm Insurance agent.
"If you have a $375,000 brick home in the District, with $500,000 in liability coverage, $2,000 for medical payments to others and coverage for sewer and drain backups, your premium would be $1,400 if you had a $500 deductible, and $1,177 if you had a $1,000 deductible," Gorman said.
A similar house in Montgomery County would have premiums of $1,340 and $1,127. In Prince George's County, paying the higher deductible would lower the premium to $1,559 from $1,854. In Arlington, the premium would drop to $1,053 from $1,224.
Consumer advocates say the biggest insurance issues in recent years have been over a run of startling rate increases and over insurers' moves to refuse to renew policies with those who have filed multiple claims.
In 2001, when falling stock prices were slamming their investment portfolios and the industry was still reeling from several years of devastating and expensive hurricanes and fires, insurers tightened up on their underwriting standards, turning away longtime customers and refusing to take on new policyholders in some areas.
Some companies began to refuse to renew policies for longtime customers if they had filed more than two or three claims in three years. Most upped their rates by double-digit percentages annually from 2001 to 2003. In some cases, premiums have doubled in the past five years.
Consumer advocates petitioned regulators to limit the rate hikes, but insurers contended that they could no longer afford to carry homeowners insurance as a "loss leader" because they were paying out more than $1.17 in claims for every dollar in premiums.
Rates nationwide are expected to rise only 2.8 percent this year, the smallest increase in five years, according to the Insurance Information Institute.
Some homeowners are still furious, even though the rate hikes are moderating. Sid Davis, a Bethesda resident for 35 years, said he has been preoccupied with how much his premium has jumped rather than whether he has the appropriate amount of coverage.
"It could be that I'm underinsured. I haven't taken a look at that lately," said Davis, who recently contacted The Washington Post about what he called "outrageous increases."
"I know my real estate value has gone up," he said. "But my annual premium in 2001 was $729, and it went up $50 to $779 in 2002. Then in 2003, it went to $1,331, a 70.86 percent increase."
The 2004 premium, he said, "jumped to $1,636."
"It could be that the premium amount is now right" for the 5,000-square-foot home and that in the past he was getting a deal, Davis said. And it could be "that I don't have enough coverage. But what upsets me is the percentage of increase. In my judgment it was out of line, too rapid."