Homeowners insurance provides financial protection against damage to or loss of the covered home and belongings. It also protects homeowners against financial liability for injuries that may occur on their property. If you’re like most homeowners, your home is your single largest investment. Because of this, it’s critical to understand how your homeowners insurance policy works to protect that investment. In this article, we’ll explore some key aspects of homeowners insurance to help you understand what your policy covers, where it might be falling short, and how to ensure your home is adequately protected.
To fully understand your homeowners coverage, you’ll need to read your policy carefully or have your agent explain it in detail. As you read or speak with your agent, keep the following questions in mind:
The cost of building materials has increased dramatically in recent years. It’s important to make sure your policy can keep up. Research how much it would cost to replace your home in the current market, and compare this to the coverage limits listed in your policy.
Coverage of valuable possessions like high-end jewelry, electronics, and art can be limited in many homeowners policies. The most common type of homeowners insurance sold today provides coverage for personal property at its current cash value, which can be very different from its replacement cost. Many insurers, however, offer riders that cover the full replacement cost of personal property for an additional fee.
Be sure to understand the limits of your liability coverage, and consider whether you could benefit from purchasing additional coverage. Most homeowners policies provide a minimum of $100,000 in liability coverage; however, the Insurance Information Institute recommends that homeowners consider securing between $300,000 and $500,000 worth of liability coverage.
You might assume that pretty much any damage that’s beyond your control will be covered, but this can be a dangerous assumption to make. In fact, homeowners policies typically exclude many types of losses. For example, damage from earthquakes, foundation shifting, flooding, and pollutants are often excluded from coverage. Be sure you understand what your policy will and will not cover, and seek additional coverage as needed.
When reviewing your policy with your insurance agent, the following questions can help guide your discussion and ensure you understand key points of your coverage:
After you’ve developed a thorough understanding of your homeowners policy and made sure your coverage is appropriate for your needs, it’s important to take a few additional steps to ensure you remain protected.
If you’ve built an addition to your home, finished your basement, or remodeled your kitchen, your home may be worth significantly more than it was when you purchased your policy. Other features, such as a swimming pool, can increase your liability risk. Revisit your policy after performing any major renovation to ensure you remain adequately covered.
It’s important to have clear, up-to-date records of your possessions in case you need to file a claim. Use photos and/or videos to document your belongings, especially those that are higher in value, such as fine art, jewelry, and electronics. Keep records of appraisals of high value items, especially if they are rare or not easily replaced. Doing so will streamline the claims process and help ensure that you’re properly compensated for any losses.
Many factors can influence the type and amount of homeowners insurance you need. By regularly reviewing your policy with the questions discussed above in mind, you can call attention to any gaps that you may have overlooked and adjust your coverage accordingly. Consider setting an annual appointment with your agent to review your coverage and get their recommendations for any updates you might need.
Understanding your homeowners insurance policy is key to protecting your home and financial well-being. Ensuring that you have proper coverage provides the peace of mind of knowing you’re prepared for the unexpected and protected against unforeseen losses. If you need help reviewing your current coverage or determining whether it’s sufficient for your needs, consult a qualified insurance agent.