When the headlines read of natural disasters sweeping the country or devastating fires destroying homes, it is common to question the amount of homeowners insurance we need to cover our home and possessions in the event a catastrophic event in our lives.
The amount of homeowners insurance you will need to purchase will cover the cost of the following:
1. The structure of your home
2. Your personal possessions
3. The cost of additional living expenses if you are required to live somewhere else while repairs are performed to your home.
4. Your liability to others for accidents that may happen at your home
In order to be sure you have adequate coverage, you will need to determine the value of each of these areas.
Keep in mind that this does not include the land that your home is on. This is because in most instances (perhaps other than earthquakes, which requires different coverage); the land will remain in place. Your home structure is the cost required to rebuild your home at the current construction costs. This means that the home structure value is not contingent upon the price you paid for your home, or what the market value is, but rather the actual cost of construction. You can talk to your local insurance agent to find building costs in your area.
This is where a personal inventory can be very beneficial. Without a personal inventory, many policies will determine personal possessions to be 50-70% of the home value, which can be very low if you own expensive electronics, furniture and other possessions. Conduct a simple home inventory with a video camera or take photos to detail everything you own. Determine the estimated cost of replacing all of these items by recording their make/model and serial number if possible.
This area of your policy is usually set by the particular policy contract you hold, but you want to check with your agent to be sure you feel that this area is adequate for local hotel or rent prices.
This is where your umbrella policy kicks in. To determine your needed liability coverage, you’ll need to consider the following formula: Take your salary, the equity in your home, your investment and the value of any additional assets. Then, subtract your debt. If the total tops $300,000, you should have an umbrella liability policy which will cover you if someone is harmed in your home and you are held liable. Generally speaking, umbrella policies of $1 million are common, and can be added to your policy with a small annual fee.
It is best to review your homeowner's insurance policy with your local insurance agent once a year, or when your family circumstances change for any reason.
Review Your Homeowners Insurance
Spring showers bring May flowers; and insurance claims.
When the weather gets warmer and spring approaches, homeowners need to review their home insurance policy to see what they are covered for in the event of water damage in the home. Spring can bring multiple water problems into the home including melting snow, sewage back-ups and basement floods.
Generally, homeowners’ policies will not cover water damage from a. flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, whether or not driven by wind; b. Water which backs up through sewers or drains or which overflows or is discharged from a sump, sump pump or related equipment; or c. Water below the surface of the ground, including water which exerts pressure or seeps or leaks through a building, sidewalks, driveway, foundation, swimming pool or other structure; caused by or resulting from human or animal forces or any act of nature.
It's important to note that flood insurance and homeowners insurance do not duplicate coverage for water damage. Instead, they complement each other. Usually, if your home is subject to a sewage back-up or flood prone area, you should purchase a separate flood policy. Flood damage to your home can be covered only with a flood insurance policy -- no other insurance will cover flood damage. A specific flood insurance policy is available through your insurance agent, insurance company or local Federal Emergency Management Office (FEMA). The average flood claim comes to more than $33,000, according to the National Flood Insurance Program. Most homeowners are not prepared to pay this out of pocket on a moment’s notice, and therefore a basement flood can cause extreme economic devastation.
Water damage is one of the most common reasons people make claims on their home insurance. The types of water damage that are covered by homeowner’s policies causes a lot of confusion.
Regardless of how the water damage occurred and what is covered under your policy, it is crucial to clean up all water damage properly and immediately. Gradual water damage can be a health hazard if the moisture leads to a development of mold. Mold is generally not covered by insurance and must be taken care of by professionals. Attempting to clean up the mold on your own may spread the mold spores, causing greater property damage or health problems.
It is up to you to talk to your insurance agent or insurance company about flood insurance and homeowners insurance, and then decide which insurance coverage you need to protect your home, its contents and your family.