Husband vs. Wife: Insuring Against Disaster

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Lori and Marek Fuchs have never fought in their 16 years of marriage — except over money. In this column, Mr. and Mrs. Fuchs, a real-life married couple with three kids (ages 12, 8 and 5), articulate their very different approaches to personal finance.

This week, the Fuchs talk about the recent theft of their car from the driveway and the lesson we can all learn about home and car insurance.

Mr. Fuchs: Quite a surprise the other morning, huh?

Mrs. Fuchs: When the kids slept past 7 a.m.? I was shocked too.

Mr. Fuchs: That’s not it — you’re repressing that your beloved car was stolen from our driveway.

Mrs. Fuchs: Oh, you had to bring it up. I’m still in the denial stage of mourning. I loved that Acura.

Mr. Fuchs: Well, lucky for us, we had theft insurance. Auto theft insurance is pretty straightforward. Most have it for cars unless they are real junkers. But it got me thinking about replacement insurance for homes, which people are not as vigilant about.

Mrs. Fuchs: You mean you aren’t as vigilant about?

Mr. Fuchs: Believe it or not, I am. Don’t forget: When I am not writing columns, I serve as a firefighter. I know these things happen. If our house burns down, we’d have about $750,000 to replace it. I’ll get that sauna I always wanted. But according to a 2006 study by MSB, a construction data firm based in Wisconsin, more than half of homeowners don’t have sufficient replacement coverage. Some of these homeowners had enough originally, but then they are in the house for 20 years, and forget to increase the amount of coverage.  Construction costs have increased over time, in a big way.

Mrs. Fuchs: Does that mean when their house burns down, they assume they are covered but the replacement value assumes construction costs from 20 years ago?

Mr. Fuchs: Exactly. It’s quite a fix. Krissy Posey, a spokeswoman for Allstate (Stock Quote: ALL), said that even today, more people are giving into the temptation to cut coverage, assuming that lower housing prices means lower construction costs, which is doesn’t.

She points to a study by Xactware, that had the cost of rebuilding a damaged home up 3.95% last year, despite the decline in home prices. Posey works for an insurance company, so you’d expect her to say it, but it’s a valid point: “When trying to cut costs on insurance, consumers should be weary of making a penny-wise, pound-foolish decision that could put them at risk financially.”

Mrs. Fuchs: It is expensive to rebuild a house. Especially if they want the Carrera marble in the master bath.

Mr. Fuchs: Not me — I’d slip on that stuff while getting out of my sauna. Anyhow, until just more than a decade ago, replacement was standard in homeowner policies, with at least 50% for contents. But now you should check your policy — probably once a year. Make sure you can rebuild and refill your house (remember: you don’t have to rebuy your land) for what you are allotted. If circumstances change — like an addition or the purchase of that Picasso you always wanted, factor it in.

Mrs. Fuchs: You could even use that as an occasion to shop around for policies.  I’ll go out on a limb and say you should probably check all of your insurance policies every year or so to make sure they are still relevant and adequate.

Mr. Fuchs: Good to see that your car getting stolen has not diminished your judgment. One more thing: If readers have an old house like we do, they should really factor in the cost of rebuilding a house that is up to modern building codes. That might run you more than you think.

Mrs. Fuchs: I don’t even want to see what is inside our walls.

Mr. Fuchs: Probably nothing. But I hope we never have to find out.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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