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NOW’S THE TIME TO REVIEW HOME’S COVERAGE AGAINST COSTLY NATURAL DISASTERS

SHARE NOW’S THE TIME TO REVIEW HOME’S COVERAGE AGAINST COSTLY NATURAL DISASTERS

With hurricanes in Florida, Louisiana and Hawaii, and flooding rains in parts of the Northeast, natural disasters have hit just about all points of the American compass in 1992.

So what more timely resolve for the new year, financial advisers ask, than to review the insurance covering your home and belongings, wherever you live?"Insured damage estimates totaled $10.7 billion for Hurricane Andrew alone," notes William Brennan, editor of the Financial Planning Reporter newsletter published by the accounting firm of Ernst & Young.

"The personal property losses that were unprotected by insurance may never be completely known.

"What if a natural disaster were to strike your area? Hurricanes may not be a threat if you live inland, but there may still be the chance of an earthquake, a mud slide, tornado or damage from a severe snowstorm or other elements."

Adds IDS Financial Services in its Money Matters financial planning guide: "Homeowners' policies come with varying degrees of protection. It's up to you to know what you're covered for and whether that coverage is adequate."

Under a system widely used by insurance companies, homeowners' policies are available in six classes, numbered HO-1 through HO-6 - one of which actually applies to renters and another of which is aimed at owners of condominiums and cooperative apartments.

For most people, the process of a periodic insurance review starts with simply digging out your policy and reading it.

"Your policy will explicitly describe the type of coverage that you have and, perhaps more importantly, it will list the perils that are excluded from coverage," Brennan says.

In one of the most common formats, HO-3, a house gets "all-risk" protection, which means everything is covered except menaces that are specifically excluded.

Notes IDS: "These exclusions usually include earthquakes, floods, termites, landslides, wars, tidal waves and nuclear accidents."

Such perils are kept out of the policy, Brennan points out, because they carry with them the potential for claims so widespread or costly that they would make the price of insurance prohibitively high.

"Your policy may list other exclusions," he adds, "especially if you live in an area that has been repeatedly battered by a particular type of natural disaster or calamity."

Coverage for these items must be shopped for and bought separately. Flood insurance, for example, is provided through a government program offered in participating communities.

Aside from checking what is covered and what isn't, advisers urge attention to several dollars-and-cents questions.

"To receive a 100 percent reimbursement on a claim (less your deductible), you must insure your home for at least 80 percent of its replacement cost," Brennan says.

"To prevent increasing costs from exceeding your coverage, policies often have automatic inflation adjustments built into them. Or you can usually add inflation protection for a nominal amount.

"Are contents adequately insured?" he adds. "Check for special limits on items such as silverware, jewelry and furs.

"Be aware that homeowners' insurance typically covers the cash value of contents. You can add a rider to ensure your home's contents for their replacement cost."

By the time you assemble all the coverage you want, the cost of the premium can look pretty steep. To reduce it, consider increasing your deductible.

With a bigger deductible, you will have to pay more out of your own pocket when big calamities hit, and to shoulder all or most of the cost in smaller misfortunes. But the premium savings can be substantial, maybe even covering the cost of the deductible in as little as two or three years.