Posted June 08, 2007 13:49

Survey: Consumers very confused about insurance coverage When it comes to homeowners insurance, what you don't know could cost you.

Even in the shadow of Hurricane Katrina's losses, a survey finds that one-third of today's homeowners believe that flooding is covered under their standard homeowners policy, according to the National Association of Insurance Commissioners (NAIC).

In fact, typical property and liability policies don't cover home damage from floods, earthquakes, water line breaks, termites, mold and several other perils, large and small. The survey found that 33 percent of U.S. heads of household, who own a home and have homeowners insurance, incorrectly believe flood damages would be covered by a standard homeowners or property and liability policy, despite extensive media coverage on Hurricane Katrina victims whose claims were denied because they lacked flood insurance.

"Many homeowners learned the hard way that their insurance policies did not provide flood protection," says Walter Bell, NAIC President and Alabama Insurance Commissioner. "As we enter the 2007 hurricane season, we strongly encourage consumers in flood-prone areas to check whether they are properly covered."

The NAIC survey also revealed other homeowner misunderstandings when it comes to common loss situations - none of which are covered by standard homeowners insurance policies - such as:

• 68 percent think vehicles such as cars, boats and motorcycles stolen from or damaged on their property are covered.
• 51 percent think damage resulting from a break of their property's water supply line is covered.
• 37 percent think damage resulting from a break in the sewer line on their property is covered.
• 35 percent think damage from earthquakes is covered.
• 34 percent think damage from mold is covered.
• 31 percent think damage from termites or other infestation is covered.
• 22 percent think pets stolen or injured on their property are covered.

In addition, 24 percent of respondents believe they're covered for the actual cash value  of losses, while 64 percent said their policies covered replacement cost. Another 12 percent said they did not know which type of coverage - actual cash value or replacement cost - they purchased.

Actual cash value is the amount it would take to repair or replace damage to a home and its contents after depreciation. Replacement cost is the amount it would take to replace or rebuild a home or repair damages with materials of similar kind and quality, without deducting for depreciation.

"It's important that consumers understand this distinction," Bell said. "In the event of a covered loss, an actual cash value payout could be thousands of dollars lower than a benefit calculated at the replacement cost."
The NAIC survey also uncovered a growing concern among homeowners about being sued. Twenty-eight percent of respondents reported they were more concerned today than they were five years ago about being the target of a lawsuit.

"Consumers can better protect themselves from lawsuits by adding umbrella liability coverage to their homeowners policy," Bell said. According to the NAIC survey, a majority of homeowners - 63 percent - lack this umbrella coverage.

The NAIC provides information, tips and considerations regarding homeowners insurance on its consumer education Web site, Insure U (www.InsureUonline.org). The entire site is also available in Spanish (www.insureuonline.org/espanol). Headquartered in Kansas City, Mo., NAIC is a voluntary organization of the chief insurance regulatory officials of the 50 states, the District of Columbia and the five U.S. territories.

© 2007 FLORIDA ASSOCIATION OF REALTORS®