Homeowner's Policy

EVERY owner of a house or apartment needs insurance to protect his residence and its contents against calamity, but how much coverage is enough? The amount you should have depends on the replacement cost of your house. That is, what you would have to spend to rebuild your castle as it now stands.

Insurance companies offer policies that cover your home for 100% of its replacement cost and for its contents as well. Premiums are higher, of course, than for a standard homeowner's policy. You also can add a package deal to a standard policy that guarantees replacement costs for home and contents. Extra coverage for the contents, for example, tacks only an extra dollar or two per $1,000 onto your annual premiums. But not all houses are eligible for total coverage. Most insurers won't guarantee the replacement cost of damage to older homes that have handiwork that would be expensive if not impossible to replace, and the construction of some older homes might not meet current fire codes.

Fortunately, total losses are rare and you may be adequately insured for partial damage with 85% of the replacement cost. Be sure that your policy indexes the replacement cost to inflation. And if you make a substantial improvement to your house, raise your coverage to reflect its new value. Although standard homeowners policies cover your personal possessions, they set limits on what you can claim. Usually they reimburse you only for what you paid for the item minus depreciation and not for what it would cost to replace it today. If you don't have total replacement provisions, add individual riders to your policy to cover damage to a valuable rug or theft of your treasures. Your yearly premium may go up about 10%, but the extra protection is worth it.

If you have a home based business, you will need to add an incidental business option to your policy. It provides insurance for such property as personal computers or typewriters. The amount of coverage varies.

You can hold down your insurance costs by taking advantage of special deals offered by most companies. There are premium discounts of up to 20% on new homes, 5% for installing dead bolt locks and smoke detectors and 20% if you put in an elaborate fire and burglar alarm. Increase your deductible to $500 from the standard $250, and you will save on your annual premium. How much depends on which company you select, the state you live in and the amount of insurance you purchase. But never scrimp on overall coverage in order to keep costs down.

No homeowners policy covers all perils. The most popular, however, is called HO 3. Any endorsed HO 3 provides top of the line coverage. It may reimburse you not only for fire and windstorm, but also if, for example, your water pipes freeze and burst. Yet even this policy does not protect you against floods or earthquakes. For that you need to seek extra coverage at higher cost.

If you live in an apartment, a co op or condominium, you also need insurance to protect you from fire, burglary and even liability. True, landlords, co op corporations and condo associations have insurance. But their policies cover only the building itself, and mishaps that occur in common areas. So you need your own policy.

It should cover excess living expenses. For example, if your apartment is damaged by fire, the insurance company will pay for your stay in a hotel. Your policy also should cover full replacement costs for articles that are stolen or destroyed. That will run you 10% to 15% more in premiums than actual cash value policies, but the extra benefit most likely is worth it. Apartment insurance generally costs anywhere from $100 to $200, with a standard deductible of $250.

Another point to remember is that homeowners and tenants policies set low limits on the payments for jewelry, furs, silverware. and collectibles. But you can buy endorsements that protect your valuables at a small additional cost for example, $ 10 to $2 7 a year for $1,000 of value on jewelry, $8 a year for $2,500 coverage on silverware.

Your homeowners policy does include some liability coverage. That covers many claims against you for injuries to people on or off your property. But what if you get sued for ramming into a highly paid executive on a ski slope and crippling him for life? The possibility is remote, yet if you were hit by such a lawsuit, the $ 100,000 or more that most homeowners policies pay on such claims might not be enough. Ask your agent about higher liability limits.