NEW YORK — New York-- As South Florida and Louisiana clean up after Hurricane Andrew, insurers are rushing their resources into the breach. Soon, the physical debris will vanish from the land. But financially, many of Andrew's victims will never recover. They don't have enough homeowners' insurance to replace their enormous loss.
Only about one out of every three homeowners has enough coverage, according to an estimate by Marshall & Swift, a leading source of building data for the insurance industry. Even if that estimate is low, as some industry sources believe, millions of Americans deal with risk mainly by keeping their fingers crossed.
But it's not just a big loss that takes a toll. Home owning is usually a series of smaller troubles that get under our skin and into our pocketbooks. A roof leak that brings a ceiling down. A fire in the kitchen. The theft of your bike or stereo system. If you don't have good insurance, you won't be well-covered for those losses, either.
For sufficient protection, you need enough homeowners' insurance to rebuild your house from the foundation up. Most policies cover damage from heavy winds, except along hurricane coasts, where protection may be written separately. You may also need separate coverage for earthquake or flood. But deciding what's enough is not as easy as it sounds. Some people have too much insurance; many more have too little.
You overinsure when you buy a new house and cover it for what you paid. Part of that price is the value of the land, which won't burn up or blow away and needs no protection from Aetna or State Farm. To divide house from land, ask your insurance agent or the local builders' association what it would cost to reconstruct a home like yours. At $60 a square foot (not counting the foundation), a 2,000-square-foot house should be insured for $120,000.
Now go back 10 years, and say that the house originally cost $80,000. You're underinsured if you haven't increased the size of your policy by enough to protect your current investment. You won't be reimbursed in full, even for a minor claim, unless you're insured for at least 80 percent of the home's replacement cost. In this example, you're seriously at risk if you're covered for less than $96,000.
What if, over the past four years, your house has dropped in value by 20 percent? That's irrelevant to your insurance coverage. Construction costs have risen by an average of 3.2 percent annually since 1987, says economist Michael Carliner of the National Association of Home Builders. So you need more coverage, even though property prices are down.
Asked what homeowners most need to know, to get the best from their insurance, every industry spokesman said the same thing: Draw up a home inventory. If you have a major loss, you can't get an insurance settlement from a list you construct from memory. Policyholders often don't remember everything or don't attach a value to everything the policy replaces.
You may feel confident that you can visualize every little thing you own. But try this test: Without peeking, write down what's in every drawer and closet. You'll be surprised at how much you forget.
Everything that's not on your list wouldn't have been presented to your insurer, if you'd had to put in a claim. And that means a lot of money lost. So take a weekend to go around your house with a still camera or videocassette recorder. Photograph everything -- every wall, open closet and open drawer. Note when you bought things and what you paid. Then put the pictures in a safe deposit box. Alternatively, make two sets of pictures, keeping one in a fireproof home vault and leaving the other at the home of a friend.