From: ask@cbnews.cb.att.com (Arthur S. Kamlet)
Subject: Re: Home & Auto Insurance
Organization: AT&T Bell Laboratories,  Columbus, Ohio
Distribution: usa
Date: Sat, 12 Sep 1992 19:54:24 GMT

In article <18ohjgINN3gp@usenet.INS.CWRU.Edu> bd670@cleveland.Freenet.Edu (Russell I. Dyreng) writes:
>hemant@cbnewse.cb.att.com (hemant.b.bhatt) writes:
>
>>What's good coverage for Home & Auto insurance?
>
>>Home Insurance
>>
>>Dwelling - $
>
>Usually the bank will tell you what your minimum coverage should
>be.  This is often (not always) equal to the amount of money that
>you owe them.  
>
>If you bought your home recently you would want to cover about 
>80% of the purchase price.  Why not 100%?  Remember that if your 
>house burns to the ground in a fire, you still have your land.  
>There are also other expenses in the price of the home that won't
>be destroyed in a fire such as your driveway and the excavation 
>work.  

It should be understood that the 80% figure is really more important
than it seems.

If you cover at least 80% of the fair market value of your home --
not including the land -- the land --  then you will be covered for
100% of the loss (less deductible) for all amounts up to the limit
of coverage.

So if your house (not including the land) has a fair market value of
$100,000 and you have coverage for $80,000, if you have a $40,000
loss, you will receive $40,000 (less deductible).

But -- and this is quite important -- if you are covered for less
than 80%, say you are covered for only 75% on the hope that your
entire house will not be destroyed,  your risk is higher and also
your insured amount is limited to 75% of loss.

Same situation as above.  Your home has value=$100,000 and your
insurance is for only 75,000 instead of 80,000.   Now you have a
loss of $40,000.   You can only recover 75% of your loss (less ded.)
Your recovery for this loss is limited to $30,000.
So if you reduce your coverage by $5,000 your $40,000 loss will cost
you $10,000!!!!!

Moral:  Always carry at least 80% of the fair market value.
If you want to reduce your premiums, increase your deductibility
from, say, $250 to $500 or $750 or more.  But carry at least 80%.

Now that's the minimum amount you need to carry.  If your house is
really destroyed, the fair market value will not get it rebuilt for
you.  And 80% won't get it rebuilt either!

For this reason, I recommend you find out what the cost to rebuild
is (assume you do not have to pour foundation -- the foundation is
likely to survive even a total loss of the house).  Then carry
100% of the amount needed to rebuild the house.  This is a bit more
premium, but you are buying insuranceX, after all.  And it does buy
peace of mind.

(Similarly, I personally recommend buying replacement cost insurance
for the contents of the house as well.  Considering that without
replacement cost you will only receive fair market value, and
furniture and clothing depreciates rapidly after purchase, if I lose
furniture or clothing etc I would certainly want replacement cost
insurance.)

Personal liability:

If all of your insurance is with one insurance company (auto, home)
then I suggest you get am umbrella policy and buy the minimum
liability on your home allowed by the umbrella policy.

I advise at least $1 million, considering the tyoes of awards given
these days for all sorts of odd things.  Juries are unpredictible.

Considering that a large judgement may be for 10 years and can be
renewed, do you really want to be in hock to someone for the next
twenty years?  And not be able to buy much if anything for that
time?

>Remember-any advice that I give you may be worth exactly what
>you paid for it.

   " "

-- 
Art Kamlet  a_s_kamlet@att.com  AT&T Bell Laboratories, Columbus
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