Homeowners Coverage Knowledge Gap Wide Among Consumers
Many Americans admit to having a knowledge gap when it comes to what their home insurance actually covers , according to a new survey.
Nearly one third (31 percent) of Americans don't know how much their most valuable assets -- their homes -- are insured for , and an additional 46 percent don't know how much coverage they have for their homes' contents , such as furniture and clothing , say the results of a survey by Zogby International for MetLife Auto & Home. Additionally , many homeowners aren't aware of coverage overlaps that may exist , which could result in opportunities to save money.
The first of a two-part "Insurance Literacy" survey , tested consumer knowledge of insurance basics , including homeowners , condo , and renter's insurance.
Common misconceptions that could lead to coverage gaps were:
-- Thirty percent of homeowners believe their insurance coverage is based on the current market value of their home. Actually , the available coverage limit for homeowners insurance is based on the cost to rebuild the home , a mistake that could lead to confusion for homeowners trying to evaluate whether they have the right amount of insurance.
-- More than two thirds (71 percent) of those surveyed believe insurance pays for the full cost to rebuild their property in the event of a major loss , such as a fire or other natural disaster. But nearly all insurance companies "cap" the amount paid to rebuild the dwelling following a total loss , unless additional coverage is purchased. Furthermore , the coverage is subject to a deductible , and certain causes of loss , such as water damage caused by the natural disasters of flooding , are excluded completely.
-- Almost three-quarters (73 percent) believe insurance will pay the full cost to replace personal belongings in the event of a loss. However , depreciation is usually factored in , unless optional replacement coverage is selected , and the coverage , regardless of the chosen settlement method , is subject to a deductible.
-- Sixty percent believe insurance will pay for the full cost of replacing valuables , such as jewelry and collectibles. Most insurance policies contain a payment cap for replacing valuables , although additional coverage can be purchased , and the coverage is subject to a deductible.
-- For a major loss , nearly two-thirds (64 percent) of those surveyed expect their insurance to cover any building code mandated upgrades that are necessary. Without an endorsement/rider , most home insurance does not cover required upgrades located in an undamaged portion of the home.
"More than two-thirds of consumers surveyed also said they'd rather pay a higher premium than be told that a loss isn't covered ," said Bill Moore , president of MetLife Auto & Home. "To ensure this doesn't happen , consumers can find the best value by learning more about their policies and selecting the coverage that best meets their needs , rather than simply shopping for the lowest premium."
On a positive note , with purse strings tight , opportunities exist for consumers to become more aware of what their current policies do cover in the event of a loss , to avoid insurance overlaps and unnecessary out-of-pocket expenses. For example:
-- Electronically downloaded and stored entertainment , such as music , ring tones , etc. , can be expensive to replace without easy access to free re-downloads. However , more than 90 percent of homeowners didn't know that insurance can extend coverage to electronic data.
-- Almost half (47 percent) didn't realize there's no need to secure additional coverage to insure the personal property of college-age children living on campus. This is covered under the standard homeowners contract , subject to its terms and conditions.
-- Many homeowners would be surprised to learn that damage to appliances and wiring from a power surge would be covered by their insurance policy. More than half (59 percent) didn't think it would -- limiting out-of-pocket expenses to a deductible.
Natural Disasters
Many homeowners exhibit confusion about insurance coverage for natural disasters and unforeseen occurrences. The majority of homeowners understand that flood damage is written on a separate policy from their standard insurance policies. However , many consumers are still misinformed -- or unsure -- about the coverage available for other types of events.
In some cases , homeowners are aware of the potential for a loss , but don't realize what coverage they have against a particular hazard. Among other things:
-- Although 83 percent believe foundation damage from earth movement is very serious or somewhat serious , only 37 percent know they aren't covered for this under the standard homeowners policy.
-- More than a quarter (28 percent) incorrectly believe they'd be covered for an earthquake or volcanic eruption , and the same amount aren't sure one way or the other. Most standard policies exclude this peril.
-- For water damage from a sewer or sump-pump back up , 67 percent of homeowners believe this would be covered. Without the appropriate rider , most policies don't cover this.
The Zogby/MetLife Auto & Home homeowners insurance survey sample consisted of interviews with 1 ,196 adults who have homeowners , condo , or renter's insurance , and who are living in a household with a telephone. The interviewing was conducted May 26 , to June 9 , 2010.
Source: MetLife Inc.