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Is your home as secure as you think it is? It’s time to revisit the policy

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During my 20 plus years of helping business owners with their personal and professional finances, I have gained a lot of valuable information on a variety of topics. I have found that people often pay too little attention to their insurance coverage. In particular, many people do not understand the importance of regularly reviewing their policies. This is especially true for home insurance. If you haven’t recently reviewed your policy, you could face dire consequences.

While you probably purchased an appropriate amount of coverage when you first purchased your policy, property values ​​tend to increase. The coverage you had on your home 10 years ago probably won’t be enough today. Since real estate tends to fluctuate, it’s a good practice to review your home insurance coverage each year to make sure you’re covered. So what should you be looking for?

As you know, home insurance will cover the expenses (less deductibles) to replace, repair or even rebuild your home, exterior structures, and property in the event of a natural or man-made disaster. For example, if a hailstorm destroys your roof, home insurance should cover the costs of replacing or repairing your roof. Likewise, home insurance will help you rebuild if a fire ravages your home, detached garage or shed.

When you are going through this type of disaster, you always need a place to stay while your home is being repaired or rebuilt. Home insurance will cover the costs of your alternative lifestyles during this time. Plus, home insurance is available if your home is broken into. Your home insurance policy helps replace stolen valuables.

It is important to look in detail at the events that your policy will cover and look for any gaps that may exist in your coverage. This is especially true in our current market. With recent increases in house prices, the replacement value of your property on your home insurance policy may not cover the increase in the current value of your property.

As the owner, you are responsible for what happens on your property. Unfortunately, that means you could be held responsible if someone trips and falls on your porch steps, causing bodily harm. The good news is that home insurance gives you liability coverage for such unfortunate occasions. The liability portion of your home policy helps cover their medical and legal costs. Therefore, you want to understand exactly how much of these expenses your policy covers. If the neighbor breaks his ankle in a fantastic way and requires multiple surgeries to fix it, the expense can add up very quickly. In such a scenario, you are not just looking at medical expenses. More than likely, you will be faced with legal fees for litigation that, at a minimum, seeks to replace lost income.

These charges could very easily get out of hand. So, you need to know exactly how much your policy will pay in an event like this. Being proactive with your review could help you identify where you need to supplement your liability coverage.

As you progress through your home insurance policy, you will likely discover several exclusions. These are certain events or disasters that your policy will not cover. For example, your policy may cover property damage caused by hurricanes, but may not cover flood damage. This could create problems, as hurricanes often cause flooding.

Your home may survive the hurricane, but then suffer significant damage from the ensuing flooding. When the floodwaters rushed into your house, it destroyed your floors, walls, and possessions. However, since the flooding caused the damage, not the hurricane itself, your home insurance policy would not cover your costs for cleaning, replacing, repairing and rebuilding.

You can see the problem with this, and unfortunately many homeowners assume they are covered in such a situation because the flooding was caused by the hurricane. As a result, they fail to add the extra coverage to their policy and end up completely broke in the event of a disaster. That is why you should read your policy carefully, paying particular attention to the wording used. Ultimately, it could mean the difference between a setback and utter devastation.

Likewise, many home insurance policies do not cover property damage caused by sinkholes or vandalism. So, check your policy to see what types of disaster damage it covers. You might need additional coverage. Its good. Policies like flood insurance, vandalism insurance, etc. are available. Reviewing your coverage will ensure that you can resolve any exclusions in your policy before it’s too late.

I have also seen clients struggle with their home insurance policies due to unique or expensive properties and collections in their homes. Standard home insurance will replace your basic personal belongings worth a few thousand dollars. However, I know that a lot of people have assets that are worth a lot more than that. In fact, my wife’s wedding and engagement rings are worth more than that. Additionally, some collections of guns, coins, artwork, or antiques are worth more than the standard coverage will cover.

Therefore, if you own personal property worth more than a few thousand dollars, you will likely need to add a rider – “scheduled coverage” – to your policy. Although you may pay higher premiums, it often happens that the planned coverages do not have a deductible.

All of this brings us to the crucial question: what insurance coverage do you need? The only way to find your specific answer is to do an annual review of your home insurance policy. Approach your review knowing that the value of your property may have changed since you purchased your home insurance policy. Since the value goes both ways, you may also be paying more insurance than you need to. Compare the amount of your coverage to the current value of your home, personal belongings and assets.

So what coverage do you really need?

Obviously, you need to cover the structure of the house. However, you are not basing yourself on the value of the house when you bought it. Instead, you look at the replacement value of your home.

Suppose you bought your home for $ 200,000 in 2008 when the housing market was suffering. However, the housing market is booming in 2021. As a result, your home could be worth $ 400,000 or $ 600,000 now. This means that you will have to pay someone between $ 400,000 and $ 600,000 to replace your house as it was if it were to burn down or be washed away by a tsunami. So if your policy only covers the original value of $ 200,000, it will only cover 33% to 50% of the home’s current replacement value. This would create a major problem for most people.

Beyond replacing your home, you will need to replace the goods that were there. This includes everything inside your home. From clothes, towels and silverware to televisions, furniture, books (that would be a huge item in my house), etc. Therefore, it is essential that you have sufficient coverage to replace everything in your home.

Many home insurance policies cover personal property for up to 50% or 75% of the value of the home. This means that if you have a $ 100,000 home, your policy may only provide $ 50,000 to replace lost items.

Have you ever tried to calculate the cost of replacing all the things in your house? You might be surprised how quickly you would exceed your policy’s personal effects limits. That’s why I often tell clients to inventory and archive everything in their homes. This is easy to do. Just pick up your phone and walk through each room, capturing every element on the camera. Open each drawer, cabinet or door and describe everything you see. Once you’ve done that, you can get a home insurance policy that will cover the replacement value of what you own.

Finally, you need to make sure you have sufficient liability protection to cover any medical and / or legal costs that could arise due to accidents in your home. You don’t want to owe anything out of your pocket. Therefore, if your policy provides liability coverage for $ 100,000 to $ 300,000, it may be a good idea to purchase coverage for $ 300,000 to $ 500,000. These expenses add up and can quickly get out of hand. It’s far better to pay a little more on your insurance premiums than to find yourself paying the bulk of someone’s medical and legal bills because they were in excess of your policy’s liability coverage.

Also, if you operate your business from home, you may need to add a rider to your home insurance policy that will protect you in the event of an accident occurring while someone is at your home for business purposes.

I know life is busy. Getting an annual home insurance policy review might not be high on your priority list right now, but it should be. Often times it’s very easy to develop a sense of comfort doing things the way we’ve always done them. However, just because you’ve purchased a good insurance policy from a good insurance agent, doesn’t mean it’s always the best for you.

I review my own home insurance policy every year. Specifically, I’m looking at the current value of my home versus the replacement cost coverage I have on it. Likewise, I look at the value of my personal effects against the replacement cost coverage I have on them. As the value of my home and property increases, I want to make sure my home insurance policy increases to cover it.

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