Homeowners Insurance

Is your homeowners policy enough to cover you in the event of a loss? (Image via PrimeImageMedia.com on Flickr)

There is no question that the volatility in the housing market in recent years has affected the price and value of almost every house in America.   Most homeowner’s have seen the value of their home drop, rebound a little, and then drop some more.   People everywhere are focused on keeping their homes or refinancing their homes to get more affordable rates.  All this change means it is time to take a look at your homeowner’s insurance in order to make sure you still have adequate coverage.  Many homeowners think their homeowner’s policy covers what they are expecting it to cover without really understanding how the kinds of economic changes we are currently experiencing can impact their coverage.  Take a few minutes to walk through your policy and make sure it still offers the coverage you need.

Here are some of the key components you need to look for to ensure you are covered no matter what comes your way.

1.     Replacement Value

Although the policy limits for your homeowner’s insurance policy are based on the estimated value of your home, the coverage you need is how much it will cost to rebuild or replace your home.  This means that a significant drop in your home’s value doesn’t necessarily equate to a decrease in the coverage you need.  It could be a big mistake to decrease your policy limit based on a lower assessment or appraisal.

Economic turmoil and inflation have taken their toll on everything we buy and building supplies are no exception.    This means that even though the value of your house has decreased, the costs to rebuild it have not.  In fact, it is very likely that the cost to rebuild your home is actually higher than it was as little as two years ago.  Check with your insurance agent to make sure your policy limit reflects a current estimate of replacement cost.

It is also a good idea to review the policy limit for replacing your personal property which is based on a percentage of the overall replacement value.  If your personal property would cost more to replace than the current limit, talk to your agent about increasing the limit or scheduling high dollar items to ensure they are covered.

2.     Improvements and Additions

If you have made significant home improvements or added an addition, the value of your home has changed and your insurance may need to change to reflect the increase.  Things like adding a bathroom, changing to a more eco-friendly heating system, or replacing the roof may increase the value of your home but more importantly, they may increase the replacement cost of your home.  Make sure you notify your insurance agent of these kinds of changes and verify that the policy limit will be enough to cover the improvements.

In order to make sure you have the protection you need, you need to review and update your homeowner’s policy regularly.  Remember that the policy limits need to cover the cost of rebuilding your home and replacing your possessions and therefore need to be based on current cost not retail value.  You don’t need to change your limits based on changes in the value of your house, but if building supplies and construction costs continue to rise, that may mean you need to make a change to your policy limits.

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