If a fire destroyed you home today, you may be in for a bigger shock than you realize. Chances are, your homeowner’s insurance is insufficient. If you have lived in your house for more than 3 years and haven’t changed your policy, your home is probably underinsured.
The price you pay for your homeowners insurance can vary by hundreds of dollars, depending on the insurance company you buy your policy from. There are several reasons why insurance prices fluctuate. Your best best is to sit down with your agent and re-access your homeowner’s insurance now and start the new year off right. Here are some tips to consider when accessing your coverage.
Not the right coverage
The regular homeowner insurance policy – fire and casualty – does not cover flood, and you need to be aware of that if you’re living in a flood plain. Also, some policies will exclude wind and hail damage. It may also be reversed. You may not be in a flood plain area and are paying for flood coverage. Consider also, if you live in a disaster-prone area, your insurance policy may have a separate deductible for certain kinds of damage. Go over exactly what is covered in your policy and add more or delete if needed.
Personal property value has changed
The rise of value of your personal property in the last few years makes it certain you would have to pay out of pocket for some of your most precious items that you thought were covered under your current plan. The amount of coverage built into your policy for the possessions in your home may be inadequate to replace them. And although your policy may cover some of these items, such as jewelry, it may limit the payout to $1,000 to $2,000. Other times personal property may not be worth what you thought it once was. If your five-year-old fur coat is no longer worth the $5,000 you paid for it, you’ll want to reduce the extra insurance for items whose full value is not covered by your standard homeowners policies. Other personal property may include expensive jewelry, high-end computers and electronics, silverware, and valuable art work.
Consider a bundle
Some companies that sell homeowners, auto, and liability coverage will take 5 to 15 percent off your premium if you buy two or more policies from them. But make certain this combined price is lower than buying the different coverages from different companies. If you’ve kept your coverage with the same company for several years, you may receive a special discount for being a long-term policyholder. Some insurers will reduce their premiums by 5 to 10 percent if you remain a policyholder for so many years with them. But make certain to periodically compare this price with that of other policies.
Guaranteed replacement coverage, which pays 100 percent of your repair or rebuilding costs without limits, is the holy grail of homeowners insurance. Your agent will likely recommend it and you may have to buy it if your mortgage lender requires it. This is best if you want to replace your home exactly the way it is now. But this kind of insurance is very expensive.
Replacement cost coverage isn’t quite as good or as pricey, but it is the best some homeowners can buy because of their home’s location or condition. In this type of policy, the maximum the insurer will pay if your home is destroyed is stated in the homeowners policy.
A cash-value policy will cover the cost of the house’s replacement cost minus any depreciation or wear and tear. You can count on not getting enough money to completely rebuild with this type of homeowners policy.
Look at your deductible
Deductibles are the amount of money you have to pay toward a loss before your insurance company starts to pay a claim, according to the terms of your policy. The higher your deductible, the more money you can save on your premiums. Most insurance companies recommend a deductible of at least $500. If you can afford to raise your deductible to $1,000, you may save as much as 25 percent.
Make your home more Insurable
Find out from your insurance agent what steps you can take to make your home more resistant to natural disasters or other damage. You may be able to save on your premiums by adding storm shutters, reinforcing your roof, adding smoke detectors, locks, or an alarm. Older homes can be retrofitted to make them better able to withstand earthquakes. In addition, consider modernizing your heating, plumbing and electrical systems to reduce the risk of fire and water damage.
Don’t forget your business
If you run a business out of your home, be sure to discuss coverage for that business. Most homeowners policies cover basic business equipment in the home, but only up to $2,500 and they offer no business liability insurance. Although you want to lower your homeowners insurance cost, you also want to make certain you have enough coverage.
Use your annual renewal notice or any improvements to your home as cues to touch base with your agent or insurer. Recheck how much insurance you really need and comparison-shop, taking advantage of opportunities to save. You can use the same tactics if you’re buying a new policy.