How To Properly Insure Your Home!

Most homeowners have insurance in force.  If you have a mortgage the mortgage company requires you to carry property coverage to protect their interest in the home.  If you don’t carry coverage the mortgage company will place “forced placed” insurance on the dwelling that will cover the amount remaining on your mortgage.  Forced placed coverage can be as much as double the cost of homeowners insurance and doesn’t cover your equity in the home. 

How then, do you properly insure your home?  Many people look at the tax valuation of their home.  Many look at the market value (the amount they could sell the home for).  Neither of these numbers would put you back in the condition you were in prior to a loss.  You would need to insure your home for the amount it would take to rebuild the home, at your current location with current cost of materials and labor.  The cost of building materials – copper, steel, lumber, concrete – have all gone up drastically in the last few years. 

You should consider four elements  in deciding how much coverage you need:

1.        The cost to rebuild the structure.

2.       The cost to replace your contents.

3.       Additional living expenses if you are required to move out of the home while the repairs are made (accommodations and food).

4.       Your liability to others who might be hurt or injured on your property. 

Your agent will usually have a computerized estimator to help you estimate the replacement cost.  If you have had a recent  appraisal the appraisal usually has an estimated replacement cost .  You can ask a local builder to give you an estimate.  Whatever method you use get qualified help in coming up with the number.   

Your contents amount of coverage is usually based on a percentage of the dwelling replacement cost amount.  This could range from 50% to 70% based on actual cash value or replacement cost coverage.   If you have a contents loss you are responsible for providing an itemized list of possessions to the insurance company, along with proof of ownership.  If you own a movie camera it is a good idea to shoot a movie of your home (stand in the middle of each room and complete a 360 degree sweep).   If you have a regular camera or cell phone camera take pictures of every room in a similar fashion.  Keep your movie tape or your pictures at another location, such as a safety deposit box or at a relative or friends home.

If you are looking for ways to cut your insurance cost ask your agent for advice.  You can raise deductibles, add an alarm system, check to make  sure you are receiving all of the discounts (home and auto, 55 and over, etc.).  Don’t be pound wise and penny foolish by underinsuring your property!      

-Ron Darden