Every homeowner worries their homeowner’s insurance will be inadequate if disaster strikes. It’s a constant balancing act between affordability and protection. To obtain an accurate homeowner’s insurance quote, understand key policy clauses and review coverage details annually.
Standard homeowner’s insurance policies cover: fire, lightning, hail, explosions, theft, hurricanes, and winter freezing. They do not cover: floods, flooding from a hurricane, earthquakes, poor maintenance, or the cost of meeting an updated building code during reconstruction. Flood and earthquake polices are issued separately, while endorsements can be added for homes that might not pass a modern building inspection.
Covering the Structure
To estimate the total rebuilding cost of your home, multiply the square footage by local building rates per square foot. Don’t include the land value and don’t work from the home’s purchase price, which will be less than current building expenses. Consider future inflation and investigate policies with built-in annual cost adjustments. (These may have to be purchased separately.)
Be aware that after events like a hurricane or tornado, building costs rise. An “extended replacement cost” policy will pay 20% over its stated limits, while a “guaranteed replacement policy” will meet the costs, period. Policy holders pay higher premiums for such coverage, but in some areas, it’s an advisable expense.
Covering the Contents
Standard homeowner’s insurance policies insure the contents for 50-70% of the coverage on the house itself. In order to determine if this is adequate, conduct a detailed inventory complete with current replacement values.
Belongings can be insured for “actual cash value,” but a deduction for depreciated value will be subtracted from the benefit. If the contents are covered at “replacement cost,” the insurer will replace damaged items with new ones with no depreciation. (“Replacement cost” policies are approximately 10% more expensive.)
Items like jewelry or artwork may require separate coverage or an endorsement to existing coverage. Benefits for such items are generally capped at $1,000 – $2,000. Always get accurate appraisals before negotiating coverage.
Emergency Living Expenses
During major repairs you may be forced into a hotel or apartment. Generally, policies provide 20% of the coverage on the house for living expenses. Be sure you know the exact amount and duration of the benefit so you can plan accordingly.
Covering Liability
The liability portion of the homeowner’s insurance policy covers damage to other people or to their property while in your home. It pays legal fees during a lawsuit and damages levied by the court. The standard coverage minimum is $100,000, but experts recommend $300,000 to $500,000.
Maintaining the Policy
To protect yourself from being under insured:
– Review coverage terms annually.
– Report major home alterations or additions.
– Report lifestyle changes, like marriages or adding another individual to the household.
– Update your home inventory after major gift-giving holidays.
Your life circumstances aren’t static and your insurance shouldn’t be either. To stay protected at the best rate, review and adjust your coverage as a routine aspect of home maintenance.