For the majority of Americans—even those making
six figure incomes—their homes are their single biggest asset. Furthermore, the value of homes continues to
rise with the continuing strength of the real estate market. Yet, a significant percentage of affluent
homeowners are just not paying very much attention to protecting their most
valuable personal asset, according to a survey conducted for Fireman’s Fund
Insurance Company by Harris Interactive.
According to the survey, 94 percent of the respondents
nationwide stated that the value of their home increased during the past five
years. The National Association of
Realtors® reports that median existing-home prices in 2004 were 6.6 percent
higher than a year earlier. 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.
Yet, more than a quarter (27%) of those surveyed said they
had not increased their insurance coverage to reflect their home’s increased
value. 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.
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, rose nearly 40 percent in 2004 over the
previous year. Without the right insurance
coverage, homeowners who experience a loss could see these higher costs coming
straight out of their own pockets.
The survey, based on responses from more than 1,000 affluent
homeowners nationwide, uncovered a consistent gap between what homeowners think
is included in their coverage, and what actually is covered. 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.
Only 37 percent of respondents correctly answered six of 12 questions
about basic coverage on their homeowner’s and auto policies, such as the
maximum amount of stolen cash that would be reimbursed if a home were
burglarized ($200) or how much a standard policy will pay in temporary living
expenses while a home is being rebuilt ($60,000).
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. Seventy-six percent of those
surveyed had reviewed their financial assets or investments within the last two
months, but only half had reviewed insurance for their property assets within
the past six months. The survey found
that respondents spend an average of 4.7 hours per year—a 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 nearly half (47%) of respondents,
the value of their non-financial assets exceeds the value of their investment
“The survey findings show a critical need for homeowners to
communicate with their insurance agents and learn what their policies actually
cover and when they should be updated, to ensure they are fully protected in
the event of a disaster,” said Scott Garfield, vice president of Fireman’s
Fund. “Homeowners also need to know that all policies are not created equal,
and to understand the array of insurance options available in comparison to
their current coverage before they are faced with a costly disaster."