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High costs leave many homes underinsured

Lidia Schwartzbaum recently remodeled her Miami Beach home, adding a new roof, a kitchen and bathrooms. And she consulted with her insurance agent to make sure she has enough coverage to rebuild her home as it is today.

That's because homeowner policies may not fully cover the cost of rebuilding after a hurricane or other disaster due to higher prices for building materials and new, stricter construction codes. Insurance changes over the years also have taken a toll: Policies just don't cover as much as they used to. What's more, with insurance rates rapidly rising, many homeowners may have failed to notice that their coverage needs adjusting or they just can't afford to take on the added cost.

The result: Many homes and condominiums in South Florida are woefully underinsured.

Lack of adequate insurance coverage is a nationwide problem. A 2004 survey by Marshall & Swift/Boeckh, a leading building cost information company based in Los Angeles, found that 61 percent of U.S. homes were at least 25 percent underinsured, despite efforts by insurers to increase coverage.

Michael Keeby, senior vice president with HBA Insurance and president of the Independent Insurance Agents of Dade County, says condo owners are especially vulnerable. They buy insurance to cover furnishings and clothing, but forget the interior structures, including kitchens, baths and floor coverings. Some forgo hurricane insurance because their condo association buys it for the building. That won't cover their units.

``It's a big mistake,'' he said.

Making sure a homeowner has sufficient insurance coverage should be a periodic exercise, says Dulce Suarez-Resnick, an agent with Combined Underwriters of Miami who is working with Schwartzbaum.

Some insurers, such as Citizens Property Insurance, which is the state-run pool of last resort, will automatically raise the coverage amount with each annual renewal. But homeowners should review their policies annually, especially if they've upgraded their homes, such as remodeling a kitchen or adding a room.

Schwartzbaum expects the premium on her home's hurricane policy, written by Citizens, to more than double from $3,000 to about $6,700. Yet, she will still be covering only about a third of the value of her remodeled home. She also pays nearly $700 for a homeowners policy that covers theft and fire and about $1,600 for flood insurance.

``I will go for the highest amount of insurance I can possibly afford, and still go with a reputable company,'' said Schwartzbaum, who works as a Realtor.

GET SOME NUMBERS

Henry Godwin, executive vice president of MDW/Ampac Insurance, a Coral Gables agency, says it's a good idea to consult a contractor who is familiar with your neighborhood to get an estimate of what it would cost to rebuild your home.

A rule of thumb is that basic inland homes should cost about $150 per square foot to rebuild, up from about $85 to $90 just five years ago. Luxury homes, especially those on the water, are more costly to replace, starting at $250 and up per square foot, Godwin said.

Some insurers, such as Chubb, send out staff appraisers to review homes as new policies are written. It's also worthwhile to inventory personal property - furniture and electronics as well as paintings and antiques, says Alex Soto, president of InSource, an insurance agency in South Miami.

Since Hurricane Andrew wrecked South Dade in 1992, insurance coverage has changed dramatically in Florida. In order to reduce their risk and better control what they might pay in future claims, insurers have lobbied lawmakers hard to limit coverage in many ways. For instance, homeowners, who once had policies that offered complete replacement coverage - even if the actual tab went well beyond their policy limit - need to know such policies no longer exist.

Consumers can pay for additional coverage for contents and the structure of their homes, but most insurers limit replacement cost to 150 percent of the policy's face value at the most - and for an additional fee. These days, insurers also add surcharges to cover extras such as detached garages, cottages and outdoor built-in barbecues. It's up to homeowners to know which policies cover what structures.

Suarez-Resnick says that on wind-only policies, detached structures are ``a la carte.'' For instance, homeowners have to buy separate coverage for pools, but fencing is included. Yet, on many property policies that cover fire and theft, pools are included, she says.

FLOOD PROGRAM

For Florida homeowners living in a flood zone, adequate flood insurance is a must - and it's often required by mortgage banks. Since 1968, flood damage has been covered by the National Flood Insurance Program. The maximum coverage provided by the flood program is $250,000.

There's an often-overlooked provision in the flood insurance program that penalizes homeowners who are underinsured. For instance, if a home should be insured for $200,000 to cover rebuilding after a flood or storm surge, but only $100,000 of coverage has been purchased, it's 50 percent underinsured. Godwin says claims would be paid by the same percentage the home is underinsured - a $50,000 claim would be paid at $25,000.

What's more, the insurance law passed this year requires insurers to pay only for the portion of damage they cover, be it wind or flood. For instance, if it costs $50,000 to repair damage after a hurricane, but wind damage was responsible for only $20,000, windstorm insurance will pay only $20,000 of the claim.

Insurance agents realize skyrocketing rates make buying sufficient coverage a hardship. In order to make insurance more affordable, Tom Webb, owner of Coastal Insurance, advises consumers to opt for a higher deductible and take advantage of discounts for hurricane mitigation and adhering to stricter building codes.

Everything you need to know to be prepared for this year's hurricane season.

HERALD.COM: For complete hurricane coverage, including live updates during every storm, go to storm.herald.com

Are You Really Covered?

With higher construction costs and stricter building codes, having adequate insurance to cover rebuilding after a disaster is a must. Steps to take:

* Review policy limits annually.

* Review what's included and not included in policy coverage.

* Tell your insurer about any major improvements or additions to your home.

* Have a contractor familiar with your neighborhood prepare a per-square-foot reconstruction estimate.

* Inventory your contents; photograph or videotape the home's interior and exterior.

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