If you’re smart, before you pack a single box, you will make sure your home insurance has you covered for whatever life might have in store. While your mortgage lender likely requires you to carry some level of home insurance, don’t assume that amount will protect you from financial disaster.
Here are some helpful tips:
Tip No. 1: Insure for your home’sreplacementcost
Here’s one of the most common mistakes homeowners make: Confusing a house’s market value with its replacement cost. If you’re insuring your house for its market value, you may be over insuring it. Your home insurance coverage should cover the cost of rebuilding your house if it is destroyed. The best indication for coverage is the cost to build a new home. With an existing home, look at the replacement cost rather than the market value.
However, in some situations, such as if you purchased a foreclosed home, the price you paid may not accurately reflect the cost to rebuilt it.
To determine the replacement cost, most home insurance companies use software that allows them to enter your home’s features and calculate the cost of replacement. In addition, most policies include coverage for up to 125 percent of the replacement cost.
While it may be tempting to use this buffer as a reason to purchase less coverage, the reduced cost may not be worth the risk you take in having inadequate coverage. It can be less expensive to rebuild a home than to do extensive remodeling, and many home insurance claims are for only partial damage to a home.
Tip No. 2: Don’t skimp on liability insurance
There’s the old joke that trial lawyers have never seen a lawsuit they didn’t like. That may be an overstatement, but the threat of legal action is a real concern for everyone – especially if you have assets like a house, savings and investments. If you’re sued for an incident covered under your home insurance (like a slip-and-fall injury on your front steps), liability insurance covers not only the settlement but also your legal fees (up to your liability limit).
Many liability insurance policies will cover you even if an incident happens away from your home. It’s also important to purchase an excess liability or an umbrella policy that offers coverage of $1 million beyond what is already included in your home insurance and car insurance policies. These policies are relatively inexpensive, often costing $200 to $300 per year.
Tip No. 3: Protect your personal property
When you receive a home insurance quote, be sure to review the coverage amount for your personal property. Most policies include coverage equal to 50 to 75 percent of the replacement value of your house.
In addition, you may need a separate endorsement, or rider, for some valuables. For example, coin collections, stamp collections, jewelry, furs, fine art, cameras and other expensive belongings may be subject to limited coverage under the personal property provisions of your plan. When requesting a home insurance quote, ask whether these items need to be listed under a separate endorsement to ensure they are properly covered.
Tip No. 4: Choose a company that offers Equipment Breakdown Coverage
It takes lots of expensive equipment to keep a home running smoothly these days. From heating and cooling systems, audio and video components, kitchen and laundry appliances yo pools and spas, sooner or later something is going to break down when you least expect it. Chances are you have not budgeted for unexpected repairs, with Homeowners Equipment Breakdown Insurance, you don’t have to.
Extended warranties are often expensive, hard to manage and usually only cover one piece of equipment. Homeowners Equipment Breakdown Insurance offers a simple comprehensive and affordable solution that covers what most homeowners polices exclude.
Homeowners Equipment Breakdown Insurance covers all your important home systems and property due to loss by mechanical or electrical breakdown. That includes appliances, heating and cooling systems, swimming pool equipment, water heaters, well pumps, garden tractors, home security systems, electrical systems, personal computers, home electronics and more. It’s a coverage no homeowner should go without.
Tip No. 5: Examine what’snotcovered
Finally, read the exclusions section of your home insurance policy. Understanding what’s not going to be covered is just as important as knowing what is – before you ever have to make a claim.
You can usually add additions such as Identify Theft Protection onto your homeowners policy.
Tip No.6: Have A Professional Examine Your Current & Potential Policies
At LPL Risk Management, we’d be happy to check review all of your insurance policies for free!