If you have a mortgage, chances are you have homeowner’s insurance coverage, which includes a basic payout of the actual cash value of your home (ACV) without a lot of frills. Simple and often cost-effective.
You may have a policy that guarantees to replace your home in the event of disaster – full replacement value. However, the actual cost to rebuild your home may have gone up since you took out that policy 10 years ago.
The fact is that when the renewal statement for our home insurance coverage arrives each year with rates and new policy limits, most of us give it a glance, shake our heads at the ever-increasing cost of living, and move on to the next envelope in the mail stack.
So, how much insurance protection is enough, and are you paying too much for the coverage you’re getting now? How can you save on those monthly premiums?
Start by reviewing your insurance portfolio. Pull together all of the insurance policies you have on the personal side of your life – homeowner’s coverage, auto insurance, special riders to cover an extra valuables, an umbrella policy, personal liability – you have to cover, not only your home, but yourself and family.
Consider raising deductables. With a $5,000 deductible, you take on additional risk – the $5,000 deductible – but wait until you see how much lower insurance costs are. Do the math to determine break-even.
Before redesigning your insurance coverage, talk to an independent insurance agent. These professionals know insurance needs in local neighborhoods, they can design customized coverage, and collaborate with you to get the protection you need to keep a roof over the family no matter what life decides to toss your way.
What needs to be insured? Homeowners need property insurance protection that covers four broad areas.
The structure of your home. You need at least enough to restore your circumstances to pre-disaster levels. If you have four bedrooms now, make sure your replacement coverage allows for four bedrooms.
Also, the cost of labor and materials goes up each year, so if current policy limits have you replacing your 5,000 sq. ft. home at 1980’s prices, you might want to get a better idea of what it would really cost to rebuild a home on your current home’s footprint.
The things inside your home – the home’s contents – should be documented. Save receipts for appliances, electronics, and other big-ticket items. Take pictures of specific items and store your inventory in a safe place away from your home.1 When an item’s value may be in doubt, consider investing in an appraisal.
Ask your insurance company advisor for some help evaluating items that may need special coverage (expensive jewelry, antiques, etc.) You may want to protect these assets with a special insurance rider that describes the special item and includes a certified appraisal. You can add numerous riders to a broad homeowner’s policy to tailor insurance coverage based on what’s actually in the house, rather than an arbitrary number.
You’d be amazed at how much “stuff” your family owns, and stunned by the cost to replace all of those items of clothes, furniture, appliances – it takes a lot of money to make things whole after a disaster.
Transition costs can add up very quickly when you’re waiting for the construction crew to finish things up. Where will your family live? Will you need a new car if the garage goes up in flames? Maybe two new cars?
You need a place to live, a way to get to work, maybe new childcare arrangements – these expenses add up, especially when you first start re-building your home and your life.
Make sure your home coverage provides payment for expenses related to living while your house is being re-built.
Personal liability can wipe out a lifetime of savings if you don’t insure against this risk. One delivery to the front door can cause a fall that changes your family’s financial life forever. Insure yourself against large claims made by friends, neighbors, tradespeople – anybody walking on your property may be a potential lawsuit waiting to happen.2
Insure everything. Limit your downside risk with manageable deductibles – even if you drive the new car through the living room wall – pay a little extra now for the peace of mind you get every day knowing you’re insured.
Who knows what tomorrow brings? However, no matter what it is, you can be ready for it. Are you?
- Click here for a recent article on how to conduct a home inventory.
- Do you work out of your home? Click here for a recent article on insuring your home-based business.
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of ZB, N.A.
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