Is Your Insurance Up To Date? PDF Print E-mail

When was the last time you checked the value of your homeowner’s insurance policy? If disaster strikes, will you have enough coverage to rebuild?

Even in today’s volatile real estate market, most homeowner’s have equity in their home. This means that your home is worth more than what you owe in mortgages. But how does that compare to your hazard insurance coverage? Do you have enough coverage to cover your home’s value?

If your coverage amount is based on the value of your home a few short years ago, you might be woefully under-insured if faced with a crisis.

As the real estate market fluctuates so does the cost of construction. But other factors can also influence construction costs. Natural disasters can cause the price of lumber and steel to increase. Other economic issues and political policies can cause labor costs to go up. The dwelling coverage amount on your homeowner’s insurance should be enough to cover the total construction cost assuming you had to rebuild your home from scratch, and should leave enough buffer so that fluctuations in building materials and labor costs don’t mean you have to rebuild smaller or spend more.

When reviewing your dwelling coverage, it is also important to look at your policy binder for related endorsements and replacement costs. Many policies have what is called an HO3 endorsement, which offers expanded replacement cost for up to 125% of the dwelling coverage. That means that if your dwelling is covered for $200,000, the insurance will cover total building replacement/reconstruction costs of up to $250,000 (or an additional 25% over the coverage amount).

Other policies have other replacement cost endorsements, each of which costs you as the homeowner extra money, but might be worth the extra expense in time of a disaster. It is rare, but possible to find a policy with endorsements that offer replacement cost of up to 150%, maybe more under extreme circumstances. Please talk with your insurance agent to learn your options and decide which is best for you. Sometimes it is better to increase dwelling coverage amounts rather than have additional replacement cost endorsements. Often it is better to have a combination of both.

Remember, dwelling coverage and replacement costs only cover the physical structure of your home. If faced with a disaster and you lose your home due to fire or other disaster, chances are you will also lose your positions. Make sure you check your personal property coverage amounts as well as you might end up rebuilding your home and having nothing to furnish it with.

Consider your positions when you took out your insurance policy. Were you just starting out with limited furniture, electronics, or antiques? Has the value of these items increased since your policy was last updated? If so, make an itemized list of all of your possessions and include their current value and replacement cost. Then review your insurance coverage with your agent and see if you need to adjust your personal property coverage. Be aware that some insurance companies require special coverage sections or endorsements for things such as fine jewelry, electronics, or antiques. It won’t do you much good to have enough personal property coverage if it doesn’t apply to one of these categories.

Finally, make sure your the lender mortgagee clauses on your policy is correct. The mortgagee clause (or loss payee clause) should list an address that handles insurance matters for your lender in case of loss. It is important that this information and loan number is correct as any payments due you for loss that is covered by insurance will often have to go to your mortgage company first. If the mortgage information on your insurance policy is incorrect, it could delay your insurance payment by weeks, which could result in a delay of your repairs or replacement of your possessions.

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Home Equity News was created by Maxwell Sydney Design Group