Do You Have Enough Homeowners Insurance?

Paying for more homeowner's insurance than you really need can be a mistake because you're spending money unnecessarily. A much bigger mistake, however, is trying to save money by carrying less homeowner's insurance than you should, especially if you find yourself in a position where you're having to make a claim against your coverage. The answer is to take out a policy that fits your requirements as closely as possible, which is best accomplished by doing your due diligence in knowing exactly what it is you're insuring, consulting with a knowledgeable insurance professional for solid advice and making it a point to revisit your coverage every year or two to ensure the amount of coverage you have is still appropriate.

How Much is Enough?

Generally speaking, there are two basic types of homeowner's insurance:

·       Actual Cash Value Coverage

·       Replacement Cost Coverage

If you live in a twenty-year-old home that burns to the ground in a house fire for which you make a claim, the type of coverage you have will determine how much your claim will pay. With Actual Cash Value Coverage, your reimbursement will be based on your home in its depreciated state. That would include paying for the value of 20-year-old windows and doors, a 20-year-old roof, 20-year-old appliances, etc.

With Replacement Cost Coverage, depreciation doesn't factor into the reimbursement settlement. You'll receive a claims payoff equal to the amount needed to rebuild your home in like-new condition, with similar type and quality of materials used when it was initially built.

Setting a Dollar Value

To be covered properly, you want to have the ability to build your house completely, which means you want Replacement Cost Coverage. You also need enough coverage to pay today's building costs. Bear in mind that the current market value, or what you could sell your house for today, may be less than the amount it would cost to rebuild your home. Construction costs play an important role in rebuilding a home.

Personal Property

Homeowner's insurance includes coverage for not only the home itself but also for your personal possessions. Make sure to take an inventory of all your valuables to ensure you have enough coverage for everything, especially if you have valuable artwork, jewelry, coin or other collections, etc. Most policies have limits on claims for these valuables, and you may need to take out extra coverage.