You need to have sufficient homeowner’s insurance to safeguard against loss. How do you know if you have the right amount of homeowner’s insurance? Take a few moments to review your current policy and understand what insurance coverage it contains. Shopping for a new policy? Knowing the basics of an insurance policy will help you to determine whether you have the right amount of homeowner’s insurance.
Know the type of policy you have
Understand what your policy covers and what it does not. You might have a Standard homeowner’s insurance policy that specifically lists what you are covered for in the event of a loss. Compare this to a Comprehensive homeowner’s policy that is defined by what it excludes from coverage.
Note that most homeowner’s policies cover you against loss from fire, explosion, hail, lightning and theft but not loss due to floods or earthquakes. If you live in an area prone to these natural disasters, you will need to discuss this with your insurance professional to make sure that you are properly covered.
Once you know which type of homeowner’s insurance policy you have, review the following sections to find out if you have enough insurance coverage.
Dwelling Section – Replacement Cost vs. Guaranteed Replacement Cost
After a loss, your home might need minor repairs. Or you may have to rebuild. Replacement Cost polices cover the repairs to your home using similar quality materials based on current costs, up to limits stated in the policy. Compare this to Guaranteed Replacement Cost policies that pay to rebuild no matter what the cost. This protects you from having to pay for additional construction costs out of your pocket.
Personal Contents Section – Replacement Cost vs. Actual Cash Value
Your personal contents can be covered by Replacement Cost or Actual Cash Value policies. Replacement Cost policies take into account your possessions based on today’s costs up to your stated policy limits. There is no deduction for decrease in value. Actual Cash Value policies only cover the value of what the item is worth at the time of the loss, taking into consideration wear and tear and age.
Important contents and additional protection
Take an inventory of everything you own. Are there any expensive items such as cameras, jewelry, coin and stamp collections, sports equipment, electronics and computers, or boats? Your policy will often limit payouts for these items. Be sure to mention any expensive items you own. It’s a good idea to provide documents to prove their value when shopping for a quote or renewing your policy.
Living Expenses Section
Living expenses cover costs of hotels, restaurants, and laundry services if you have to live outside your home during repairs. Your policy will state the dollar amounts and length of this coverage. If you rent out a portion of your house, your tenant may also unable to live in the dwelling while it is repaired. This area of your policy protects you from that loss of rental income.
No one wants to think of the worst that can happen, but it can. Having the right amount of homeowner’s insurance protects you from having to pay any losses out of your pocket. Review your policy to ensure you have enough coverage to protect everything you have worked for.