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Burned by Your Homeowners Insurance - Part 2

            I am currently going through the process of buying insurance on a property I recently acquired in a subject-to transaction.  The existing insurance carrier will not insure me because they do not also insure my primary residence.  For those of you who are doing subject-to transactions, that is one more thing to think about when it comes to insuring these properties.

            One of my email readers pointed out that if you have collections of art, firearms, jewelry, etc., you should have those items listed on a schedule, as they are not considered personal property, and you need to add them to your insurance policy with a rider.

            In Part 1, I made a comment about using an “independent adjuster”.  Independent adjusters are usually hired as subcontractors for the insurance carrier, while public adjusters can be hired by the homeowner and will represent them.  When you have a large claim, I highly recommend that you hire a public adjuster.

            The most important thing I can recommend that was suggested by a couple of readers is that you pay a little extra for extended replacement coverage.  Some policies will provide a 25% extended replacement coverage, which in some of the recent valuation increases will not cover the additional amount needed to rebuild a property.  Extended replacement coverage is going to be needed, and I recommend 50% or greater replacement cost, especially if you live in a disaster-prone area.  Extended replacement coverage may not come into play until you have incurred costs greater than your initial coverage limit.  This will make insurance more expensive, but it is better than not having sufficient coverage when you need it.  

            For example, on the property I am trying to insure, I bought it for less than $75,000, but its replacement cost is calculated to be $270,000 given the materials needed to rebuild that same size house on that lot.  If I purchase actual cash value, I would get the purchase price less depreciation.  If I purchase replacement cost, I would get whatever it took to rebuild the property.  Of course, roofs are often handled differently because of the amount of claims for them due to storm, hail and wind damage.

            Spend some time reviewing the declaration page of your property and casualty policies and research any terms you do not understand.  Do some comparison shopping with at least two different independent insurance agents.

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