Did you purchase your homeowners insurance policy in a rush because your mortgage lender said you needed it to close on your home? Do you fully understand the policy and what your premium dollars are paying for? Let’s dive in and take a look at a few common questions consumers have about home insurance coverage.
- I only paid $200,000 for my house. Why is it insured for a number that’s higher than that? Typically, a home policy pays you to rebuild your home at the same location. The cost to rebuild it is going to be more than you paid for the home. If a contractor has to come in to repair damage after a fire, they have to work around existing studs and electrical lines already there. This drives up the labor cost because it takes a bit longer. There is also an very good chance that the cost of building materials will be higher for a rebuild after a claim because the contractor is not buying materials in bulk. If you choose not to rebuild, your home policy typically pays you the market value at time of loss and you can use the money to buy something elsewhere. Your other option is to invite your home for actual cash value. This means that any loss you have is paid on a depreciated value, not necessarily the amount you would need to fully repair things.
- What deductible options are available? Most home insurance carriers have minimum deductibles of $1000. If you can afford to pay more than that out of pocket when you have a claim, ask your agent to quote higher options such as $2500 or $5000. Always keep in mind that it is a good idea to pay smaller claims out of pocket. A homeowners insurance policy is not designed to be a maintenance plan. It is designed to help you recover after a large loss so that you are not financially drained. Also check to see what your insurance carrier offers for a wind and hail deductible, because it is sometimes different from your regular deductible. If you choose to carry earthquake coverage, your deductible will typically be a percentage of what the home is insured for. Some carriers offer 10%, 15% or 20% deductibles for earthquake coverage.
- Are there any coverage limitations? Typically the basic home policy has limits for theft of jewelry, money, furs, trailers. Check to see what those limits are in your own policy and purchase additional coverage if necessary. You may not own a ring like Meghan Markle, but it is still most likely worth more than what is going to be covered by your unendorsed home policy.
- Do you run a business out of your home? If so, you need separate coverage. Depending on the type of business, you may be able to add an endorsement to your policy. Some businesses require a separate business insurance policy. Check with your agent to see what applies to your specific situation. You would definitely need coverage for contents you store at home and for liability resulting from things that might arise from the business activities.
- Do you have a finished basement? Make sure your agent is aware if it has any finished area so that you have appropriate coverage for that portion of your home in the event of a loss. If your basement has a sump pump, make sure you add coverage for water damage caused by sump pump failure. After all, if your basement is your family room, theater room or martini bar- you don’t want to be without it because of significant water damage!
Check with your agent annually, especially if you have updated your home or had life event changes. Your home is one of your biggest investments! Make sure your insurance plan reflects your pride of ownership!