Health insurance has dominated headlines so much in the past year that it may be easy to overlook another important element of risk management – homeowners insurance. Without the proper coverage, you may not be able to rebuild your home or replace the contents should a calamity occur. Marshall & Swift estimates that nearly two-thirds of American homeowners are underinsured by an average of 18%. Here are some important points to keep in mind with your homeowner’s policy:
Home improvements – You’ve finally decided to add the sunroom that you always wanted. Before the final fixture is installed you should contact your agent to make sure the addition is covered. Many insurers require that you notify them for any improvement that exceeds $5,000. Check your policy to determine what time frame is required for notification.
Inflation adjustment – You might think that you don’t need to be concerned about the amount of coverage you have considering the drop in the housing market over the past few years. While the price of existing homes may have fallen, the cost to rebuild them has been going up. Increases in commodity prices, especially energy costs combined with changes in building codes means it may cost a lot more to rebuild your home than what it would bring to sell in today’s market. Your policy should include an inflation protection clause that is tied to your regional building costs and ideally would automatically adjust each year. You may want to consider extended-replacement coverage that would cover the difference if the cost to rebuild your home exceeds your dwelling limit.
Keep a roof over your head – You will need a place to stay while your house is being rebuilt after a total loss. Your policy should provide a “loss of use” coverage that will cover the cost of renting a comparable home until yours can be rebuilt. Look for 24 months of coverage to make sure you have adequate time to rebuild.
Take a home inventory – Most insurers will give you 180 days following a total loss to provide them with a list of everything you owned. The Insurance Information Institute provides free online home inventory software to help you keep track of your belongings. You can sign up for free at: www.KnowYourStuff.org. Take photographs of your belongings or make a video of each room. You should get appraisals of valuables and collectors items. Expensive items such as jewelry may require coverage above your normal policy limits.
Don’t forget the umbrella – Your homeowner’s policy will provide some liability coverage that protects you if you are legally responsible for causing injury to another person in your home and elsewhere. Golfers may already know that if they slice a ball into the next fairway and injure someone, their homeowner’s liability coverage insures them. Liability coverage is inexpensive and is not the place to cut corners if you are trying to minimize your premiums. In fact, you should consider holding an umbrella liability policy that would overlay your homeowner and automobile liability. An umbrella policy with $1 million in coverage should cost about $150 to $300 per year. Many insurers will require that you hold your homeowner and auto coverage with them before they’ll issue an umbrella policy.