You know that homeowners insurance is important since you want to make sure that your largest purchase and asset is protected. Homeowners insurance is designed to help you cover the costs of repairs to your home, recover the costs associated with items stolen from your home, and even to replace your home if that is necessary. You are required to purchase homeowners insurance when you first buy your home. However, many people neglect to update their homeowners insurance policies as time goes on.
Photo by Master Sgt. Paul Gorman via Wikimedia Commons
In terms of replacement cost, this is especially important. Imagi
Two Important Insurance Factors to Review
Here are two insurance factors you must review periodically to avoid being underinsured when disaster strikes.
Increase Your Homeowners Coverage
If your home has appreciated in value since you got your coverage, you might want to increase the amount of your policy. Your home might have increased in value because of market forces or for other reasons. If you make home improvements to your property, you want to make sure that your home’s new value is reflected in your homeowners insurance policy.
ne if you bought your home for $120,000 10 years ago. Now it is worth $150,000, thanks to some appreciation and home improvements. It would cost at least $150,000 to build a comparable home now. If your home were destroyed, and your insurance policy only reflected the $120,000 value, that’s the replacement amount you would get. You would have to find a way to raise the remaining $30,000 on your own. An updated coverage amount avoids this issue.
With this basic example you can see why it is important to update your homeowners insurance coverage. If you have had your home for even longer, and if it would cost even more to replace, you could be financially devastated by the loss of your home — even if you have insurance coverage. In order to get an estimate of how much it would cost to replace your home, you can contact an insurance agent, real estate agent, or local builder or builders’ association. Provide the square footage of your home, and any special features, such as a jetted tub or newly remodeled kitchen. The National Association of Home Builders has a price estimator you can use.
When you remodel, it is a good idea to get an idea of how the improvements have increased the value of your home and add to your coverage if you need to. That way, if something happens to your home, you will be able to repair the damage or rebuild the home with the money from your insurance policy. Just remember that you aren’t likely to get a dollar for dollar increase in your home’s value based on what you put into it.
Double Check Coverage
While you are considering your homeowners policy, it is a good idea to double check the other coverage options you have. Look into whether or not you are properly insured for extreme weather conditions in your area, such as floods, tornadoes, and hurricanes. Often, you have to purchase additional coverage for these natural disaster events. If you don’t have adequate insurance, you could find out that the rising groundwater that just ruined your hardwood floor isn’t a covered incident — and you are stuck with taking care of all the costs.
Your home is a major purchase. Repairing or replacing it can get quite expensive. The right amount of insurance coverage can help you ensure that you aren’t financially devastated by unexpected events.
Miranda is a professional personal finance journalist. She is a contributor for several personal finance web sites. Her work has been mentioned in and linked to from, USA Today, The Huffington Post, The San Francisco Chronicle, The New York Times, The Wall Street Journal, and other publications. She also has her own personal finance blog: Planting Money Seeds.