I just got my homeowner policy renewal last week and figured I would actually read it this year. Have you read your policy in the last several years?
First thing that popped out was my dwelling coverage amount. Why was it so low? Maybe because I hadn’t noticed it in a couple of years. With the huge increase in real estate values that we have seen through 2005 and rising construction costs, having your home insured properly might be harder than you think. Not only figuring out how much coverage to take but having to incur additional costs to increase your policy is very discouraging.
How do you determine the proper coverage amount? You don’t– that’s why you have an insurance agent. They have the knowledge and tools to help determine that value; one of the tools being a replacement cost estimator. By answering a little more than a handful of questions, they can come up with an good estimate of the replacement value for your home. This is something that should be done every couple of years.
Other important features of your homeowner policy are its deductibles. A homeowner policy will have two deductibles, the all peril deductible and a hurricane deductible. In all essence, the all peril deductible will cover anything that happens to your home except for named storms. If the peril has a name, your hurricane deductible will cover the damage. Having a deductible, you can cope with in a time of crisis is just as important as having the correct coverage amount. A great example would be taking a 5% hurricane deductible (5% of 500,000 being $25,000) to reduce your annual premium but not having the funds to cover that deductible in the event of a disaster. In many cases the annual savings do not merit taking such a large financial exposure.
Most policies are form policies where the coverages are all percentages of the dwelling coverage. For instance personal property coverage might be 40%, 50% or even up to 80% of the dwelling coverage. Other structures and loss of use might be 10% or 20% of the dwelling coverage. This is fine, just realize that since you are increasing the dwelling coverage, these other parts of the policy will also increase in value thereby helping to affect your premium.
Last bit of advice, make sure your policy contains replacement cost coverage for your personal belongings. As far as I’m concerned, besides the dwelling coverage, this is the second most important part of the policy. What this means is that if you incur a loss, your personal belongings will be paid for based on their replacement value, not a depreciated value based on their age. A good example would be antiques, valuable yes, but in the eyes of an insurance adjuster, if you do not carry replacement cost on your policy, this would simply be just an old piece of furniture with not much value to it. Having replacement cost coverage could be the difference between being able to rebuild your life or never getting it back. Be sure to keep receipts, have valuable items appraised and keep all these documents in a safe place like a safety deposit box.
Regardless of how depressed I was, I did call my agent to have them look at the policy and increase coverage. After 8 years as an insurance agent, in my past life, I should know better! I increased the policy by $70,000 for an additional cost of $400 per year. It’s not the money but the peace of mind that tells me I made the right decision.
Thanks,
Gene Belaval