Time to check your home insurance

When is the last time you checked your home insurance?

If you're like me, and most of America, you get this annual update packet from your agent, usually indicating an increase in the premiums. Behind the policy summary are pages of insurance gibberish that makes little or no sense to anyone.

You may think you have full-replacement coverage on your home and personal property. You may think you're covered in case of an earthquake, flood or landslide-a pretty big deal in the Northwest, not so big in Nebraska.

Well, you really need to read the fine print, or find someone who understands the insurance industry lingo, because in the event of a disaster, you could be in for a big surprise.

In the last few years, the insurance companies have been tiptoeing quietly out the back door on some of the protections they supposedly provide.

First of all, you have to know that insurance against earthquakes, floods and landslides are not part of your basic homeowner's insurance and, yes, you will pay for this coverage-assuming you can get it. I had one agent tell me that starting this month Allstate would no longer offer earthquake coverage on new policies, though it would be grandfathered in where it already existed.

Increasingly, insurance companies are backing away from disaster-type coverage; it's simply too risky. Katrina is a great example of what can happen to people on a mass scale.

Let's assume you can find earthquake coverage; most policies require anywhere from a 10 to 20 percent deductible. This means if you have a $400,000 home-almost a starter in Seattle these days-and if you have a 15-percent deductible on your earthquake insurance, you're going to pony-up the first 60 grand before the insurance company spends a penny.

Unless you have a total disaster, chances are you're going to pay for most-if not all-of the damage. The same is true for flood and landslide coverage.

Back to the replacement coverage. A couple of years ago, the insurance industry quietly started changing policies from full replacement to what they call extended coverage. That means that they will pay up to 25 or 30 percent over your policy value. If you have $300,000 in coverage, they will pay up to $375,000. If it cost $450,000 to rebuild your place, guess who picks up the tab? You probably didn't see this in any of the insurance industry's TV ads.

By the way, studies show that most homes are underinsured by as much as 35 percent. If you've owned your house for more than three years, and haven't reviewed your coverage, you need to get on that right away.

Okay, there is a business logic behind what the insurance companies are doing, even if they are skulking around like thieves in the night. A rash of earthquakes, hurricanes, wildfires and mold losses have taken some of insurers to the brink; they don't have a large enough base of clients to spread the cost of a Katrina-like disaster around and still stay solvent.

The Feds are already looking at this under, dare I mention, FEMA, as well as something called National Flood Insurance Program (NFIP). As I understand it, there is an effort in Congress to develop some sort of government/industry plan that would allow homeowners to buy flood insurance from participating companies, and it sounds like the solvency issues would be backed by the government. For now, I think the best you can do is get low-cost loans.

Bottom line? Take the time to read your policy, really question your agent, and if you don't like the answers you're getting, set up an appointment with an insurance underwriter. These folks are considered to be the PhDs of their profession. But the onus is still on you to be smart about this stuff. Remember that even among the PhDs, only 50 percent of them graduated in the top half of their class.

There's a wealth of information to wade through on the Internet. Just Google on words like "home insurance" and you'll have enough reading material to keep you out of the bars for a couple of hours.

Mike Davis lives in Magnolia. He can be reached by email at mageditor@nwlink.com.[[In-content Ad]]