What should I look for in my Homeowners Insurance Policy?

Your home is usually your most valuable asset and protecting it with insurance is a necessity. However, homeowners insurance can be confusing and understanding the various components is important to make sure you are fully protected. 

Here are a few things to look at when shopping for an insurance policy:

Replacement Vs. Actual Cash Value

The most common type of homeowners insurance policy is an HO-3. This type of policy offers the most comprehensive coverage and protects you from all perils except those specifically excluded from the policy. 

These policies can be actual cash value or replacement value and there is a major difference between the two. 

• Actual Cash Value: An actual cash value policy will take depreciation into account when determining the value of your home and personal property. This means that your 10-year-old TV will be worth next to nothing according to your insurance company. If your personal property is older, in most cases your claim check will not be enough to replace your loss possessions with new ones and you will need to make up the difference. 

• Replacement Value: A replacement value policy will replace your home and personal possessions with brand new ones of a similar quality regardless of how old or depreciated your possessions were. This makes getting your life back to normal quicker and less expensive. 

Regardless of which policy you end up purchasing always review your coverage levels and update it if you make significant improvements to your home or add square footage. This will ensure you have enough money to rebuild and replace your possessions. Also, check your policy to make sure it will pay to upgrade your home to current building codes if it is damaged by a covered peril as upgrading older homes to meet current codes can be expensive.  

Loss of Use: If your home is severely damaged or completely destroyed it can take months or in some cases over a year to rebuild or repair. A loss of use clause in your policy will help cover normal living expenses while you are unable to live in your home. It covers costs such as restaurants, hotels, and even dry cleaning. In most cases, loss of use coverage is capped at 20% of your total insurance coverage on your home. 

High Value Possessions: Most standard homeowners insurance policies cap possessions coverage at 50% of your total insurance coverage. As an example if you are carrying $300,000 worth of coverage on your home, your possessions would be covered up to $150,000. 

The majority of policies cap coverage for luxury items between $1,500 and $2,000. This typically includes items such as artwork, wine collections, collectables and even fur coats. If you own a variety of expensive items, you may need to purchase a rider to fully protect your luxury property. Always keep a detailed property inventory with photos and receipts, this inventory should be kept off site in the cloud or in a safety deposit box. 

Liability Coverage: Liability insurance protects you if someone is injured at your home. It covers medical bills and lawsuit expenses related to injuries that occur on your property. This can include slips and falls as well as other accidents that lead to an injury. Liability insurance will also cover the cost to defend a lawsuit as well as any judgments from a lawsuit.

Standard policies typically come with $100,000 in liability insurance. Most experts agree you should up this coverage to at least $300,000 and if you have considerable assets consider of $500,000 liability limit. Another way to add additional liability coverage to your portfolio is to purchase an umbrella policy. 

Umbrella policies kick in when your homeowners insurance liability limits are reached. Umbrellas are sold in $1,000,000 increments and are very affordable. 

Work From Home: If you work from home you should consider a home business endorsement on your policy. This will protect your home office equipment as well as provide liability insurance including libel and slander coverage. 

Flood and Earthquake Insurance: A standard homeowners insurance policy does not provide coverage for flood or earthquake damage. In addition, most policies also exclude sewer or storm drain damage. In order to be fully protected if you live in a high-risk flood or earthquake area you will need to purchase a separate policy or rider.

Flood insurance can be purchased from the National Flood Insurance Program or private insurance companies. if you live in a high-risk flood area your mortgage lender will require you to carry flood insurance. NFIP policies come with coverage caps so you may need to supplement your coverage with a private insurance policy.

Both flood and earthquake insurance can be expensive but if your home is damaged or destroyed by a flood or earthquake this coverage can be a financial lifesaver. 

Look for Discounts: Insurance companies offer a wide variety of discounts and your job is to make sure you are getting all the discounts you’re qualified to receive. ask your insurance agent to do a discount review to make sure all applicable discounts are being applied to your policy.

Common discounts include bundling, security systems, home improvements, staying loyal to your insurance company. Discounts can save anywhere from 5% to 25% or even more.

Choose Your Deductible: Choose your deductible with care when purchasing a homeowners insurance policy. The higher your deductible, the lower your premium will be, but always choose a deductible you can easily afford in the event you have to make a claim. if you can afford to double your deductible you should save up to 20% on your premium.