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Homeowners: Know Your Coverage Rights

Insurance companies that provide homeowners insurance throughout the country have lost serious money during the last decade [1]. Data shows that there were almost 1000 catastrophic "weather events" from 2008-2013. (There were 602 events that occurred the prior 5 years.) As a result, premiums for homeowners insurance have skyrocketed. Rates are now on average $1000 a year-an increase of 69 percent from a decade ago.

But that's not the only change that's been made. Many insurance companies are discretely adding new restrictions, refusing to pay valid claims and scaling back coverage. By the time a homeowner needs help as a result of a major loss, their insurance company will likely tell them that they have to pay thousands of dollars out of pocket for damage costs they thought were covered. By taking some proactive steps now, you can hopefully avoid a worst-case scenario. In the meantime, homeowners who have suffered a loss and are tussling with their insurers should know they are well-protected under California law and consult with experienced attorneys to understand their rights.

Taking action

So today, it's more important than ever for homeowners, whether they are renewing or switching insurers, to thoroughly review their homeowner insurance policies. If you have already suffered a recent loss and the insurance company is repeatedly stalling, it may be important to contact a lawyer to help cut through the red tape.

According to one expert in the field, homeowners typically only look at price and reputation when choosing which company to sign with without really examining exclusion clauses and getting to the heart of legalese language often buried within policies

Specific coverage likely scaled back

There are key coverages within a policy that every homeowner should pay attention to:

Water Damage: Homeowner insurers in past years covered many types of water damage to homes. However, due to an increase in hurricanes and other weather-related activities in recent years, and a desire to keep their own costs lower, insurers have been significantly scaling back coverage for water issues.

Homeowners should examine their policies to determine the exact kind of coverage available for water damage. One example of available coverage that is typically excluded from homeowner policies is damage related to sewer and drain backup.

Repair costs: Insurance companies typically cover the costs needed to fix a house in the event of a catastrophic loss, such as a massive water leak, fire or storm. However, given that contractors are in high demand after such events, their prices go up. As a result, insurers have scaled back on this type of coverage-particularly in disaster-prone areas of the country.

Homeowners should purchase extended replacement protection, an option usually available for additional premium with most homeowner policies. A typical extended replacement cost clause reads: "We will pay to repair or replace covered loss under Coverage A -Dwelling up to 125% [this number varies] of the limits of insurance for Coverage A-Dwelling." In other words, this clause automatically increases the amount you can be paid to fix your home. If you have suffered a loss and your policy contains this kind of a clause, it is important that you and the insurance company are on the same page as to the maximum amount available under the policy.

Wind damage: Today, it's common for homeowner insurance policies to have "special" deductibles for damage caused by wind. This was first initiated after Hurricane Andrew happened in 1992. Instead of paying a set deductible, homeowners typically can opt to pay a percentage of the property coverage as their deductible. This is usually between 2 and 5 percent.

In California, homeowner (and all other) insurance companies are governed by the Fair Claims Settlement Practices Regulations. These regulations set forth clear deadlines by which insurers must acknowledge, evaluate and pay claims. Insurance companies often engage in an endless quest for documents from a homeowner after a loss. However, there are rules in place that narrow the amount of information an insurer can request to information that is reasonably necessary in making a claim determination.

A homeowner can never entirely predict what coverage they will need but it is important to pay attention to your policy and understand key provisions. In the event of a loss, make sure you know your rights so when you do submit a claim, the insurance company has no choice but to honor it.