As I was recently perusing my homeowner’s insurance policy (yes, financial planners do that sort of thing) I got to thinking. What exactly does this cover?
If you took out a mortgage when you bought your house you were required to have homeowner’s insurance. The bank wasn’t about to loan you money without knowing their asset was insured. But if that was several years ago and you can’t recall the name of the agent who sold you the insurance, your coverage might be out of date.
[See Lee Ann’s tips on life insurance policies for your children]
If you’re like me, reading about insurance may put you to sleep. But, grab a cup of coffee and stay with me for a few paragraphs – this is important.
A Little Background
Homeowners insurance is really two types of insurance rolled into one. It has property coverage, which covers your home, its contents, loss of use and even your personal possessions that may disappear away from home. But it also has liability coverage for accidents that can happen to other people at your home.
There are also different levels of coverage. Basic (HO-1 and 2) list the specific “perils” that are covered. In most cases these will NOT include floods, earthquakes, war or even termites. A more comprehensive form (HO-3) covers “all risks” but specifically lists those it excludes (floods, earthquakes, war, even termites). So the first question you should ask is what coverage do I have and what’s not covered? And for those perils not covered, how likely is it to happen? PLEASE NOTE: over 30 different states have had earthquakes in the last 100 years…
The general idea is that homeowners insurance should cover what it would take to replace your house & its contents. Which means if you haven’t figured out what all that is worth lately, you may be under-insured.
So What Can You Do?
First, of course, is to determine the current value of your home and see that the Dwelling piece of your coverage is adequate to replace it.
If you have other structures on your property, these are also covered, so make sure you know the value of those buildings as well.
Since the Personal Property coverage can range from 50%-70% of the Dwelling amount, this is where you should spend some time with your calculator. Walk from room to room snapping photos or videos of your furniture, TV, computer, IPAD, espresso machine. Make a list of each room’s contents. Keep receipts for the big- ticket items. MOST IMPORTANTLY-store all this information outside of your house!
Once you’ve done that, add up the values and check it against the formula in your homeowner’s policy. Are you really going to be able to replace everything of value?
If not, consider adding what are called Riders to your policy:
Most policies limit loss of currency to $100, so if you typically keep a wad of cash stashed under your bed, make sure you have a rider to replace it.
Jewelry is another typical item that requires a separate rider. Chances are even the diamond wedding ring would need to be covered separately in order to replace it. Your insurance company may require an appraisal for individual items of value before they will write the rider, but it’s well worth the cost.
Many policies now offer a computer rider- to cover all that technology we can’t live without these days. And if you have a home-based business, it’s critical to understand what’s covered by your existing homeowner’s policy and what’s not. Chances are you may need a separate business policy to replace your home office and its contents.
Other riders that can be added are additional theft coverage, boats or recreational vehicles you park at your home, sewer and drains backup and even coverage for landslides or ground collapses.
The cost of many of these riders is minimal compared to what you’re protecting.