This is the season of open enrollment. If your company, like most companies these days, does the annual health insurance dance, check with HR to find out when your open enrollment period is and make the necessary changes. You should also check to see if your plan operates on a calendar year or benefit year system, and plan your appointments and procedures accordingly.

Common Changes to Health Plans
During open enrollment, employers give employees the option to do several things. In some cases, the employer will also make changes to the plans that affect all employees. Some examples:

  • Adding insurance companies to the list of options
  • Changing insurance companies for everyone
  • Removing insurance companies from the list of options
  • Adding different plan types, such as HMOs and PPOs
  • Adding FSA or HSA options
  • Changing employee contributions
  • Adding or removing spouses or dependents

If you receive notice that your employer is changing the options, review that notice carefully and be sure to act by the deadline.

For example, this year my employer for the first time is adding an employee contribution for spousal and dependent insurance. The charge per month for my husband would be $87. He has free insurance through his employer, so we have to decide whether secondary insurance is worth $1044 a year. Last year, it would have been because the secondary policy saved us $4000 in medical bills from his surgery. This year, it may not be worth it. We have to run the numbers.

You may also have to choose your FSA election soon. The rules are changing for 2011, so review them carefully, then total up your expected costs and choose a limit accordingly.

Calendar Year vs. Benefit Year Benefits
Once you make the necessary changes to your plan, also note which benefits are on a calendar year and which are on a benefit year. For example, if your deductible is on a calendar year, it runs January 1 to December 31. If you’ve used it up, then plan as many appointments as you can before December 31 to avoid incurring more costs. On the other hand, if your deductible operates on a benefit year and your benefit year starts November 1, then you only have until November 1. However, if you haven’t used up your deductible, and need several appointments, you might be better off waiting until the start of your new deductible so you don’t have to double pay.

If you’re undergoing treatment, you should also confirm whether it falls under calendar year or benefit year coverage. If it’s benefit year and your benefit year ends shortly, your provider can start billing your insurance again once the next benefit year starts. If it’s calendar year, they can start billing your insurance again on 1/1.

If you’re not sure when your open enrollment period is, or where to find out what your benefits include, you should first check with your HR department or manager. Next, look at the back of your card for a toll free number. They can confirm benefits. Finally, visit the website for your plan. You can create an account that will detail your coverage and claims.

I’ve mentioned a couple times that my husband is receiving disability insurance while recovering from surgery. However, I was startled to discover recently that California is one of only five states with a state-run disability program. If you don’t live in one of these states (California, Rhode Island, Hawaii, New York, New Jersey), you should pursue other options for getting this insurance.

How State Disability Programs Work
In states that offer disability programs, your employer deducts your contributions through payroll deductions. Some organizations and government agencies are exempt, but may have a similar internal program. If you’re self-employed, you may be able to buy benefits through the state program.

Once you have a disability, you apply for benefits through the disability program, which is usually operated by the unemployment department. The specifics vary by state, but in general, you’re paid 55% of your previous salary per week, based on your highest-earning quarter out of the last five quarters. There is a cap, however. In California it’s $987. Disability income is not taxable, so even though you receive about half your salary, you’re not losing as much income as it seems. In California, there is a 52-week cap on benefits.

If you’re unemployed when you become disabled, you may also qualify for benefits, which will be higher than your unemployment benefits. Unemployment payments are low to encourage workers to return to work quickly. Disabled workers obviously can’t do that. You can’t receive both benefits at the same time.

How Employer-Provided Disability Programs Work
If you don’t live in a state with a government disability program, your employer may offer it privately as an employment benefit. Many employers provide it as a free benefit, but some ask employees to contribute. If your employer asks you to contribute, do it. It’s much cheaper to buy coverage through a large group plan than through an independent plan.

Unlike state plans, which are the same for everyone in your state, you should check with human resources or your insurance provider for information about eligibility, waiting periods, and filing a claim. Most plans cover up to 60% of your salary. My husband’s employer provides a state supplemental for 60% of his income. If your employer pays for the coverage as a benefit, the income may be taxable. Ask your employer.

How Private Disability Insurance Works
If your state or employer doesn’t offer disability insurance, you can acquire it privately. You’ll most likely be required to undergo medical underwriting as part of the application process. You may also be subject to a longer waiting period before benefits become available.

If you’re a high-earner, you may want to supplement your existing state or employer disability plan with a private plan. Private plans will usually cover 70-80% of your income. It can cost $600-1800 a year, so review your plan carefully to make sure you have adequate coverage and that it includes an “own occupation” rider. Without that, benefits may stop if you can return to any work. You want to be covered until you can return to your current occupation.

How to Apply for Disability Coverage
In order to apply for disability, you and your doctor must complete the form that proves your disability. Contact your state, employer, or insurance company for the proper forms and follow the instructions carefully. Be sure to notify the insurer when you return to work in order to stop the payments. Failure to do so is insurance fraud.

Worker’s Comp vs. Disability Insurance
Disability insurance is for injuries or illnesses that occur outside the workplace. If you’re injured on the job, then you should file a worker’s comp claim. All employers are required to maintain proper worker’s comp coverage. You don’t have to opt-in or pay for the benefit. Benefits and the claims process will vary depending on your state, so contact HR for advice.

State/Employer Disability vs. SSDI
If you’re disabled for more than a year, then you will most likely qualify for a Federal program known was Social Security Disabled Insurance (SSDI). SSDI is part of your FICA contributions. The benefit amount is based on your lifetime average earnings. If you expect to be disabled for more than a year, contact Social Security or speak to your doctor’s office about filing a claim.

Sources of Disability Insurance
If you live in one of the five states that requires disability insurance through the state program, then you probably already have it. If you’re employed and don’t live in one of those states, ask your employer about it.

If you’re self-employed, contact your insurance agent for information about applying. It’s vital that a self-employer person by coverage because you’ll have absolutely no income if you become injured.

If your employer doesn’t offer insurance, you have a few options. If you’re a member of a union or trade group, contact them to see if they have a group program. My husband bought a small, cheap plan through his professional organization. It has a 3-month waiting period, so we won’t be tapping it for his current injury, but at $80 a year, it’s worth it in case of future emergencies. If you don’t belong to a trade group, contact your insurance agent for information and q

Recently Progressive Insurance has taken a tactic from Priceline and offered customers the option to “Name Your Price” for auto insurance. Now, it’s one thing to name your price for a hotel or an airline ticket, neither of which really make a huge difference in your life, but naming your own price for auto insurance could be a gamble with your financial future.

Advantages of Naming Your Price
Certainly I can see the advantages of naming your price for insurance. First, you can make sure that your policy fits your budget. If you’re in a tight financial situation, but don’t want to cancel your auto insurance, then a lower-priced policy may be just what you need. Cancelling your auto insurance is always a worse option than reducing your coverage. Insurance is required in most states, and not having it could result in big fines if you’re caught. You’ll also be on the hook for the full amount if you cause an accident, and possibly if someone hits you and they don’t have insurance.

Second, by choosing your own price, you can see all the options and decide which are best for you. Some insurance companies tack on a variety of additional fees and coverage options that you don’t really need in order to jack up the rate. By choosing your own price, you can avoid these unnecessary extras.

Disadvantages of Naming Your Price
The price shouldn’t be your primary concern when choosing auto insurance. First, you need to find the right coverage for your needs. Second, you need to find a reliable insurance company. Some companies are cheap, but the adage that you get what you pay for is definitely true with them.

Choosing your own price, which may result in a policy that offers less coverage than you need, could expose you to serious financial harm if you cause a major accident. While you might be able to get away with the minimum if you have no assets, make sure you’re fully protected if you do have assets. Even if you don’t have assets, you may want to choose more than the minimum because you can be sued and have future wages garnished if your insurance isn’t enough.

Progressive is the only company that currently lets you choose your price, and they are a reliable company. My fear is that shadier insurance companies will jump on the bandwagon, leaving people with cheap policies that provide little to no coverage, or that are nearly impossible to file claims for.

If you get into a serious accident and your insurance doesn’t adequately cover you, you could spend years recovering from the financial wreckage.

The Best Way to Shop for Auto Insurance
It’s a good idea to shop for new insurance every couple of years to make sure you’re still getting a fair price for the same level of coverage. Don’t start with price, though. First, research reliable insurance companies. Next, contact them to get quotes for your current coverage level. Choose the one that offers the best price for the coverage you need. If the best price is outside your budget, see if you can reduce the cost by increasing your deductibles – make sure you can afford the deductible if something happens. For example, we have a $1,000 deductible on our auto policy and a $2,500 deductible on our homeowner’s policy. By choosing high deductibles, we reduced the cost of each policy significantly.

If you’re going to choose high deductibles, make sure you have enough money in your emergency fund to cover them should something happen.

No one wants to buy insurance. It feels like a waste of money, but it’s necessary and worth it. So don’t skimp on coverage to save money. There are better ways to save money that won’t put your financial future at risk.

This has been a rather frustrating week. First, it’s a deluge this week, so the roads are crazy here in Los Angeles (and also, we’re floating away.) Second, the hospital where my husband was scheduled for surgery screwed up the schedule and it’s been delayed. Third, as I mentioned before, the hinge on my cell phone broke. And that is what I’m going to discuss today: what a waste cell phone insurance is.

My Story of Cell Phone Insurance
I’ve been a loyal AT&T Wireless customer for several years, and I was a Cingular customer before AT&T bought them. Basically, I’ve had service with some division of their company for 13 years. In October, 2008, my husband and I bought new LG CU515 phones and agreed to a two-year contract. Now 15 months in, the hinge on my phone has cracked. When we bought our phones, they asked if we wanted insurance. I don’t usually go for these things, but we’ve had phones break before, so we said yes. One monthly insurance charge was added to our monthly bill. Now I am told that the insurance only covers my husband’s phone. We were not told the insurance would only cover one phone when we opted for it.

I called LG, but they’ve chosen not to recall the phone, despite numerous complaints on the AT&T forums and several review sites about the hinge cracking. They will apparently fix the problem free if it’s in warranty, but my phone isn’t.

I called AT&T for help, but my phone is out of warranty, they insist it’s not insured even though we thought it was, and it’s too soon for an upgrade so I can’t switch to an iPhone at the discounted price. I was told my only option is to go to one of their stores to buy a cheap GoPhone and have it added to my account. She kept saying, “We have this option for people who might be short of funds.”

I’m not short of funds, but I’m sure as hell not paying $200 for another piece of junk just to get me through the next nine months of my contract.

I explained to AT&T that my husband is scheduled for surgery and now is not a good time to be running over to the phone store. At the time of the call, his surgery was a mere 15 hours away. Yes, I can use his phone while he’s under, but I also need to be reachable on my own number. I explained this to AT&T, but only got apologies and “Sorry, a GoPhone is your only option.”

I realize that it’s not AT&T’s fault that my husband requires surgery at the same time my phone broke, but it is their fault that they sold me a phone that would not last the contracted two years. This was not a free phone – I paid $80 for it, plus the two-year contract. Without the contract, the phone would have been $200.

What the Worthless Insurance Cost Us
So far, we’ve paid $4.99 a month for 15 months. That comes to a total of $74.85. Over the term of the contract, the total cost will be $119.76. In addition, my particular model has a $50 deductible, if they were willing to replace it. Some phones have higher deductibles. Total cost to replace a phone: $169.76. I could buy a used, unlocked phone on eBay for less than that. Yes, it would be used, but it would get me through the rest of my contract. At which point, I’d have the cash to get a new phone with a new contract.

When Cell Phone Insurance Might Be Worth It
If you have a really expensive phone, one that would cost $600-$800 to replace, then yes, the insurance might be worth it. But you’re also going to pay a high deductible, and your replacement phone will be a refurbished phone, not a new phone. So ask yourself, do you want to pay $120 for insurance plus $150 for the deductible for an old, refurbished model? And be warned that not all damage or losses are covered – so you could pay all that money and still be left without a phone.

A Better Alternative to Insurance
Next time we renew our cell phones, I’ll be doing two things: 1. Considering switching my business to another carrier, and 2. Creating my own cell phone insurance plan. Rather than pay for crappy cell phone insurance, I’ll simply add the amount we would have paid to our emergency fund each month. Then if something happens to our phones, we’ll have the money to replace them. If nothing happens, that money is ours to keep.

Now I realize that a different carrier may be no better than AT&T, but I’m pretty ticked off right now. This phone is crap, and THEY know it’s crap, but have chosen to do nothing about it. I may just be willing to sacrifice the iPhone in order to take my money elsewhere. I could get a G-Phone! By the time I can switch, they’ll have all the G-phone kinks worked out.

When I was talking to my dad about how much life insurance to buy, he commented that they’d never bought it for my mom because she didn’t work. He viewed it as income replacement. I’ve read, however, that you should consider buying life insurance for a stay-at-home mom because she performs tasks that would cost a lot of money if you had to hire other people to do them.

The Housewife’s “Salary”
It’s been calculated that a housewife’s salary would be anywhere between $117,000 and $134,000 if she were compensated for all the household and childcare tasks she performs.

Reasons to Buy Stay-at-Home Mom Life Insurance
Many couples forgo life insurance for a SAHM because they assume that the surviving husband will be able to perform all the duties once performed by the stay-at-home mom. But will he?

Let’s think about her major duties:
Child care
Grocery shopping
Errand service
Household bookkeeping

In addition to assuming all of these duties, the husband would still have to work a full-time job to maintain the family income. He may even want to take some time off work to grieve and spend time with his grieving children.

Unless a grandparent or helpful relative is available to move into the house and take over some of these tasks, the husband will have to hire people to handle at least some of them, especially child care. He may also need to find someone to help with housekeeping and cooking until the family develops a new routine.

Reasons Not to Buy Stay-at-Home Life Insurance
Buying life insurance for a SAHM may not be financially feasible if the family is already stretched thin. In addition, neighbors, friends, and relatives do typically rally around a family that has suffered the loss of a parent. They provide meals, household help, and childcare for free. The help may last long enough for the surviving parent to readjust the budget to afford additional costs and develop a new household routine.

How Much Insurance to Buy
If you do choose to buy life insurance for a SAHM, research the going rate for the needed household services. Multiply that by the number of years until your youngest child reaches an age you feel confident he or she would be safe home along after school. For many parents, that’s 11 or 12 years old.

For example, if a nanny in your area costs $700 a week, you would need at least $36,400 a year. If you opt for daycare that costs $1000 a month, you may also need a housekeeper to come in once a week at $70 per visit for the first year. The amount you choose depends on the care/services you believe are best for your children.

Once you calculate these costs, add a pad of about 20% to cover funeral costs, medical bills, unanticipated costs, inflation, etc.

What Type of Insurance to Buy
Regardless of the amount of insurance you choose, opt for term life insurance, which has better rates and conditions than whole life insurance.

The tricky part is determining the term. Insurance is typically available in 10, 20, and 30 year terms. Since my husband and I both work and have roughly 30 years until we retire/the mortgage is paid off, we opted for 30-year-terms to lock-in low rates now. You may only need a 10 or 20 year term for a SAHM because the kids will be grown by then. You might consider buying a term that will cover her until the youngest child is 12, or simply canceling it when the youngest child is 12 (make sure your policy doesn’t have surrender or cancellation penalties.)

A $200,000 10-year policy for a healthy young mom could be as low as $12 a month. If you can only afford life insurance for one parent, then the income-earning parent is the obvious choice. However, if you can make room in your budget for a policy for the stay-at-home mom, too, it’s worth it.

This week we’re finally adding our auto policy to our home policy. We waited for our original auto policy to expire to avoid dealing with refunds, overlap, etc. Now it’s finally time to merge. I knew we’d receive a discount, but I didn’t realize just how much until I called our insurance agent.

Multi-Line Insurance Discount
They call it the multi-line discount. By adding two cars to our home policy, we’ll save nearly $600 a year on our combined insurance policies. Once our life insurance applications are approved, the savings will increase again, to around $850. In total, we’ll receive the following discounts:

  • 15% off auto for having a home policy
  • 15% off home for having an auto policy
  • 5% off each car for the life policy
  • 5% off home for the life policy.

If you have additional policies, like boat, RV, or motorcycle insurance, you may also receive additional discounts, but you get the most benefit from the home/auto combo.

Which Policies Don’t Qualify?
Two of our insurance policies don’t qualify us for additional discounts. Our earthquake insurance is through Farmer’s, but it’s funded and operated by the state of California. Farmer’s is merely a pass-through, so no discount there. Our flood insurance is funded and operated by the Federal government, so again no discount even though we purchased the policy through Farmer’s.

Shop for the Best Deal
When we were choosing our homeowners insurance company, we didn’t just get quotes for the home policy. We also got quotes for auto insurance. Even though we wouldn’t be switching for several months, we made the comparison up front so we could choose the one company that would handle all our policies. I also considered the agent who represented the insurance company. We chose Farmer’s because the insurance agent was easily reachable and very helpful. I didn’t have the same experience with the insurance company where we’ve had our auto policies (individually and jointly) for more than a decade.

Ultimately, Farmer’s cost $200 a year more for the combined policies, but we felt more comfortable choosing a company with a proven homeowners insurance track record. Our auto insurance company only recently moved into homeowners insurance and doesn’t offer life insurance at all.

When it comes to life insurance, you should shop around for a reliable company with good 30-year term life insurance prices (less if you have less time until retirement), but consider the multi-line discount before making your final decision about where to apply. For my insurance, I had a cheap policy through AAA, but it could increase annually. Even though the Farmer’s insurance was slightly higher, after the discount it was about the same. Factor in that it can’t increase for 30 years, and it was an excellent deal.

I have generous health insurance through my employer, which covers me and my spouse (and dependents, were I to have any) without cost to us. My husband also has free coverage for himself through his employer. That’s served us well in the past when our employers bought insurance through different insurers. My insurance counted payments from his primary coverage toward his deductible under my plan. They also covered the portion we would have paid as a deductible under his plan. They then covered the 30% gap in coverage, so we paid almost nothing for his care. Unfortunately, that will all change in January when we will both be covered through the same insurance company, but under different employers. Depending on how your coverage works, double coverage could save you a small fortune, or it could cost you one.

Choosing a Primary Insurance Provider
If you and your spouse both have coverage, you can opt for double-coverage under your plans. Some employers require you to pay to cover a spouse and dependents, some don’t. However, there are some tricky aspects to choosing a primary insurance provider. Your employer’s insurance is your primary, and the same for your spouse’s insurance through his or her employer.

If you have children, you can add them to either or both plans. If you had them to both plans, the insurance for whichever spouse has the earlier birthday in the year will be primary. If you were born May 5 and your spouse was born May 6, your insurance would be primary. The year of birth or age of the spouse is irrelevant.

Paying Deductibles
Deductibles can be tricky. Some will use deductible payments under one plan as deductible payments under the other, and some won’t. Now that my husband and I will have insurance from the same insurer, we’ll have to pay two deductibles in order for him to receive coverage under both plans. That brings our total out-of-pocket from $500 to $750 if we use both plans for him.

The Co-Pay Gap
Typically, you’ll pay the basic co-pay when you visit a doctor and the insurance pays the rest. This is true even with double coverage (only one co-pay is required, not two.) However, most plans only cover a portion of non-basic care, tests, etc. For example, my plan covers 90% and I pay 10%. My husband’s covers 70% and he pays 30%. Under our old double coverage, my insurance picked up that other 30%, so we paid nothing. Under our new double coverage, my insurance will only pay the gap between mine and his, so they’ll pay 20%, leaving us to pay 10%. Frankly, my employer is getting cheated on that one.

When Does It Make Sense to Use Both Policies
Since we’ve already covered our deductibles for the year, those will carry over to the new plan until the end of 2009. My husband can continue to use both policies to cover 90% of our costs. Once we get into 2010, we’ll have to decide whether it’s worth it to submit claims under the secondary insurance. So let’s do the math:

Basic care: Same co-pay, same coverage. There’s no benefit to using both plans for basic care.
Prescriptions: Same co-pay, same coverage. No benefit.
Expensive tests: Here’s where it could get tricky. Let’s say he needs a test that costs $1000. If it’s his first test of the year, we’d owe $500 and his insurance would pay the rest (the 30% is included in the $500). If we also submitted my insurance, we’d actually pay $750 for it.
Surgery: What if he needed surgery, which could easily run into the thousands of dollars. We’ll say $12,000 to be conservative. If his deductible hadn’t been met, we’d pay $500 for that, plus $3100 for his contribution. If we then added my plan, we’d pay $750 for the two deductibles, but the secondary insurance would kick in an additional 20%, so our contribution would only be $1200. In this case, the double-coverage would save us $1650.

Alternative Care: Most policies will cover a portion of a certain number of chiropractic, acupuncture, physical therapy, or mental health visits in a year. With double coverage, he can get covered up to the combined limit for both policies, so rather than 24 visits, he qualifies for 48. However, first we’d have to figure out whether the additional deductible would be less than or equal to the amount covered by the secondary insurer.

If you can get free secondary coverage from your or your spouse’s employer, you should consider accepting during your next open enrollment period in case a major emergency arises, but be careful how you use it on a regular basis. Make sure that the coverage gap will cost more than the extra deductible before you submit that second claim.

Most people who don’t live in hurricane regions don’t think they need flood insurance. Then a plugged storm drain overflows into their home and they discover that homeowner’s insurance doesn’t cover it. Regardless of where you live, you should consider adding flood insurance to your policy.

Where to Get Flood Insurance
Flood insurance is provided by the National Flood Insurance Program. Although you buy it through your homeowner’s insurance agent, it is administered by the program. Visit to find a local agent if your insurance agent doesn’t offer it. Renters and homeowners can both buy flood insurance, although renters would want to limit the policy to contents only.

What Is Considered a Flood
If your water heater breaks or your roof collapses in a rain storm, your homeowner’s insurance usually applies. However, if the flooding comes from the ground, for example, from a rainstorm washing down a hill, a plugged storm drain running over, or water gushing from a broken water main, then your homeowner’s policy typically won’t cover it. Flooding can happen anywhere, anytime, even if you don’t live in a high-risk flood zone.

Insurance Rates
Insurance rates vary depending on whether you live in a high-risk or moderate/low-risk zone. Your zone is determined by flood maps prepared by the government. You can also elect to cover the building only, the contents only, or both. Finally, the rate is affected by your chosen deductible and level of coverage. Policies range from $100 to $1500, with the average being $540 a year.

What’s Covered
Different portions of the policy cover different portions of your home.

Building Coverage
Building coverage includes anything permanently fixed to the home, including:
Structure and foundation
Detached garage
Built-in appliances
Refrigerator and contents
Plumbing, electrical, and HVAC systems

Contents Coverage
Contents coverage includes the things that aren’t bolted down:
Personal belongings and clothing
Free-standing freezer and contents
Washing machine and dryer

Not Covered
Preventable moisture or mold damage
Currency or precious metals
Loss of Use

Basements receive only very limited coverage unless you add a special rider.

Although you may never need flood insurance, you should consider it if you live on or near a hillside or live in a city that is strapped for cash (which is most of them.) You never know how old those underground pipes are or when they might break.

Yesterday while driving to work, I heard a report about some of the people who have lost their homes in the Georgia floods. They are renters and their rented homes are gone, along with their stuff. They went to shelters seeking money, but found only food and a place to sleep. The Red Cross can’t provide vouchers until it gets government money and the state is strapped. If these people had renter’s insurance,  it would be a different story.

Why You Need Renter’s Insurance
For the most part, renter’s insurance covers the loss of your belongings due to fire and theft from your rented home or apartment. Your landlord’s homeowner’s insurance does not cover your possessions and typically won’t cover your loss of use if the place is lost if in a fire.

What Renter’s Insurance Includes
Renter’s insurance primarily covers your possessions. Most policies also provide some money for loss of use, which will help you find a new place to live if your apartment is damaged in a fire. Once again, don’t count on your landlord’s insurance.

My renter’s policy included a minimal amount for liability, in case a guest was injured in my apartment. This is included automatically, and you don’t need to worry too much about it because this is one area where your landlord’s insurance typically applies.

Additional Riders
As with most insurance policies, you can add riders to your policy if you have expensive computers, jewelry, or collectibles.

Flood and Earthquake Insurance
In California, you’ll be offered the option of buying earthquake insurance in addition to renter’s insurance. Don’t do it. Earthquake insurance is designed to cover the structure and has a very high deductible. The cost of the insurance simply isn’t worth it.

Flood insurance is something to consider, especially if you live in a flood zone, like those renters in Georgia. If your apartment floods and your possessions are destroyed due to a water pipes or appliances in your apartment breaking, your original policy should cover you if it includes “discharge of water.”

Your landlord’s policy may also apply if the flooding is due to improper or negligent maintenance, but you’d have to sue him or her to get any money. In the meantime, you’ll have to cover your expenses out of pocket.

Cost of Renter’s Insurance
My $20,000 policy cost $240 a year, or about $20 a month. I had it deducted from my checking account every month, and after a few years the price actually went down due to customer discounts.

True, you may never need to use your renter’s insurance, but it’s a small price to pay for the peace of mind in case anything every goes wrong. If you’re floating down your street in a dinghy, you won’t regret your insurance for a minute, I promise.

If you own a home with a mortgage, then your lender requires you to have fire insurance to protect your/their investment. However, many people find that they are underinsured after a fire. If you’ve had your home for more than a few years, you should call your insurance company and a few others to compare current rates at the current home value/reconstruction cost. The last thing you want to do is lose your home and then discover that your insurance won’t fully replace your home, but you’re still on the hook for the full mortgage.

What Fire Insurance Covers
I just received my first policy last month. Rather than the purchase price, which includes the cost of the land, the policy only covers the structures on the property. Specifically, my fire insurance policy covers: dwelling, additional structures, personal property, loss of use, and code enforcement. There’s also a 10% overage included in case of construction cost increases. The dwelling figure is based on the square footage multiplied by the cost to rebuild per square foot. All other figures are extrapolated as a percentage of the dwelling value. So, the shed is insured for 10% of the dwelling value. My personal property is 25% of the dwelling value. The policy is written for extended replacement cost, not current replacement cost, to ensure that I’m covered for future values and costs rather than current values and costs.

Make sure that your policy includes code enforcement. Building codes change regularly, but the updated codes typically don’t apply until the home is remodeled or rebuilt. For example, if you had a 1927 house with the original wiring, you wouldn’t have to rewire the house unless you a. did extensive remodeling that required a building inspection, or b. your house burned down and needed to be rebuilt. Depending on the age of a house, bringing it up to the new code can be very expensive.

Why You Need Fire Insurance
Not everyone needs flood insurance, or earthquake insurance, or hurricane insurance, etc. Everyone needs fire insurance. If you live in a fire zone, then it’s especially vital. One look at the fires that rage through Southern California every year should tell you that. But it’s not just a SoCal problem. It’s 100 years of bad fire policy nationwide. For a long time, firefighters stomped out every small lick of flame in a forest. They didn’t realize that a forest needs to burn periodically to spread seeds and clear out overgrown underbrush. That means, unfortunately, that today’s fires have huge amounts of fuel to burn through and sometimes firefighters can’t stop fires that threaten homes and other structures.

However, even if you don’t live in a fire zone, you’d have to live in a concrete bunker to avoid all risk of fire. A spark from a bad electrical wire, a dryer hose pulled loose by a pet, a cigarette ember hitting a dry tree in your yard, a lightning strike. Any of these things can set your house on fire. Although you can take reasonable precautions, there is still a very real danger of a fire in your home.

Even though fire insurance covers a much more expensive possession than a car, the cost is significantly lower. Our homeowner’s insurance is 1/3 the cost of our auto policy, presumably because we don’t drive our house around town where we might bash it into things. I’ve heard people argue that they don’t need fire insurance because they don’t have a mortgage, but unless they have the full replacement cost of the house saved up in cash, foregoing insurance is not a wise move. Spend the few hundred dollars a year. Even if you never need it, the peace of mind is worth something.

If you already have a fire policy, it’s time to review it. Make sure it includes today’s value, not the value eight years ago. Even your home price is the same, the rebuilding costs have most certainly gone up.

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