Is Your Home Underinsured?

November 17, 2016

Your home is undoubtedly one of the biggest purchases you’ll ever make in your lifetime- if not the biggest, period. This is why it’s so important to make sure you have the right amount of homeowner’s insurance to protect this large, valuable investment. After all, if the unexpected were to happen, you would want the ability to rebuild and get your life back to the fullest extent possible.

But, when it comes time to deciding on a homeowner’s insurance policy, how can you be certain you’re not cutting your coverage too short?

Proper Homeowner’s Insurance Coverage

Basically, there’s not a one-size-fits-all homeowner’s insurance policy out there. What might be right for your next door neighbor will vary greatly from what is right for you and your family. When pouring over different options for homeowner’s insurance, you’ll want to think about a few key things:

  • Are you sufficiently covered to rebuild your home? Dwelling coverage pays for the damage to the home itself, as well as attached structures like garages. For a quick estimate of how much you would need to rebuild your home, multiple the total square footage by the local building costs per square foot (a real estate agent or insurance agent can help with those numbers). Most policies will cover damage to the structure from fire, wind, hail, theft, etc. Flood or earthquake damage needs a separate policy. You can choose a replacement cost policy, which pays for the repair or replacement of damaged property with materials of similar kind and quality. Or, an extended replacement cost policy extends coverage by up to 20 percent above your stated policy limits.
  • Are your possessions adequately covered? First, conduct an inventory of your belongings throughout your home and determine the estimated cost to replace them if they were damaged or stolen, remembering that big ticket items like electronics and furniture can quickly add up. A cash value policy will cover the cost of your possessions minus depreciation, while a replacement cost policy pays the full cost of replacing your items at current prices. A recommended guideline is to insure your possessions at 50 to 75 percent of your dwelling coverage amount.
  • Don’t forget about liability coverage. Basic liability coverage protects you against any lawsuits due to accidents or injuries that happen on your property, like if a guest falls down your front steps or your dog bites the neighbor. Liability insurance will cover any legal costs up to the stated limits of your policy, and most homeowner’s insurance policies provide a minimum of $100,000 worth of liability insurance. In addition, you can consider purchasing umbrella or excess liability insurance for extra coverage, a good idea if your property or investments and savings are worth more than the liability limits in your policy.

If the market value of your home goes down, don’t reduce your coverage amount. You need to keep in mind the total cost to rebuild, which often has nothing to do with the market value.  Or, if you have recently paid off your mortgage, don’t think this means you can cancel your homeowner’s insurance. Your policy is there to protect your investment in your home.

If you have any questions about protecting your home and family with an updated homeowner’s insurance policy, contact Machor Sage today! Or, call us for a quote on a new policy at 440-826-0404.