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Time to Update Insurance for Home Price Rise

Time to Update Insurance for Home Price Rise

3/23/2006

Building costs affect coverage

Property insurers and regulators are calling on Arizonans to check their homeowner coverage amid escalating residential prices and higher costs for building materials.

“Homeowners need to consider rising construction costs and renovations when insuring their home,” John Lawson, a vice president for Phoenix-based AAA Insurance, said in a statement.

The Arizona Department of Insurance is asking insurers to establish better policies for increasing the accuracy of their coverage estimates. In particular, the department wants insurers to issue periodic inquiries to customers in an effort to verify construction features and recent improvements – and to make coverage adjustments when necessary.

One lesson drawn from Arizona wildfires in recent years has been a pattern of inadequate homeowner coverage.

The topic is timely because housing values have risen roughly 50 percent in the Valley over the past year.

Yet residential prices aren’t as critical, for insurance purposes, as the costs of lumber, wiring, metals, labor and other construction components.

Concrete, for example, is up 10 percent to 15 percent from last year, while wiring has escalated about 40 percent in two years, said AAA Insurance, quoting the Associated General Contractors of America, an industry group.

Marshall & Swift/Boeckh, a Los Angeles firm that tracks building costs, last year estimated 59 percent of American homes were underinsured, by an average 22 percent. Besides rising construction costs, many people are underinsured because they fail to report improvements such as remodeled kitchens to their insurance agents, the company said.

Although Marshall & Swift/Boeckh estimates that most homes are underinsured, the company believes many homeowners are awakening to the problem.

In a similar study in 2004, the company determined that 61 percent of homeowners were underinsured by an average of 25 percent.

Americans spend more than $200 billion annually on remodeling, according to Marshall & Swift/Boeckh.

“The best thing to do is contact your agent,” said Ray Abril, insurance-operations manager for AAA. “Agents have home-cost estimators, and they can plug in the information to give a value.”

Abril suggests this for anyone who has remained with the same insurer for at least five years, since companies often don’t include an inflation factor that keeps up with long-term construction costs. He also recommends checking if you have recently remodeled.

Also, homeowners should check their policies for the type of coverage on belongings. Replacement-cost coverage pays the full cost for furnishings, electronic goods and other items lost in a fire or other calamity.

By contrast, actual-cash-value coverage is less generous because it assumes most household items depreciate over time. It’s a common type of coverage in standard policies, reports the Arizona Department of Insurance.

By Russ Wyles, Arizona Republic, March 23, 2006

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