Most people don't give much thought to their homeowners' insurance coverage until a tree destroys their roof or a basement transforms into an indoor swimming pool.
The fact is, a periodic checkup on your house insurance coverage can make for a healthier policy and a healthier wallet. Home insurance coverage is more expensive than ever thanks to a rising number of claims – but every year just passively renewing your policy could cost you more than it needs to.
Here’s why, when and how you should review your homeowners' insurance coverage:
Why? To make sure you have what’s right for you before you have a loss.
When? Periodically (at renewal) or whenever you know there’s been a significant change such as a remodel, purchase or sale of an expensive item.
How? Set up an appointment with your agent to go over your policies.
10 Questions to Ask During a Home Insurance Coverage Review:
1. Is our dwelling coverage adequate? The amount of dwelling coverage should be enough to cover the cost of rebuilding your home in the event of complete loss. This insurance is based on replacement cost of dwelling not market value and it does not include land. If the dwelling is under-insured, you may get penalized. Does your insurance agent know about your home addition, or newly renovated kitchen or bathroom?
2. Do we have an all-risk or a named peril policy? When choosing disaster insurance, you basically have these two choices. The primary difference between them is that a named peril policy covers what is "named" (included) in the policy while an all risk covers everything except what is excluded. Typically, an all-risk policy offers much more comprehensive coverage.
3. Do we have replacement cost or actual cash value coverage on our dwelling and contents? Replacement cost coverage and actual cash value insurance refer to the amount of money your provider will pay out if your home or its contents are damaged or destroyed. Replacement cost coverage doesn’t deduct for depreciation while actual cash value insurance does.
4. Do we need building ordinance or water sewer backup coverage? In the event of a claim, your insurance company may deny paying for increased costs or demolition expenses incurred due to local building ordinances that call for the destruction of a dwelling. This coverage is particularly important for homes older than 25 years. You’ll also want to consider coverage for water and sewer backup.
5. Do we have or need a property inflation adjustment on our policy? While most insurance companies automatically adjust your policy to keep pace with building cost inflation, you should check into this. You probably have seen your premiums go up to cover the rising cost of replacement but the annual increase for this is usually minimal.
6. Do we have or need special coverage for other structures on our property? Most policies automatically provide this coverage. However, if you have a swimming pool, tool shed or detached garage on your property, you need to double-check that they are adequately covered.
7. Do we have adequate contents coverage? The value of your clothing, furniture and other belongings adds up quickly. These items are typically insured as a percentage (50% to 75%) of your dwelling coverage. It is very important to understand how much and what is and is not covered.
8. Do we have or need special coverage for any of my personal items? What kind of coverage limits does your policy have with regard to jewelry, fine art, musical instruments, etc.? Is an appraisal required to get this special home owners insurance coverage? Without it, your engagement ring may not have enough, or any, coverage if the diamond falls out of its setting.
9. Has our insurance company changed our policy coverages or added any new discounts? While they are required to notify you of policy coverage changes, it’s a good idea to ask just in case you missed the notice. There may be ways for you to save money on your house insurance coverage. Whether it’s changing deductibles or installing protective devices, you’ll want to find out what you’re missing.
10. Is my liability coverage adequate for what I need to protect? Your home owners liability coverage protects you against the financial uncertainty arising from injury (or property damage) caused by you or a resident family member. Usually, your liability coverage will apply if the injury or property damage occurs on or away from your property. If you don’t have enough liability insurance, then your assets could be at risk. The liability coverage on your home owners policy can help you protect your retirement accounts, investments in stocks and bonds, checking/saving accounts, home and other real estate equity. It is very
important to discuss the assets you need to protect with your agent to determine the level of liability coverage that is right for you.
When it comes right down to it, one of the best ways to stay educated about your home owners insurance policy is to ask the right questions of your insurance agent. Don’t assume that just because you have home insurance coverage that you’re fully covered.
Stay tuned for part two of our blog series on insurance policy reviews. We look forward to questions and/or suggestions on the insurance topics that matter to you most.