How do I Insure My Home Correctly?

How do I Insure My Home Correctly?

If you are a homeowner, you know your home is one of your most important assets. If you have a mortgage, the mortgage holder commonly requires a homeowner to carry homeowners' insurance and also that they (the mortgagee) be listed as mortgagee on the policy.

Homeowners' insurance protects your interest and the mortgagee’s interest in the event your home is damaged or if you become liable for a risk that is insured by homeowners' insurance.

Insurance companies calculate a homeowners' insurance premium by evaluating the risk – amount of coverage needed, age of home, roof, heating, wiring, and plumbing, location and a variety of other factors. Three important factors insurance companies use to evaluate risk are location, the number of claims in an area, and the frequency and severity of claims.

Statistics indicate that 1 in 19 homes have an insurance claim each year. The most common claims (with frequency and severity) are:

  1. Wind and Hail [1 in 42 homes, $8625 average damage]
  2. Water Damage and Freezing [1 in 50 homes, $9633 average damage]
  3. Other Property Damage [1 in 42 homes, $5052 average damage]
  4. Theft [1 in 270 homes, $4146 average damage]
  5. Fire and Lighting [1 in 323 homes, $50,315 average damage]
  6. Bodily Injury/Property Damage [1 in 1111 homes, $23,010 average damage]
  7. Medical Payments [1 in 2500 homes, $2864 average damage]
  8. Dog Bites [1 in 3250 homes, $37051 average damage], and
  9. Credit Card Theft [1 in 10,000 homes, $441 average damage]

Although homeowners' insurance may repair property or replace possessions, the best time to make sure you are properly insured is before, not after, a loss occurs.

Here are a few commonsense tips to make sure are insured correctly:

  1. Ask your insurance agent to re-calculate the replacement cost of your home. If your coverage has not kept up with replacement cost, make sure you understand the amount of risk you have and consider increasing your insurance limit.
  2. If your home qualifies, ask about replacement cost coverage. Will your insurance repair or replace your home in the event of a loss?
  3. Check the amount of personal property coverage on your home. Replacement cost coverage is the best. Does the limit of coverage you have represent the cost to replace your possessions in the event of a total loss?
  4. Check the limit of coverage you have for detached structures. A common limit for appurtenant structure coverage is 20% of the building limit. Check the limit that is included with your policy. Is it enough?
  5. Homeowners' insurance policies also have limited coverage for special valuables such as cash, antiques, firearms, jewelry, art, furs, electronics, coin collections, silverware or goldware, etc. In many cases these items can be appraised, and coverage can be endorsed (added) to the policy as needed, and
  6. Check your liability limits. The cost to increase a homeowners' liability limit is minimal. And, the chance of needing homeowners' liability coverage is usually small. Nevertheless, if you become liable for an accident that happens on your property, you will never regret paying the small cost to increase this limit.

No review (or agent) can possibly cover all claim possibilities that may arise, so to ask your agent if he or she can think of any other items that should be addressed.

After completing this type of review, you should be much more confident that you have the homeowners' coverage needed in the event of a loss.

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