How to Avoid Under Insuring Your Home
Trying to get just the right amount of homeowners insurance for your house and personal belongings can feel like a balancing act. If you under-insure, you won’t have enough protection if your home is damaged or destroyed in a fire or another disaster. Yet if you over-insure, you’re essentially wasting money each month on unnecessarily high premiums.
Don’t wait until disaster strikes to find out that you don’t have enough homeowners insurance. Here’s how to find the right balance of coverage that works for you.
Inform Your Insurer About Home Renovations or New Features
Making upgrades to your home ensures that you’ll love it even more, and it also adds to your home’s value. But if your policy isn’t updated to reflect that increase in value, you could be underinsured. To ensure that your home is adequately protected, make sure to notify your insurance company about any renovations to your home. This includes upgrades such as finishing a basement, replacing windows, or remodeling a kitchen.
Additions to your home count here, as well. So even if you don’t go through with a full renovation, you should still let your insurer know if you add a pool, deck, or even a trampoline to your home. Otherwise, your policy won’t pay out for damages or injuries—for example, if a deck catches fire, or if someone hurts themselves in the pool.
Make a Plan for Your Belongings — Especially Valuables
The contents of your home (your personal belongings and valuables) are protected under the personal property, or “contents” component of your policy. In order to protect your possessions, be sure that you have adequate coverage for your personal items and valuables and that the inventory of what’s inside your house is current.
Personal items that are worth a lot (including art, jewelry, coins, antiques and guns) are typically limited to $2,500 worth of coverage. If your possessions exceed this amount, you may need to buy extra coverage—also known as an endorsement—up to the limit for these items.
You’ll also need an endorsement in order to qualify for replacement coverage, since a home insurance policy will only provide actual cash value on contents. Since replacement coverage requires receipts and appraisals, you can start an inventory of your belongings by keeping photos and receipts in a safe place. Plus, most insurer websites offer home inventory apps, which will help streamline the process and give you a safe backup in case you ever need to file a claim.
Assess Your Exclusions and Endorsements
Remember, endorsements are the parts of your policy that give you coverage—and exclusions are the parts that take away coverage. It’s important to closely review both in your policy. The endorsements are very affordable, and they can give the peace of mind that you’re fully protected. Reviewing your exclusions, on the other hand, will help you determine how to protect your home from severe weather and whether or not you need to buy more liability insurance. Here are the endorsements and exclusions you need to know about:
Home Insurance Exclusions
- Wind and hail: Wind and hail are more frequent in certain states—and insurers in those areas will often put wind and hail exclusions in home policies. As a result, you won’t have coverage unless you buy separate wind and hail coverage.
- Dog breeds: Most home insurance policies offer liability coverage that includes dogs. But some insurers won’t cover certain breeds due to the number and cost of bite claims associated with those particular dogs. On the other hand, states such as Pennsylvania, Michigan, and Maryland forbid insurance companies to deny coverage to owners based on a specific breed of dog. However, those insurers may still decide to charge a higher premium. Since your liability coverage depends on where you live and who your insurer is, you’ll want to check your policy to make sure you’re protected.
Home Insurance Endorsements
- Sewer and sump-pump backup: Damage from sewer and drain backup is one of the most common homeowners claims, averaging $10,000-$20,000 in expenses. It’s also typically excluded from a basic policy, which makes adding sewer and drain backup coverage to your homeowners policy a wise choice indeed.
- Home-based business: A typical small home office will usually qualify for a home-based business endorsement, which will cover office equipment and related property. But if you’re using your home to run a business such as a salon or daycare,you’ll need a separate commercial business property in order to have full insurance protection.
- Special personal property coverage: If your expensive electronics are damaged from lightning, fire, or water damage (excluding flooding), it will be covered as a “named peril” under your policy. But if those same electronics are damaged during a power surge, you won’t be covered, since that’s not considered a “named peril”. However, you can purchase an add-on endorsement that will protect your belongings in such a situation.
How to Calculate the Cost to Rebuild Your Home
To make sure that you have enough coverage, you’ll need to figure out the replacement value to rebuild your home. If you’ve refinanced or bought a newly constructed home in the past year, you’ll have this information on hand.
If neither applies to you, you can determine the replacement cost of your home by calling a few local homebuilders and asking for the average building costs in your area. Then simply multiply the building costs per square foot by the total square footage of your house. If the going rate is $200, and your home is 1,800 square feet, you’d purchase $360,000 in coverage.You can also check with your insurance agent or company.
The factors that will determine the cost to rebuild your home include:
- Construction costs
- Square footage
- House style, such as a craftsman or contemporary
- Number of rooms and bathrooms
- Types of exterior wall construction, such as frame, veneer, or masonry
- Type of roof
Consider a Flood Insurance Policy
If you’re like most people, you probably assume that you only need flood insurance if you live in a high-risk area. But according to FEMA, more than 20% of flood claims come from low- to moderate-risk areas. And because a standard home insurance policy doesn’t protect your home if it floods. Instead, you need to buy a separate flood insurance policy through either the National Flood Insurance Program (NFIP) or a private insurance company that works with the NFIP.
See How Much You Can Save on Homeowners Insurance
We know how overwhelming it can feel when you’re shopping for home insurance. And that’s why we’re here to make the hunt for home insurance coverage easier than ever.