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Protect yourself via policy check

Updated: May 3, 2013 12:14PM

What exactly does your homeowners or auto insurance policy cover?

The time to find out is before the disaster. This is a good time to take a closer look at your policies, and to ask questions of your agent.

Costly oversights

Odds are you're making at least one wrong -- and costly -- assumption about your coverage. According to a recent survey conducted for Zogby International for MetLife Auto & Home, almost half of those surveyed about their insurance coverage had far more exposure than they thought. Here are some classics:

AUTO COVERAGE: Only 40 percent of those polled knew it is possible to owe more on a vehicle than it is worth at the time of an accident.

And 47 percent thought that if their new car was totalled only a few weeks after it was purchased, the insurance company would replace their vehicle. Wrong. The minute you drive the car off the dealer's lot it, it is a used car. The depreciation is huge, and your insurance coverage is for the depreciated value.

OK, here's a wrong assumption that cost me a lot of money. I assumed -- along with 55 percent of those surveyed -- that if I used my "gold card" to rent a car, my card-issuer or my own auto insurance would provide adequate coverage. That's when I learned the hard way that insurance policies do not reimburse the rental company for the loss in rental income while the car is being repaired.

The MetLife survey points out another common misconception: If the rental car has to be towed or stored, your own auto insurance probably won't cover those expenses, either.

HOMEOWNER'S INSURANCE: The Hurricane Katrina disaster should have awakened everyone to the fact that coverage for flood damage is specifically excluded in almost every homeowner's insurance policy.

Instead you must buy separate protection through the national flood insurance program, which is underwritten by the government. Your agent can sell it to you, and you can learn more at But only 4.5 million people hold flood insurance under the federal plan.

Also, most standard homeowner's policies exclude water damage that comes from a backup of sewer water or drains or failure of a sump pump -- something that 64 percent of those surveyed incorrectly thought was covered by their policies. Separate sewer damage coverage can be purchased. Be sure to ask your agent about your coverage and limits in case of a basement flood -- both for appliances and furniture, as well as the costs of cleanup.

The survey revealed that 71 percent of Americans with home insurance thought their insurance carrier would pay for the full cost to rebuild from a natural disaster or fire, and a similar number figured they'd be reimbursed for the full cost to replace personal belongings.

That's not necessarily the case. First, you must have "replacement cost" insurance for your property. And then you must check to make sure there isn't a cap on the total payout. Be sure to document the quality of your furnishings, wall-coverings, carpet, etc. by videotaping your home, and storing the video, and any receipts, off premises.Land isn't destroyed

A significant part of your rising home value is the cost of the land, which won't be destroyed in a fire. So you specifically need to update coverage for the replacement cost of the building, furniture and personal property.

For items of specific large value, such as jewelry, artwork, furs or silverware, you need special "scheduled" coverage to make sure they will be covered for their full value in case of theft or fire.

Don't wait to be surprised by what is -- and isn't -- covered in your insurance policies. Ask questions now, and while you're at it, seek quotes from other carriers. You might get more coverage for less money. You'll certainly have more peace of mind. And that's The Savage Truth.

Terry Savage is a registered investment adviser. Check out Terry's answers to reader questions at, and click on Business. Distributed by Creators Syndicate.

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