Buying insurance more complicated than ever Your home depends on you to get it right

It's just a matter of time, David Schmidt figures, before he and his wife, Emily Wallrath Schmidt, have to deal with water in the basement of their vintage bungalow.

The Schmidts were eager to move their young family from a condo to a house, persisting earlier this year in the competitive real estate market to land their new place, in Portage Park.

The baseline homeowners insurance policy they obtained as part of the standard process of buying a house is only a starting point, Schmidt said. They'll have to update their policy to include the solar panels they've installed. They'll have to keep an eye on the gear, furniture and improvements they make to ensure that the coverage they buy always matches the actual value of what they are covering. And they'll have to figure out what water-thwarting tactics might save them from having to insure against water damage.

"That's an ongoing discussion," said David Schmidt, 36, a staffer at Loyola University, of when and how to insure against potential water damage. "I think that flood insurance is in our future."

The days of "set it and forget it" homeowners insurance are fading fast. Climate-change-driven weather, deteriorating water infrastructure, and the burst of home improvements driven by the remote-work trend all complicate the calculations for obtaining sufficient insurance for one's house and its contents.

"From a climate change perspective, the amount of rainfall and the winds that come through, we definitely see that the events are bigger, stronger and more impactful than the past," said Angie Orbann, vice president of personal and property insurance for Travelers, based in Hartford, Connecticut.

"For Chicago, it's water. It's water coming from inside from pipes bursting, but it's also weather water."

Ever-escalating risk is tied to more frequent, more extreme weather as well as rising home values, said Mark Friedlander, a spokesperson with the Insurance Information Institute, an industry group. Volatile costs associated with home improvements have also complicated owners' ability to keep their coverage matching the replacement value of their houses, he said.

Overall, Chicago home values rose by 13.32% from summer 2020

to summer 2021. Higher market values frame, but do not dictate, the amount of coverage a homeowner needs, company and industry experts say. Homeowners' insurance is based on the likely replacement value of the house. After all, even if a house burns down, the land remains, so coverage is linked to the current cost of building a replacement house.

These days, the current replacement cost is a fast-moving target. Lumber, steel and labor costs have skyrocketed in the past 18 months, even while homeowners poured cash into renovations intended to make their houses more compatible with remote work and home-based school and leisure. Industry experts advise homeowners to consistently document the cost of renovations and related upgrades to electronics and furniture and adjust coverage accordingly.

Some improvements can actually open the door to savings. Improved broadband and home connectivity, for example, can allow a communications system to hook into a digital service that alerts owners to potential problems, according to insurers. The more connected and proactive the monitoring system, the greater the potential savings on homeowners' insurance premiums. That's especially relevant for second homes that are often unoccupied.

Basic smoke detectors that alert only those within sight and sound of its alarms are the baseline and don't earn a significant discount on insurance. The next level of monitoring includes notification to the homeowner via smartphone. Finally, a system that alerts a third-party - typically, the fire department or police - to a breaking problem usually garners the biggest corresponding insurance discount, said insurers.

Water is notoriously unpredictable and destructive, which is why it's one of the top problems for Chicago-area homeowners.

According to Travelers, the Hartford, Connecticut-based insurance company, water damage caused by appliances, plumbing and similar infrastructure faults accounted for 33% of all claims from the company's Chicago customers from 2016 through 2020. Weather-induced water damage, including ice and snow, accounted for 22% of all Travelers claims. After water damage, theft, wind and hail were the most filed types of claims.

And though fire and smoke damage was the most costly category of claims Travelers saw, water damage caused by infrastructure faults and water damage caused by weather were the second and third most costly.

Homeowners' policies typically do not cover flooding, according to a spokesperson with Bloomington-based State Farm, but separate flood policies can be purchased through the federal National Flood Insurance Program.

When purchasing flood insurance, keep in mind that you can't count on federal or private maps to accurately anticipate flood risk, said Roger Hunter, director of insurance for the Consumer Federation of America, because flooding patterns change faster than the maps are updated.