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Costly trends impacting homeowners insurance

by Broderick Perkins

05/18/2010) What does Chinese drywall, living in coastal areas, lower home prices and credit scores have in common?

They are all issues that can cost you more in homeowners insurance, leave you with less coverage or even get your policy canceled.

Among the issues, Consumer Reports (CR) says after Chinese drywall created both property damage and health issues, some homeowners filed insurance claims. Insurers quickly rejected the claims and in some cases dropped policyholders claiming customers and their homes were subject to risks not covered by their policy.

Attorney's are fighting and winning cases against builders and manufacturers, but the issue is under investigation by the Consumer Product Safety Commission where more than 3,000 related complaints have been filed.

Says CR, the drywall case "Highlights an industry trend. Insurers are placing more risk on policyholders by changing policy language, charging more, or interpreting coverage to the detriment of homeowners."

The number of drywall victims are limited, but larger issues loom for a greater number of home owners who may have to adjust their approach to homeowners insurance coverage.

• Coastal states' premiums increase most. Insurance premiums for renters and home owners rose an average 3.2 percent, in 2009, but much more in recent years in coastal states -- 11.4 percent in Louisiana and 10.6 percent in Massachusetts, both from 2006 to 2007.

Residents in coastal states should shop around and consider trading in the "loyal customer" discount (for using one insurance carrier for home, auto, life and other insurance needs) for a better premium from a highly rated insurer. Consumer Report said among subscribers who switched to a new carrier in the four years prior to 2008, more than half paid less for coverage.

• Many homeowners now have two deductibles, one for the main policy and another for a high-risk peril, say a windstorm or a hurricane. Florida, for example, requires a hurricane deductible of 2 percent for homes valued at $100,000 or more. Policyholders can choose a larger deductible of up to 10 percent of the insured value.

CR suggests self-insuring for smaller claims by setting aside savings, as an emergency fund. Also set a higher percentage deductible or switch to a flat-dollar deductible, when possible. The idea is to self-insure for smaller claims, because insurers drop policy holders who file frequent claims in a short period.

• Lower home prices. Depressed property values turn thoughts to less coverage, but insurance coverage isn't based on your home's market value. It's also based on the cost to rebuild -- labor and materials. Ask your insurance agent if you have sufficient coverage. Before home prices fell, many home owners had insufficient coverage.

• Credit scores. While some states are fighting the trend, credit scores are more and more a factor in underwriting. Your credit score is a numerical rendition of your credit risk, your risk of experiencing financial trouble. That's become central to how an insurer determines your premium, says CR.

Check your credit report, pay your bills on time, don't carry too much debt and learn how to keep your score as high as possible .

• Coverage for modern-day concerns. Many major carriers sell identity-theft coverage as a stand-alone policy or endorsement to your homeowner's policy. The coverage might reimburse you for lost wages, notary fees, and legal fees if your identity is stolen.

Instead of the coverage, monitor your credit reports, regularly change passwords and otherwise take additional cost-free ID-theft precautions, CR advises.

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