Survey reveals ignorance about homeowner's insurance

December 15, 2004

While home values rise, many homeowners do not increase insurance coverage

Inman News

Homeowners are largely unaware about the scope of the insurance policies that cover their homes, according to a Harris Interactive survey. About 37 percent of respondents correctly answered six of 12 questions about basic insurance coverage on their homeowner and auto policies, according to the survey, conducted for insurer Fireman's Fund.

The survey is based on responses from about 1,000 affluent homeowners across the country. Of those polled, 88 percent said they know what their homeowner's policy does and does not cover, yet further questioning revealed that many respondents also believed that their homeowner's policy covered more property than would actually be covered in the event of a disaster.

"We found that two-thirds of those surveyed believed that their policy would provide home replacement of like kind and quality in the event of a major loss," said Scott Garfield, vice president for Fireman's Fund. "Yet we know that the most common homeowners policies sold in America (the generic HO3 policy) do not automatically cover extra construction costs caused by code changes and other unexpected costs – which are

"Most standard homeowners insurance policies do not automatically provide complete replacement cost coverage," said Garfield. "Unfortunately, many homeowners assume they are completely covered only to find out that they are underinsured after a dramatic loss has occurred. That lesson was dramatically driven home following the 2003 wildfires in Southern California."

The survey showed that most affluent homeowners spend far more time managing their investment portfolios – an average of seven hours a month – than they do staying on top of the insurance coverage for their homes. The survey found that respondents spend an average of 4.7 hours per year – fraction of the time spent on their investment portfolios – managing their insurance coverage on their physical assets including their home. This is true despite the fact that for 47 percent of respondents, the value of their non-financial assets exceeds the value of their investment portfolio.

Given the inflation in home prices across the country, more people in the last five years are suddenly in the position of having their home become an even more valuable asset. According to the latest quarterly survey by the National Association of Realtors, home values across the nation are continuing to rise, with the national median existing-home price 6.6 percent higher than a year ago. In some states such as California, a strong real estate market saw home values jump more than 20 percent in some areas from the previous year.

In addition to the rise of property values, home reconstruction and replacement costs are also climbing at a steady rate. With a healthy rise in new construction, recent hurricanes and ongoing trade disputes, the cost for lumber, plywood and other building materials is continuing to rise. According to the lumber industry publication Random Lengths, framing materials alone, such as 2-by-4s, are up nearly 40 percent over last year. Many homeowners may be forced to pay these extra costs if their insurance policies do not cover them.

While 94 percent of the respondents nationwide stated that the value of their home increased during the past five years, 27 percent said they had not increased their insurance coverage. Some of the most common reasons cited were lack of time to look into the need to increase coverage, and simply not knowing that they needed to change the policy's limits to reflect a home's change in value.

A summary of the complete survey is available online at:

Harris Interactive conducted the online survey within the United States from June 24-28 among a nationwide cross section of 1,154 adults who own a home worth at least $300,000, have homeowners insurance, are at least somewhat involved in choosing household insurance, and have an annual income of at least $100,000. Figures for age, sex, race, education and income were weighted where necessary to bring them into line with their actual proportions in the population. Propensity score weighting was also used to adjust for respondents' propensity to be online.

Copyright 2004 Inman News

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