Don't be hasty buying policy on your home

Money Talk

Your Money

May 30, 2004|By MATT LUBANKO

I am about to buy my first home and will be looking for homeowners' insurance. How can I know if I am getting a good policy at a good price?

- K.K.C., Stamford, Conn.

Use every method you can to shop around.

Go online. Visit the www.ins Web.com, www.bizrate.com, www.insurecom.com, www. insurancefinder.com or www. lowermybills.com Web sites.

Try the phone: Call 800- 841-2964 for Geico or 877- 834-7532 for AIGdirect for two of the largest companies in the direct policy-writing field.

Try the yellow pages for two or three insurance agencies near your home, or ask a friend for a referral to a reputable agent. And don't forget to audition the company that insures your car: Many insurers offer multipolicy discounts that range from 5 percent to 15 percent.

Once you gather at least five quotes, check out the financial strength of the insurers writing the policy at the www.ambest. com/ratings/guide.html Web site (registration required).

You might also check to see the record of your target insurer in your state by visiting www. naic.org/state-contacts/sid-websites.htm.

Some state regulators list the frequency of consumer complaints against certain insurers. Some also list a range of rates charged by companies for certain lines of insurance.

For additional help, see a book titled Protect Yourself: Insurance, Security and Common Sense, by Silver Lake Editors.

Once you review a few companies, take the time to learn the basics of insurance gobbledygook:

Replacement cost

If a fire or storm destroys your home, will your insurer pay to rebuild it from the ground up? Find the answer to this question and you've solved your most important homeowners' insurance riddle.

Where to begin? Try the calculator at www.building-cost. net, or simply take the total square footage of your home, then multiply it by $110 to $130. (The formula might vary slightly in different parts of the United States, depending on the costs of labor and materials.)

If, for example, your home is 2,000 square feet, and your assumed reconstruction cost per square foot is $130, then your replacement cost coverage should be about $260,000.

"Make sure your coverage matches the replacement cost of your home," said Ted Cummings Jr., an agent with Ted Cummings Insurance Agency Inc. in Manchester, Conn.

Liability

If a person slips on your property and sues you, will your insurance cover the potential losses? That's the second challenge your homeowners' policy must meet.

Once again, it pays to do some quick arithmetic. Figure out your net worth (your total assets minus your total debts), then make sure your liability coverage equals or slightly exceeds your net worth.

If, for example, your net worth adds up to $300,000, then be sure your liability coverage equals $300,000; that coverage might be just the ticket to keep a lawsuit from cleaning you out, Cummings said.

Extras

Most standard homeowners' policies set $2,500 limits on office equipment. If you have a few home computers, a fax machine, a photocopier and other machines for which you are not ready to cough up $15,000 at once if all are stolen, coverage for office equipment can be fortified for as little as $30 to $70 a year.

A so-called "personal articles floater" can also beef up coverage - against theft or loss to disaster - for articles such as jewelry, oriental rugs, paintings, or antique furniture. Such floaters often cost $50 to $200 a year, depending on what articles you choose to insure, said Kristin Lindquist Koos, co-owner of Lindquist Insurance Associates Inc. in Farmington, Conn.

Exclusions

Coverage for floods and earthquakes is excluded from most policies, so if your area is prone to either you will probably require additional coverage on your existing policy (for earthquakes) or separate coverage altogether (for floods).

Preparation: Quicken and Microsoft Money have "asset inventory" sections. By taking the time to jot down a room-by-room account of every valuable possession you own (make copies to be stored outside the house), you can provide an insurer with convincing evidence that what you said was lost was really what you once owned.

Matthew Lubanko is a columnist for The Hartford Courant, a Tribune Publishing newspaper. E-mail him at yourmoney@tribune.com.

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