When it comes to home insurance, the most frequently asked question is How Much Do I Need? There are a lot of factors to take into consideration and it can be a very frustrating process. But with just a good amount of mental energy and effort, you can make sure that your home is fully insured and have a peace of mind.
Here is a list that can help you ensure adequate coverage for your home:
Never base the rebuilding costs on the price paid for the home. Because current construction costs is volatile and vary per area, it is a very good idea to contact your real estate agent, insurance agent or builders association to find out the costs in your area. Multiply the total square footage of your home with the construction cost and you can get an estimate for how much insurance you will need.
Some other factors that determine the cost of rebuilding:
Also be aware that most standard policies usually does not cover floods or earthquakes, you may have to purchase it from other private insurers or organizations such as the National Flood Insurance Program or Earthquake Authority.
Replacement cost policies pays for replacement of any damage using the same quality of materials used in the original structure.
Rebuilding costs can usually rise when there is a high demand after a major catastrophe. You can buy this policy to protect you and guarantees that your rebuilding costs will not increase in such a situation. It will pay an extra 20% or more above the limits of your replacement cost policy
Make sure you have an inflation guard clause. This extension basically increases the rebuilding amounts by 2% per quarter automatically to keep up with the pace of inflation.
Older homes usually require a specialized policy and are generally more expensive. This is because it is more expensive to replace the materials or specialty features of these homes. Some insurers may not even allow you to get a guaranteed replacement cost policy. If your property nests in a historic district, it is a good idea to check with your local city hall to see who provides insurance for other buildings and homes in your neighborhood. You can also visit the National Trust for Historic Preservation for additional information.
You should definitely conduct an inventory. List all your possessions, a detailed description and the replacement costs of each. Though most insurance policies cover personal possessions up to 70% of the insurance on the structure, it is wise to know whether you might need additional coverage for your personal possessions.
The price of a replacement cost coverage is usually about 10% more than the Actual cash value option. The difference is the replacement cost, will replace your personal items regardless of depreciation. For example if your 8-year-old refrigerator was stolen, the replacement cost requires the insurance company to pay and provide you with a new refrigerator. If you opted to take the actual cash value, they will only give you cash for the amount of the depreciated value.
Some policies place a limit for expensive items like jewelry or fur. Again, this is why it is a good idea to do an inventory. See if these limits are too low and if they are, consider buying additional coverage such as a floater or an endorsement for special personal property. Usually there are no deductibles and you are just responsible for the premium based on what the items are. You may need to provide a receipt or get it appraised.
In case you may need to live away from your home after a storm or any other disaster, it is very important to get covered for temporary living expenses. It will cover meals and hotels. Also, if you rent your home, you can also be covered for wages you would have collected from your tenants. Assess the possible catastrophic events in your area and estimate, a time you might need to rebuild in the worst-case scenario. Though there is a limit, you are usually allowed to increase this coverage but you may have to pay a higher premium.
Most policies provide a minimum of $100,000 worth of liability but you should consider increasing it up to $500,000. This coverage will cover cost pertaining to lawsuits for injury or damage to others by your property or members of your family.
You may want to consider purchasing excess liability or an umbrella policy if you have assets or investments that are worth more than the liability limits of your policy. An umbrella policy is usually purchased separately from your homeowner's policy. It covers you when you have reached the limits of your other liability coverage. An umbrella policy also provides coverage for things not covered by a homeowner's policy i.e. liability for rental property, if you are being sued for slander or libel.
Finally, find an insurance agency you can trust. It is very important that you understand each and every clause in your insurance policy. Take your time to read it, ask questions and make sure you are comfortable and have a peace of mind before signing.