3 Questions to Ask Before Buying Homeowners Insurance

For many people, their home is their greatest asset, yet studies show that 59% of today’s homes are underinsured. Homeowners should update their insurance regularly to include improvements, major purchases and increased rebuilding costs, according to the Insurance Information Institute (III). “A major home alteration or addition, even a lifestyle change such as marriage, or a family member moving in (along with his or her belongings), should trigger a call to your insurance company.” -Jeanne Salvatore, Senior Vice President and Consumer Spokesperson for the III. The cost of building or repairing a home has increased dramatically in recent years. According to the U.S. Census Bureau, homeowners spent over $359 billion on additions, alterations, maintenance and repairs from 2009-2011, up from $201 billion in 2004. Materials like lumber, cement, gypsum and structural steel products have become more scarce, not only because of the devastation from recent storms and disasters, but also because of increased global demand.

A Home Is a Valuable Thing

For many people, their home is their greatest asset, yet studies show that 59% of today’s homes are underinsured. Homeowners should update their insurance regularly to include improvements, major purchases and increased rebuilding costs, according to the Insurance Information Institute (III).

“A major home alteration or addition, even a lifestyle change such as marriage, or a family member moving in (along with his or her belongings), should trigger a call to your insurance company.” -Jeanne Salvatore, Senior Vice President and Consumer Spokesperson for the III.

With all this spending, you need to be sure you are not just insured, but have the proper homeowner insurance for your needs. 

3 Key Questions to Ask About Insurance

When you consider homeowners insurance, make sure that you account for all damages relating to rebuilding, replacing, and potential liabilities.

Will I have enough insurance to rebuild my home?

Your policy needs to cover the cost of rebuilding your home at current construction costs. Unfortunately, some homeowners simply purchase enough insurance protection to satisfy their mortgage lender. Others confuse the real estate value of their home with what it would cost to rebuild it. Quite simply, you should have enough insurance to rebuild your home in the event that it is completely destroyed.

Consider the following:

Will I have enough insurance to replace all of my possessions?

Most homeowners insurance policies provide coverage for your personal possessions for approximately 50-70%  of the amount of insurance you have on the structure of your home. So if you got $100,000 worth of coverage on the structure of your home, you would be covered for $50,000 to $70,000 worth of the contents of your home, depending on the policy.

The best way to determine if this is enough coverage is to conduct a home inventory that details everything you own and the estimated cost to replace these items if they were stolen or destroyed by a disaster. III has a free software for calculating the value of your possessions. Try it here. 

You can insure your possessions in two ways: by their actual cash value or their replacement cost. Make sure you review with your agent or company representative which type of coverage is best for your particular situation.

The differences between the two policies are subtle yet important. Let’s take a look at an example:

A fire destroys a 10-year-old television set in your living room.

Some replacement cost policies specify that the new item be purchased by the insurance company as they may be able to purchase at a bulk or special rate. The price of replacement cost coverage is about 10 percent more than that of actual cash value.

Will I have enough insurance to protect my assets?

Homeowners insurance doesn’t just protect the structure or contents of your home, it also provides liability protection. This covers you against lawsuits for bodily injury or property damage that you or your family members may cause to other people. It also pays for damage caused by pets. Liability insurance pays for both the cost of defending you in court and for any damages a court rules you must pay—up to the limits of your policy. Most homeowners insurance policies provide a minimum of $100,000 worth of liability insurance, but higher amounts are available.

It is important to purchase enough liability insurance to protect your assets. If the standard liability coverage in your homeowners policy is not sufficient, you may need an excess liability, or umbrella, policy, which provides additional coverage over and above what is covered in your home (and auto) insurance policy.

Image cropped from infographic by U.S. Census Bureau. 

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Executive Council of Homeowners, Inc. 5669 Snell Avenue, #249 San Jose, CA 95123-3328

Call Us: (408) 297-3246 Email: info@echo-ca.org

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