To Read And Protect

“You’re going to need homeowner’s insurance.”

New buyers – who may not have even considered protecting their home from disaster – are going to hear this edict from their mortgage lender.

Later, if weather wreaks havoc, an owner’s first question is: “Will my insurance cover the damage?”

Don’t rely on the persistent myth that policies offer similar coverage and that you choose an insurer based on its reputation and the rates charged, warns Daniel Schwarcz, an associate professor at the University of Minnesota Law School.

While policies are typically written to adhere to an industry standard [known as an HO3 insurance policy], many companies now have tweaked language, often with the aim of reducing homeowner coverage, says Schwarcz, whose research on insurance policies will be published later this year in the University of Chicago Law Review.

In some instances, however, insurers have enhanced coverage, adds Schwarcz.

His research has ignited its own storm, especially since Schwarcz contends that many consumers aren’t made aware of coverage limits.

It’s to the consumer’s benefit that policies vary, says Robert Hartwig, chief economist at the Insurance Information Institute. Differences “offer a lot of choice” to homeowners in what they want covered and what they want to pay, he says.

Savvy consumers, continues Hartwig, should request and read a policy before purchasing it.

Any good agent, whether he works for one insurance company or is an independent agent representing several firms, should not subscribe to the myth that homeowner’s policies are standard, contends David Snyder, vice president and associate general counsel for the American Insurance Association.

Policies continually are reviewed by state regulators and change to comply with recent laws, adds Snyder. Expect to have a conversation with an agent, he suggests, about what your home may be particularly at risk for: Do you have a lot of old trees, for instance? Or is your home in a high crime area?

Still, the finer points of the fine print can be confusing. Here, expert tips on some key verbiage to study:

Covering Undercover Mold

Standard homeowner policies don’t pay for removal or damage of visible mold, says Schwarcz. But when mold is hidden, within walls, floors, or ceilings and grew out of an accidental discharge or overflow of water or steam, it’s been standard for insurers to pay, he adds. Now, some companies are excluding any mold-related loss or are imposing payout limits, Schwarcz says.

Protection From Collapse

Policies typically contain text outlining basic coverage and then list additional coverages. “Look for a table of contents,” suggests Schwarcz. Typically, any additional coverage covers collapse caused by a peril – like a tree that falls on the house. Some companies, he adds, are limiting this provision by eliminating coverage for collapse caused by hidden decay or animal damage.

Costs for Rebuilding

Say, for example, that you buy a home built in 1980, and the current value of your kitchen is $40,000.

If your kitchen is destroyed by fire, it may cost more than $40,000 to rebuild, especially if building codes now require different features from when it was constructed.

It’s fairly standard for policies to offer 10 percent more for rebuilding, so that if the current value is $40,000, $44,000 would be available.

“Particularly if your home isn’t new and up to code, you may want to make sure that your policy protects you from increased rebuilding costs that are the result of the need to comply with laws or ordinances and that the amount available for such costs is “additional insurance” that is at least ten percent of your policy limits,” concludes Schwarcz.