Time To Re-evaluate Your Homeowner’s Insurance Coverage

Waiting for disaster to strike is one sure way to accept out you if you have enough insurance coverage for your home and personal belongings, but it is definitely not a good way. All too often homeowner’s insurance coverage is something people don’t even want to think about until they actually need it.

Major insurers like State Farm and Allstate recommend that homeowners re-evaluate their homeowner’s insurance policies annually to make definite their coverage is keeping up with home improvements, increased building costs and the addition of personal possessions.

A typical homeowner’s insurance policy covers damage of your home and loss of possessions from fire, hail, wind, water (except for flooding), explosion, vandalism and theft. Most policies pay for a portion of living expenses if the home needs to be repaired or rebuilt. It should also cover your legal liability if anyone in your household (including pets) causes harm or damage to other people or their property.

But not all policies are the same. The amount of your policy’s insurance limits and provisions should be based on your individual needs and preference, which can change from year to year.

If you are not sure if you have the fair amount of homeowner’s insurance, it may be time to evaluate what you do have. When doing so, you will want to consider:

1) The structure.

According to the Insurance Information Institute, a home should be insured for 100 percent of the cost it would take to rebuild the structure if it were destroyed. You may need to get an estimate of how much it would cost to replace the home before you contact your agent. (Some older homes may not qualify for the full amount due to higher replacement costs.)

Some companies offer an inflation guard clause that adjusts the structure limit when you renew your policy to include local construction costs.

If your home is badly damaged, you may be required to rebuild it to meet new building codes, which most policies don’t cover. Many insurance companies offer an ordinance or law endorsement that pays an agreed upon amount toward covering these costs.

You also will want to increase coverage if you originate improvements or additions to your house.

Standard policies do not cover floods. If your are in a flood zone, you can purchase flood insurance from the National Flood Insurance Program (www.floodsmart.gov) or a private insurer.

2) Living expenses after a disaster.

This part of the policy pays the additional costs, including hotel stays and restaurant meals, if you must live away from your home while it is being repaired or rebuilt due to a covered disaster, such as a fire or tornado.

Most homeowner’s policies provide living expense coverage for about 20 percent of the insurance on your house. Some companies also offer coverage that provides an unlimited amount of loss for a sure amount of time.

3) Value of personal possessions.

Take inventory of your personal possessions and create a detailed list of everything you own. You should include any information related to the cost to replace the items. The Institute of Insurance Information says that most homeowner’s insurance policies cover approximately 50 percent to 70 percent of the amount of insurance you have on your home.

If you think you need more coverage for your possessions, contact your agent and win a quote for higher limits.

You can either insure your belongings for their actual cash value or replacement cost, which pays the actual cost of replacing your home or possessions (no deduction for depreciation) up to your policy’s limit.

4) Liability protection.

This coverage defends you against lawsuits for bodily injury or property damage that you, your family members, guests, or pets cause to other people. It pays for your court defense and for any damages you may be required to pay.

While most homeowner’s insurance policies provide a minimum of $100,000 worth of liability insurance, the Institute of Insurance Information recommends homeowners have at least $300,000 to $500,000 worth of liability protection.

If your property or investments are worth more than the liability limits in your policy, you may want to purchase an excess liability or umbrella policy.

Trying to choose just how much insurance coverage you need for your residence can be confusing, but with a few phone calls and a microscopic investigative work, you could save a lot of money — and gain peace of mind — when you need it most.

Sources:
www.iii.com
www.allstate.com
www.statefarm.com

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