Do you need to update your home insurance policy?
Three out of five American homes are underinsured by an average of 20%, and this is getting worse by the day as home prices and lumber prices skyrocket. Worse, many homeowners do not even think to double check that their home is valued properly or that their insurance coverage is keeping up with rising prices.
Although many homeowners believe it is unlikely that their home will ever suffer a total loss, it does happen. Owners of homes that are not properly insured are often faced with huge out-of-pocket expenses to rebuild. As the value of homes rapidly rise and the replacement cost of homes increases it is crucial to ensure that the value of your home is correct.
Three ways to make sure your home is properly insured:
1. Provide your agent with accurate, detailed information about the size, layout, personal property and distinctive features of your home. Depending on these details, it could change the value of your home. A helpful tip is to take a video on your phone walking through your house to capture details of your home as well as personal property within your home. This will serve two purposes; one, to better remember the items you had if a disaster were to occur, and two, to serve as proof for your insurance company about your property.
2. Increase your overall coverage. Double check that you insure your house at 100% of its value, or purchase what is known as replacement or repair cost protection, which is the amount of money it would take to repair, replace or rebuild your home with materials similar to the kind and quality used in constructing your home. An important piece to replacement cost protection is that the cost to rebuild and replace is used to determine your dwelling coverage amount; called Coverage A within your insurance policy. If your replacement cost, and therefore your dwelling coverage, are not calculated correctly, the result could mean you are underinsured. Along with that, make sure you consult with your agent after remodeling your home. Remodeling almost always increases the value of a house and it’s important to track the changes that occur within your home.
3. Review your homeowners policy with your agent on a regular basis. Like many financial aspects, we recommend reviewing your policy once a year to be sure you are keeping pace with inflation and with the increases in construction costs.
Although house insurance may not seem like a typical financial planning topic, it is just as important as a good investment strategy or optimal tax planning. In light of a disaster, your life could change drastically. Ensuring that your home insurance coverage is up to date will help make sure it doesn’t cost you financially for years to come.
As always, reach out to us if you have any questions!