Under-insured homes face huge financial risks Under-insured homes face huge financial risks (March 18, 2005)

Agents urge owners to check, upgrade current policies
by Jeb Bing

In the wake of devastating hurricanes and tornadoes in the south last year and fires and rain damage in California, homeowners are being urged to review their insurance policies to be sure their properties are adequately covered against catastrophic loss.

Some homeowners who lost their houses in the recent fires and storms found later that the insurance they bought no longer guaranteed the replacement of their destroyed homes. Often, their coverage was based on outdated information that left them thousands - even hundreds of thousands - of dollars short for rebuilding

"These catastrophes offer a good reminder for all of us to take a close look at homeowners' policies to make sure we have adequate coverage," said Allstate Insurance agent Bob McGlinchy, whose office is at 5976 West Las Positas Blvd. "Catastrophic fires like those we saw in San Diego probably are not going to happen in Pleasanton, but you could still have a fire and need to rebuild. Also, a number of folks here have second homes in the mountains, where fires are always a concern."

Companies like Allstate generally include extended limit coverage, which means that a house insured for $400,000 in total losses could be eligible for another 50 percent in coverage, or a total of $600,000. Allstate, though, offers one of the largest percentages in extended coverage, so owners should check with their own insurance agent to determine their total coverage.

Farmers Insurance agent J Philip Chubb said guaranteed replacement coverage went away shortly after the Oakland Hills fires, when companies determined they could no longer afford that feature. Now, homeowners should meet with their agents to learn how much coverage they have and what it would cost to rebuild. A rule of thumb, Chubb said, is to plan on spending from $150 to $200 a square foot to rebuild.

"Remember, too, that the cost of repair for a home is much more expensive than just building the house brand new," Chubb said. "Costs have gone up quite dramatically and there are a lot more costs incurred when there's a total loss."

Chubb tells his clients that there are three ways to price their house: Ą Market value, which is what you can sell your house for, Ą Assessed value, which is what you pay your taxes on, and, Ą Replacement cost - which is what you need in insurance coverage to replace your home if it's totally destroyed.

As for contents, insurance companies generally allow up to 75 percent of the full house insurance. But even here, agents warn that some contents, such as jewelry, cash and silverware, have specific limits of $2,500 or $3,000 per theft or loss. Riders are recommended for high priced valuables.

Those renting should also consider insurance, which at $200 to $300 a year can cover 10 times that amount in loses.

McGlinchy said that less than 15 percent of California homeowners have earthquake insurance, although the U.S. Geological Survey estimates that there is a 62 percent probability of a 6.7 magnitude quake in the San Francisco Bay region before 2032.

"It's expensive, but then it protects you against losing your home, which may be your biggest financial asset," McGlinchy said. Also available as a substitute, he added, is term life insurance on the principal breadwinner in the family, which costs about $40 a month for $1 million in coverage for someone 40 years old.

McGlinchy also warned homeowners who have shake roofs that they could probably not change their policy to another company before replacing the roof with a fire-retardant material. Most companies, he said, will no longer offer insurance to homes with cedar shake roofs, which is a consideration that could affect the sales price when a home with a shake roof is sold.

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