Q: How should I decide what kind of homeowner's insurance to buy -- and how much coverage do I need?
A: Whether you own a house or condo -- or are just a renter -- it would cost a small fortune to replace not only your dwelling, but your personal possessions. Don't wait until disaster strikes. This is the perfect time for a "homeowner's insurance checkup."
Condo owners need to coordinate their contents insurance with the building's "master policy." That policy may differ depending on the building and its insurance carrier. And if your building recently changed carriers, you might not have the coverage you need for your unit.
For example, it's possible that some buildings will cover only the concrete structure, windows and the door to the common hallway. You may even be responsible for drywall replacement in your unit.
Other policies cover fully installed fixtures, such as cabinetry and carpeting. In some cases "original" flooring is covered -- but not if it was upgraded since the apartment was initially offered for sale.
Depending on your building's policy -- the amount of its deductible and the reserve fund in your building -- you might want to purchase additional coverage for any assessment of damage in the common areas.
State law on filing condo claims may also differ. In Illinois, if there is a loss between condo owners, each makes a claim to his own insurance carrier. If your neighbor caused damage to your unit, your own coverage will pay for damage to your property. Your neighbor's company will reimburse the deductible you had to pay to cover your damage.
A homeowner's policy typically will have two components: coverage for the cost of rebuilding the house and a separate stated value for the cost of replacing the contents. Be sure you have "replacement cost" insurance because you want to be able to buy a new couch or carpeting at today's higher prices.
If you own a house, it's very unlikely the land would be destroyed in a disaster -- so your coverage may total less than the listing price if you were to sell. Still, it's always more expensive to rebuild than it is to create the original structure. Make sure your coverage is adequate.
Your homeowner's policy should have basic liability protection for your family, which will cover your defense and a judgment against you. It also will have coverage for medical costs for visitors who might be injured in your home. And it should have coverage for extra living expenses if you have to move out during reconstruction of your home.
But there are separate coverages you might want to purchase, at a relatively low cost:
Umbrella liability. This is a separate policy that gives you extra liability coverage on top of the coverage in your homeowner's and auto insurance policies. You can buy it in million-dollar amounts, usually up to $5 million. If someone sues you for a huge amount, this coverage is designed to protect your other assets.
Scheduled property. Your homeowner's policy may have limits on coverage for individual items such as silverware, coin collections, art, antiques and furs. But you can purchase extra coverage on these items to insure them for their full replacement value or to have them replaced in the event they are lost or stolen.
Water problems. A backed-up sewer drain could do huge damage in your basement and destroy your carpets and appliances -- and still not be covered if you don't specifically have water backup coverage. Flood insurance is sold separately, and it's worth investigating.
Renters need coverage for personal possessions. And if you are renting a ground-floor apartment, keep in mind that typical renter's policies do not cover flood damage.
If you're renting someone else's condo, you might be surprised that the owner doesn't even have a policy -- leaving a huge financial gap between your personal possessions and the price to repair walls and floors after a fire. So ask the owner to show you a certificate of insurance.
A final Terry's Tip: Use a video camera to document your possessions with a narrated video tour of your home -- pointing out all the upgrades such as marble countertops or wool carpet or expensive wall coverings. Make two copies, sending one to your insurance agent and storing the other off premises.
Yes, the insurance is expensive -- but not nearly as expensive as trying to replace all your stuff. And that's The Savage Truth.