How Home Insurance Works
Buying a home is often the single largest investment an individual will ever make. You know you need Homeowners Insurance (if you have a mortgage it will be required). You know that, in general, it covers your house and personal belongings. But if you’re like most people you’re not sure about everything else. That’s where we come in. We have experienced agents and know which questions to ask. We have the tools and resources and we’re eager to go to work for you.
Here’s a list of the top 5 things you need to have and get right.
- Determine the right dollar limits for your home and all other structures on your property (aka construction cost).Isn’t that just my tax value or purchase price? Probably not and if it is it’s a mere coincidence. ? Let’s compare market value and construction cost (assuming the reason for construction is damage cause by tornado, fire, etc.)
a. Market Value= Land Value + Value of Dwelling and Other Structures – Depreciation
b. Construction Cost= Cleanup + Cost of Brand New Construction
You can see that in the event of a claim you don’t need to rebuy your land and you don’t subtract for deprecation because you have Replacement Cost Coverage (or at least you better have!).
According to surveys conducted by the research firm Marshall & Swift/Boeckh, about 60% of homeowners are underinsured and by approximately 17%. On a $300,000 house, that’s leaving you $51,000 short! Do you have that in savings?
- Make sure you have Replacement Cost Coverage on your Dwellings AND Personal Property. Most Homeowner policies will include Replacement Cost Coverage on your house but what about Personal Property? Make sure this coverage applies or risk missing out on thousands of dollars come claim time.
- Understand your risk of a Sewer Backup loss because it’s NOT covered unless you specifically add this coverage by endorsement. It’s one of the most common types of Homeowner claims and they’re messy. If you have a finished basement and function off of a city sewer system you should strongly consider adding this endorsement. This endorsement isn’t cheap and the limits will vary from no coverage up to $50,000 and beyond. Bottom line is chat with your trusted agent to find out what coverage amount is right for you and your budget.
- Max out the Personal Liability Limit offered. Homeowners Insurance covers more than just property. It is your primary Personal Liability coverage as well. If someone gets hurt at your cook-out or your dog bites someone this is where you’ll look for coverage. Insurance companies typically offer a maximum Personal Liability limit of either $500k or $1M. Get a quote for the highest limit and compare to a lower limit. You will likely be surprised at how inexpensive this additional coverage is. Plus, this is why you have insurance to begin with. Although unlikely, there’s a chance you could sustain a loss so catastrophic that you could never afford or recover from.
- Take inventory of individual items that are particularly valuable. Jewelry, watches, firearms, and other certain classes of Personal Property have set limits that typically range from $500 – $5000. What if I have an item or a collection of items with a value far greater than my policy limit? It’s simple, talk to your trusted agent and he or she will provide options for increased coverage on your valuables.
Homeowners insurance is not a commodity. It’s complex, nuanced, and can vary greatly depending on which options are chosen. But protecting your biggest investment doesn’t need to cause you heartache. You’ve probably already noticed a trend developing in this thread and that is a common starting point to finding a solution to all of these potential problems and more. Talk to your trusted agent. We’re here to help.