With all of this recent talk about Y2K, your thoughts probably turned to disaster preparedness. Even the staunchest skeptic of the Y2K hype couldn't help consider -- even for a second -- what might happen. You wouldn't admit to anyone, but your thoughts turned to scenarios of looting, of fires ... anything could happen, or could it? Inevitably, you wondered, perhaps for the first time, just how much your homeowner's insurance would cover if any of these freakish incidents took place.

You signed that document ages ago, and now you find yourself questioning how much coverage you really own. Despite the fact that the skeptics seem to have won the Y2K argument, homeowners do need to understand the extent of their coverage in order to fill in any holes that exist. Waiting until disaster strikes to find out is too late. Under the tenets of Murphy's Law -- which often seems to rule home-disaster situations -- whatever predicament you find yourself in is exactly the one your insurance doesn't cover.

While it's difficult to apply generalizations to every homeowner, the "standard" home insurance policy in the United States is considered to be the Homeowners-3 policy ("HO-3"). So we'll use that policy as the basis of the following guidelines. If you have another variety of policy, or if you're unsure about your applicability to any of the following points, sit down with your insurance agent and review your policy. It's a good idea to have a refresher course so that you can pinpoint any areas of coverage in which you may be vulnerable.

In general, "acts of God" are covered under HO-3 policies. This means that forces you can't control -- hurricanes, tornadoes, wind and other whimsies of Mother Nature -- are covered with some big exceptions, floods and earthquakes among them. And although you can't control the decision of a career criminal to break into your home and take off with your possessions, such scenarios are labeled "man-made" under insurance policies and are not covered.

The most common disaster scenarios -- including fire, explosions, tornadoes, hail, lightning/wind/storms, smoke, theft and vandalism -- are covered under the HO-3 policy, although the dollar amount for which you are covered can vary among homeowners. If you're not sure what that figure is, call your agent. It may be time to increase the amount of coverage you own, or to purchase options called "floaters," if you have collected particularly expensive valuables throughout your years of homeownership. Such valuables can include jewelry (most HO-3s offer $1,000 of jewelry coverage, which may be inadequate for your needs), artwork or paintings, fine China or silver, or heirlooms. A floater will give you the security of higher coverage beyond the standard HO-3 policy. Another important consideration for homeowners is their geographic vulnerabilities. In other words, if you live in "Tornado Alley," the region of the United States most susceptible to tornadoes, you may want to consider taking out higher limits for tornadoes or wind damage. Homeowners residing on the Eastern Seaboard are subjected to strong winds on occasion, so they, too, may want to consider taking out higher coverage. If you're unsure, ask your insurance agent for frank advice.

Moving to the subject of fires, HO-3 policies typically cover $150,000 worth of rebuilding costs if your home is completely destroyed in a fire. So if the cost of rebuilding your home is $150,000 or less, you'll have full coverage. If the cost of rebuilding your home is more than $150,000 -- for example, $175,000 -- you have a $25,000 coverage gap. In that scenario, if you opt not to rebuild, you'll receive the "actual cash value" for your home -- in other words, the replacement cost minus depreciation. If you don't know how much it would cost to rebuild your home in the event of a fire, call your insurance agent, who can assist you either directly or help you contact a local homebuilder who can provide this service. The Insurance Information Institute advices that homeowners not base the amount of insurance they purchase upon the price of their homes because the market price of a home includes the value of the land on which a home sits. After the majority of diasters -- most certainly, a fire -- the land is still there afterward and doesn't need coverage. Your home is the only property that needs coverage.

Water coverage is an area of your insurance policy to which you particularly want to pay attention. You're covered under some scenarios but not all of them. An HO-3 covers you if a pipe bursts in your home and causes water damage to your floor and various possessions. The majority of these catastrophes could have been prevented, however, if homeowners would check their plumbing systems periodically for signs of damage. As home disasters go, this one's survivable, of course, but it's a tremendous and often avoidable hassle.

The areas of water damage that a HO-3 doesn't cover include floods and seepage. Flood insurance is allocated through the Federal Insurance Administration under the U.S. government. Whether or not you need this coverage really depends upon the region of the country in which you live. Residents of flood-prone regions should seriously consider purchasing flood insurance. Most insurance agents can assist you in purchasing this coverage. Seepage -- in other words, damage resulting from the flow of water into either the basement of first floor of your home from the outside (not related to a flood) -- is not covered under HO-3s, either. Your best defense against seepage is to have your home inspected, and if necessary, call a professional to water-proof your home.

Because earthquakes are predominantly a regional concern, they're not included under HO-3 coverage. Earthquake coverage is purchased on top of the standard HO-3 policy. Unfortunately, residents who need it most -- particularly those living along California's San Andreas Fault region -- pay most for this coverage. Those who hardly need to concern themselves with the likelihood of an earthquake -- for example, residents in the Midwest -- can receive this coverage for much, much less. Unfair, but true.

Amidst all of those new year's resolutions you're making, it's probably time that you take a hard look at your home insurance policy. Reevaluating your policy and considering whether or not you need to take out additional coverage is one of the wisest precautions you can take to protect yourself and your family. We've heaved a collective sigh of relief after Y2K, but too many homeowners have learned the hard way that nature's most damaging disasters are also the most unpredictable.  

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Published: January 12, 2000

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