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If, like most Americans, your most valuable possession is your home, shouldn’t you protect it as such? Unfortunately, most of the emphasis in the home-buying process is on finding the right home, figuring out whether you can afford it, and then securing the mortgage – but not so much on insuring it. It might be a matter of confusion about the terms, types and coverages involved, but regardless of the reason, you should have some form of coverage. Home insurance covers not only the cost of the house itself, but the contents inside, the lost of the home’s use (the expenses you incur if you can’t live there), and a loss of other personal possessions of the homeowner outside the home (for example, a bike that’s stolen from outside the grocery store while you’re inside might be covered). It also covers any liability you might have for accidents that may happen inside the home. That’s quite a bit to absorb. But here’s the factor you should more heavily than all others: If your home were destroyed tomorrow, would insurance pay for the cost of rebuilding it – and replacing all of the contents inside? This is called “replacement value” and it’s often the one offered by home insurance companies by default, but be sure to ask so you know for sure. If you’re not getting replacement value, be careful with policies that offer “fair market” or “cash value” policies. These will reimbursue your items for their current value, but they take into account depreciation and wear and tear, so you might get far less than what it will cost to replace them – not to mention all the gum-shoe detective work that it might take to value them. How Much? Many things affect what you pay in premium, such as whether your home has sprinkler systems or even how close you live to a fire station, and the deductible, which is the amount you pay in the event of a claim. The higher your deductible, the lower your premium. (Make sure you have the amount of the deductible on hand in case you need to make a claim.) So how much coverage? You want enough to cover the cost to rebuild your home and replace the contents inside. It’s not the market value, but simply the amount it would take to rebuild the home, not taking into account the cost of the land. A local builder or real estate agent could help come up with an estimate of that amount. Many insurance policies will cover your household goods at 50% of the home’s replacement cost; check through your belongings and determine if it’s enough coverage. Also be sure to check out the liability coverage in your policy, which covers you if someone were to get hurt on your property. Things You Might Not Be Covered for Some items are typically not covered by homeowners insurance, such as earthquake, flood and war. Insurance can be purchased separately for earthquakes and floods. You should also investigate coverage for your high-value goods, like jewelry. Insurance companies will often place a ceiling on how much they’ll cover, so you’ll need to investigate whether you need a special add-on, or “rider,” to your coverage. Now you need to create an inventory of all of your stuff to ease the claims process. The Internet has now made this easier, several web sites offering software that makes it easy to inventory all your stuff by room, with purchase dates, replacement costs and serial numbers. You can also upload photos to create a visual record. Also, make a videotape of the inside and outside of your house as further proof of your things’ value. To find a good insurer, ask around for recommendations. Also, there are many websites now that offer quotes; use them to get a good idea for what’s a fair price, and go from there. |