How do I make sure I have the right home insurance coverage?
One of the smartest ways to make sure you have the right home insurance coverage is by taking an inventory of your belongings. You’ll want to have an inventory handy in case there is a loss or damage to your home or property, so you might as well start off making lists of what you have.
In addition, here are a few tips to help you make sure you have the right amount of home insurance coverage for your individual budget and needs:
Estimate your home’s current value based on what it would cost to rebuild, not what it would sell for
Here’s the difference. Market value is what your home might sell for based on your location and how much land you own, in addition to the actual size and structure of the house and other buildings on the land. Cost to rebuild is exactly what it says—how much it would cost to rebuild your home if it’s destroyed by fire or another covered peril.1 A simple and cost-effective way to determine replacement cost is to speak with a licensed insurance expert who has access to various replacement cost estimators.
The two values can be vastly different. Since you can’t insure your land, you would be paying for insurance coverage you don’t need, if you based your coverage amount on market value. In other words, your three-bedroom, 1960s stucco ranch house might have a market value of $350,000 because it’s on several acres of land in a prime location. However, if it burned down, it might only cost around $100,000 to rebuild it. For this reason, it’s a good idea to insure your home at replacement cost rather than market value.
If you have a mortgage however, your mortgage holder will almost always require you to have enough coverage to protect the loan. Using the example above, if that same customer has a mortgage of $200,000, the customer would be required by their mortgage lender to purchase enough insurance to cover the outstanding mortgage loan.
Do an inventory of your furnishings, equipment, clothing and other personal items to make sure you know how much it would cost to replace your home’s contents
Sometimes damage to the contents of your home can cost more than the structure damage. Smoke damage is an excellent example. Even a relatively small fire can cause a lot of smoke damage to furniture, clothing, carpets and linens. Water damage is another peril that can cause more damage to the contents of your home than to the structure itself. So be sure to have a complete inventory of what you currently own and make sure to update or add to your inventory as you buy new things.
Should there be a loss, decide how much you can afford to pay out of your own pocket, and make that your deductible.
The higher your deductible (the more you’re willing to pay before your insurance kicks in), the lower your home insurance premium may be. It pays to take time to think and plan for handling small losses out of your own pocket. Not only can it help reduce your premium now, it can also help keep your premiums low in the future, since you won’t have a loss record for smaller damages which may fall under the deductible.
Ask for Replacement Cost Coverage
Some home insurance companies automatically write policies that will cover you at Replacement Cost Value. In other words, they will reimburse you for the cost to replace the item or repair your home at today’s prices. However, some insurance companies offer insurance at Actual Cash Value, which is the original cost of the item less depreciation based on its age.1
You’ve probably already figured out that Actual Cash Value will likely cost less, both to purchase and for the insurance company to pay out on. You may need to pay a higher premium for Replacement Cost coverage, but it could be well worth the extra few dollars for the added peace of mind.
Who is Answer Financial?
If you have additional questions about home insurance coverage, give one of our licensed insurance experts a call at 1-800-528-5101 or head to AnswerFinancial.com for a free quote. As one of the largest auto & home insurance agencies in the US, we can help you compare coverages from top-rated insurance companies in your area. Our customers save an average of $479 a year on their insurance.*
September 16, 2020
- 1."Property Insurance,” USA.gov, https://www.ready.gov/sites/default/files/2020-03/ready_document-and-insure-your-property.pdf
- *Results of a national survey of new Answer Financial customers reporting insurance savings in 2018.