By Teresa McUsic

If you haven’t talked to your home insurance agent or read your policy in years, now might be a good time.

As southern Californians return to the ruins of their homes devastated by wildfire, many are going to find they won’t be getting checks big enough from their insurers to replace their homes.

Somewhere between 50 to 70 percent of homeowners do not have enough insurance to rebuild their home in the event of a major loss, according to estimates from insurers and agents compiled by the Southwestern Insurance Information Service, an industry-sponsored non-profit based in Austin.

“The mistake people make is not checking with their insurance agent to check on construction costs,” said Jerry Johns, president of SIIS.
Often it takes a disaster for people to realize they are not properly covered, said Bill Mellander, a spokesman for Allstate Insurance Corp., who was heading to California from Fort Worth to help with the disaster relief effort.

“Purchasing homeowner insurance is one of the most important decisions any family should make,” he said. “It should not be taken lightly.”

While the Texas Department of Insurance could not confirm the number of underinsured homeowners in the state, the department routinely recommends homeowners look at their policies and discuss coverage with their agent, said TDI spokesman Ben Gonzalez.
“As property values increase and as building materials and labor go up, it’s important for consumers to re-evaluate whether they have enough coverage,” he said. “We have heard anecdotally from fire events that people found they hadn’t re-evaluated their policies for several years and they could not rebuild the house that they had before.”

Often homeowner will initially take out a policy after shopping for the lowest rate, which could mean their policy will pay “cash value” instead of “replacement cost,” in the event of damage, Gonzalez said.

“Then if your 20-year-old roof gets hail damage five years later, you may only get 25 percent of what it will cost to replace,” he said.

Insurance companies have been pushing harder in the past five to ten years to get policy holders up-to-date on replacement cost coverage, said J. Robert Hunter, director of insurance for Consumer Federation of America.

“Insurers have been going through a major effort to get value upgrades,” he said. “They’ve been sending out letters, and even inspectors to make sure the policies cover replacement costs.”

Farmers Insurance conducted a major education effort after the 2003 fires in California, for example, said spokeswoman Michelle Levy. “We feel we’ve made some headway on this,” she said.

If you have skirted attempts by your agent to discuss this, or haven’t heard from your agent, Hunter advises homeowners be pro-active in knowing what’s in their policies.
One important element to check for is an “inflation guard clause.” This automatically adjusts the limit on coverage on your home when you renew your policy to reflect current construction costs in your area.

Most policies have this type of clause, Hunter said.
Also look for a cap on replacement costs in your policy.

“State Farm, for example, has a 20 percent cap on replacement costs,” he said. “If you have a normal fire, your coverage is fine, but if it’s a catastrophe like in California right now, demand will rise and cost of lumber and contracting goes up. If it goes up 25 percent, you’re still o.k., but it could go up 50 percent.”

Hunter advises checking with local home builders about their current square footage costs and multiplying it by your own home’s square footage for a rough estimate of how much it would cost to replace.

Although your home value may be going up regularly by the local appraisal district, do not insure to that amount, Johns advises.

“Most people think that the appraised value is the true market value of the house,” he said. “But the appraised value is often lower than market value.”

Another area homeowners often neglect is in coverage of upgrades, remodeling or additions to their home, said Mellander with Allstate.

“Even a significant gift, like a 50-inch flat-screen television, should be discussed with your agent,” he said. “Your agent should know about any significant change in your life.”
For those avoiding this discussion with your insurance agent because you fear your premiums will go up dramatically with an increase in coverage, you may be surprised.
“You pay the most for basic coverage,” Johns said. “To increase your coverage is not that expensive relative to the protection you’re buying.”

The difference in premium cost to cover replacement cost also could be made up with higher deductibles or discounts for such things as sprinklers or smoke alarms, Gonzalez said. Check with your agent to see how an increase in coverage could be offset by other features of your policy.

Bottom line: know what’s in your policy, said Beaman Floyd, director of the Texas Coalition of Affordable Insurance Solutions.

“Tell your agent ‘I need to know what happens if I have a total loss,’” he said.
If you don’t like the premiums or coverage language in your policy, shop around, Floyd advises. Since deregulation of homeowner insurance in the state in 2003, homeowner policies have a wider range of difference in premium cost and policy coverage.
Two good sources for comparing insurance policies in Texas:

* To compare prices and complaint records, go to the Texas Department of Insurance Homeowners Insurance Price Comparison Guide at www.tdi.state.tx.us/consumer/txshoph.html.
* To compare policy coverage, check the Office of Public Insurance Council website at
www.opic.state.tx.us/homeowner.php