There’s no place like home. That’s why it’s so important to protect your home with homeowners insurance. While the paperwork can sometimes seem overwhelming, there’s nothing more rewarding than the peace of mind that comes from knowing you have the right amount of homeowners insurance. If you’re ready to get a better understanding of how your coverage works and to see if you need to make any updates to your policy, these tips can get the job done faster than you imagine.
Homeowners Insurance Requirements
First things first. For most of us, homeowners insurance isn’t optional. Why? We don’t actually own our homes. Banks do.
Until your mortgage is paid, your bank or mortgage company is going to require you to carry homeowners insurance. They want their investment protected. The exact specifications can vary, but generally, your lender will want you to have coverage at least up to your outstanding mortgage amount. Each lender will specify the exact amount of coverage you need, plus the different hazards that your policy must guard against. In most cases the lender will want you to protect yourself and them with “replacement” cost.
What’s In My Policy
If your mortgage happens to be paid off or you simply want to double check your coverage needs, there are a few different considerations to make when calculating how much homeowners insurance you need.
Homeowners insurance isn’t just about guarding against the loss of your home. In fact, there are four different parts that come with most policies. You will want to evaluate the amount of coverage in each of these areas.
This portion of your policy defines the amount of coverage available to repair or rebuild your home, based on the type of policy. Many “replacement” cost policies will include calculations factoring in attached structures like garages and decks. You may also have other structures coverage, which will cover sheds or even detached garages on the property in case of loss.
Personal Property Coverage
Personal property coverage protects the value of items in your home. This generally covers items like furniture and clothing. If you have expensive enough items—such as an engagement ring, for example—it may also be worth adding a jewelry rider, sometimes called “a floater,” to your homeowners policy.
Should someone be injured on your property or in your home, liability coverage is the part of your insurance policy that kicks in. Personal liability covers bodily injury to others as well as property damage. Plus, some policies also have a separate section for medical payments to others. In the event of a lawsuit, you will be relieved to have good coverage here.
Additional Living Expenses
Should your home be damaged and become unlivable, this portion of your policy covers any costs related to loss of use or access to your dwelling. This could be everything from staying in a motel to getting food or even a toothbrush. If the truly unthinkable happens, it’s likely that you’ll be left with nothing. Additional living expenses coverage can help you get back on your feet.
How to Determine Your Needs
Now that you understand the types of coverage that typically come with a policy, it’s time to determine if you have enough coverage. Two of the biggest reasons why you want to have ample coverage is to make sure that you can pay to have your home rebuilt in case something happens to it or that you are protected in the event of a lawsuit if someone is injured at your house.
So how do you know if you have enough coverage? Using these methods will help.
Understand the Real Cost
When the real estate market takes a dive, people tend to think their homeowners insurance is too expensive. But it’s important to understand exactly what your insurance covers. Your insurance isn’t based on the current value of your home or your mortgage. It’s based on what it costs to recreate your home—from materials to workmanship—in the event of a disaster.
If the unthinkable happens to your home, you do not want to find yourself in a position where you realize that you can only afford to rebuild 80 percent of your home. And yet, many homeowners find themselves underinsured. Construction costs and other expenses are on the rise, which means that building a new home, even in the same space, can cost more than you might imagine.
You may even be able to request a reconstruction valuation from your insurance company. When considering the cost of your policy and the amount of coverage you hold, it’s important to remember that your homeowners insurance is based on building cost, not market value.
In terms of your personal property coverage, one of the best ways to determine if you have enough insurance is to take an inventory of everything in your home. You can create a catalog by going room to room and estimating costs of furniture, decor, clothing, electronics. Then, you want to compare this estimate to the amount of coverage in your current policy.
How to Update Your Coverage
Even if you aren’t thinking of updating your coverage immediately, you will want to at least review your policy if you find yourself in one of these situations:
- Buying a new property or a second property
- Renting out your property
- Buying one or more big-ticket items
- Adding security features
- Adjusting the amount or type of pets you own
If you decide to adjust the amount of coverage you carry, you can do this in a few simple steps. Gather your current insurance paperwork and contact your insurance company. Clarify the parts of your policy that you want adjusted. You can then request a quote to see how those adjustments will impact your premium.
If you decide to move forward with the updated coverage, you will either have to pay an additional amount or you may be entitled to a refund. Make sure you get a copy of your adjusted policy in writing and that you are clear on both the start and end dates. By double checking these dates, you can ensure that there are no gaps in coverage.
How to Adjust Your Deductible
Often times, people feel that their homeowners insurance is too costly. If you are someone who is fortunate enough to have never filed a claim, it’s easy to fall into the trap that you’re paying for nothing. Rather than skimping on coverage to save yourself some money, a better strategy involves adjusting your deductible.
By electing a higher deductible, your premiums will often be reduced considerably. You can use an online calculator or work with your insurance provider to get different quotes based on various deductible amounts. The most important part to remember, though, is that your deductible has to be met when you file a claim. Don’t set a deductible higher than what you have stashed in your emergency fund or savings account.
The Real Value of Homeowners Insurance
Homeowners insurance can seem complicated. But the simple truth is it’s peace of mind and protection against the unthinkable. Understanding the different parts of your policy and the amount of coverage you have in each area is a fundamental part of making sure you aren’t underinsured. Knowing how to adjust your coverage and your deductible can keep you protected while paying a reasonable rate.