Homeowners Insurance

Nothing is more important when you’re buying homeowners insurance than correctly calculating the percentage of your home that you want to insure. This figure has nothing to do with your home’s market value. It’s based on how much it would cost to completely rebuild your home if it were totally destroyed today. So, if you could sell your home for $200,000, but it would only take $150,000 to rebuild it, then that’s all that you need to insure it for. Remember, you’re not insuring your land, just your home.

The best thing to do is to insure your home for 100% of its current replacement cost. This is the most expensive type of homeowners insurance, but its well worth it. A good alternative would be to insure your home for 80% of its replacement value. Since it’s much more likely that only part of your house would be damaged than the entire home being totally destroyed, you’ll still receive the full amount it would cost to repair or replace any part of your home that’s damaged. If you insure for less than 80% of the replacement cost, you’ll only receive the “actual cash value” of your loss. In other words, depreciation is taken into account. And you’ll have to pay current prices to replace those items that were lost.

Also, you’ll want to get replacement coverage on the contents of your home. This will guarantee that if your expensive couch or dining set is damaged, you’ll receive enough money to replace it with a new item of the same type. In addition, you can purchase replacement cost riders for jewelry, artwork, or other personal property that exceeds the policy’s limits.

Once you’ve determined the amount to insure your home for, you should ensure that you continue to have adequate coverage for as long as you own the property. In other words, every time you make an improvement or build an addition, or do anything to enhance the value of your home, you should increase the coverage of your policy to include those additions. Again, make sure that your coverage is at least 80% of the replacement cost of your home at all times. If construction costs rise in your area, you should increase your homeowners’ coverage to coincide with it. If you don’t want to have to keep an eye on building costs, an inflation guard endorsement can do it for you. This rider will automatically increase the amount of coverage on your home as inflation rises.

As with car or health insurance, the higher the deductible you choose, the lower your premiums will be. It’s wise to select the highest deductible you possibly can that won’t seriously jeopardize you financially. It’s also possible that you could get policy discounts for items such as burglar alarms, deadbolt and window locks, and sprinkler systems. Many insurance companies give discounts for senior citizen owners and multiple policy holders, as well. For instance, if you insure your car or buy a life or health insurance policy through the same company, you could get discounts on all of the policies that you own.