Is it Time to Update Your Homeowner's Insurance?
By Kristi Vaughan
Has it been a few years - or even more-since you last examined your homeowner's insurance policy? If so, your policy probably could use some updating.
Start with the building
Your homeowner's policy is designed to cover the cost of repairing or rebuilding your home should it be damaged. But unless you have guaranteed replacement cost coverage, the amount that will be paid is fixed at an upper limit. With rising building costs, that limit may no longer be valid. Talk with your insurance agent about any structural changes or material upgrades you have made to your home since the rebuilding cost was last estimated. If, for example, you have replaced your kitchen counters with costly granite, make sure the agent knows that. The same goes for refinishing a basement or redoing bathrooms. As you are calculating costs, remember that rebuilding costs are not the same as market value. The market value of your home also includes the value of the land, which is not covered by homeowners' insurance.
Replacement cost
One way to guard against underestimating the cost of replacing your house is to purchase a replacement cost policy, if available. Depending on the insurance provider, such policies can guarantee the full cost of replacement or some percentage above the policy's initial limit. The latter is called extended replacement cost and usually caps out at about 125 percent of the original limit. Replacement coverage also extends to items in your house and covers the full cost of replacing them without considering depreciation. Thus, if your large screen television was stolen or damaged, your replacement cost policy would pay for you to buy a new one.
Review your contents
In the years since you began your homeowning life and now, it is likely that your taste in furniture has changed. In all likelihood, so has the value of that furniture, especially if your collection now includes high-end or one-of-a-kind handcrafted pieces. Does your insurance coverage reflect this increased value? While standard homeowners' policies cover contents usually found in homes they do not account for the extra value of unusual items. So if you keep artwork, collectibles, antiques or valuable jewelry in the house you might consider adding a special valuables policy.
Higher liability?
Has your potential for liability changed since you originally took out your policy? Do you, for example, now meet with clients in your home office? Have you installed a swimming pool? Or have liability payments just risen so much in your area that you need additional coverage. If so, you might consider an umbrella policy to help you meet unexpected liability costs.