Thoughts On Insuring Your Home

Insuring Your Home

Every homeowner needs to carry homeowners insurance. After all, your home not only provides a roof over your head, in most cases it’s the largest asset on your personal balance sheet. Come what may — whether it’s a tornado, fire, theft or other catastrophe — homeowners insurance offers peace of mind and the confidence in knowing that you are covered.
Generally, homeowners insurance is optional only if you own your home outright. If you have a federally-backed or insured mortgage, your lender will require you to maintain a minimum amount of replacement insurance to protect their investment in the event your home is damaged or destroyed. But even if your mortgage is paid and you own your home, it’s important to keep your homeowners insurance just in case something happens. Without a policy in place or a sufficient level of coverage, you might not be able to repair or rebuild your home, or replace property if something unpleasant does transpire.
So, what is covered by homeowners insurance? A basic homeowners policy covers damage that occurs as a result of a host of “named perils” spelled out by your insurer, which may include wind, hail, fire, theft and other events. Losses of personal property or possessions are also included under homeowners insurance. Typically, a standard policy pays replacement value of structures on your property, such as your home and garage, and provides an additional 75 percent of your home’s appraised value to account for loss of personal property. However, your policy may contain limitations on the replacement value of items that fall under the following categories:
Jewelry and furs
Silverware and goldware
Business property
Home computers
Firearms
If you own personal property in excess of 75 percent of the value of your home, or in excess of standard limits in any of the above categories, you should consider purchasing a rider or endorsement to guarantee comprehensive coverage. The trick is to find the right balance so you are not under- or over-insured.
Ask yourself the following questions when purchasing homeowners insurance:
Does your policy readjust the replacement value of your home annually to reflect changes in value due to inflation or other factors?
Do you need a separate policy because your property is in an area predisposed to a special hazard such as flooding or earthquake?
Does your policy include liability coverage for accidental injuries that might occur on your property?
Do you need a rider or endorsement for valuable items for which replacement costs would not be covered under a standard policy?
Do you own a special breed of animal that might require a special rider to ensure liability coverage for attacks on your property?
Keep in mind that not every natural disaster is covered by homeowners insurance. Flood and earthquake losses are not covered by homeowners insurance and require separate policies. Go to FloodSmart.gov to assess the risk of flooding where you live and determine if you should purchase flood insurance. The National Flood Insurance Program was created by Congress to help homeowners insure their properties against conditions that could result in flooding and water damage. To qualify for this insurance rider, you must live in an area that has agreed to meet certain standards for reducing the risk of flooding. If you live in California, you can assume you need some form of earthquake coverage. Learn more about earthquake insurance from the California Earthquake Authority at earthquakeauthority.com.
To find a reputable insurance company, check with independent rating services such as A.M. Best Company and Standard & Poor’s. Friends and family are often a valuable resource for insurance company recommendations, especially if they have had experience filing claims. Laws regarding homeowners insurance vary by state, so be sure to consult with a knowledgeable agent who can help you review your insurance needs and state requirements.
Making sure you have adequate homeowners coverage is just one step in protecting your financial future. Enlist the help of a financial advisor to review your insurance policies and other emergency contingency plans.