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Your home is your castle so make sure you are adequately protected in an event of any damage to your home. Billions of dollars are spent each year to protect valuable property, but unfortunately, many people find out too late that they are not fully covered for the damage to their home or that they have been paying too much for their insurance coverage. Because not all property insurance coverage is the same, here are some key items to look for:
1. Insuring Replacement Cost verses Market Value of Your Home – Beware of overpaying for your insurance coverage. Remember, the insurance policy is meant to protect against damage to the house – the building structure. Therefore, make sure your policy is calculated on the replacement cost of the house and not the market value. In areas where home values are appreciating rapidly, there may be a huge difference between market value of your home compared to the replacement value. Ask for a "Guaranteed Replacement Cost" policy which ensures that you have enough coverage to rebuild your home.
2. Insufficient Insurance Coverage – You can depend on "good ole" inflation to guarantee that the price of replacing your home creeps up every year. So over a period of time, you can become underinsured. Review your policy for the "Automatic Inflation Protection" feature. If your policy does not have it, talk to your insurance agent about what procedures you can take to maintain proper coverage. You certainly don't want to find out after your home is damaged that you are not adequately covered and you will need to pay out of your own pocket $20,000 to finish repairing your home.
3. Check for Limitations and Exclusions in Your Policy – Ah yes, those nasty hidden loopholes! Just when you think you're covered for earthquakes or floods – guess again. Prior to signing on the dotted line, carefully read the policy's section on limitations and exclusions. Be sure you fully understand your potential liability should a disaster happen. If you live in an area prone to nature disasters such as earthquakes look into the cost of a special earthquake endorsement, if available.
4. Adequate Liability Coverage – Maybe you are covered if the Big Bad Wolf tries to blow your house down, but what about a liability claim against your net assets (which includes your home) that would cause you to sell your house to pay the claim. Liability coverage is an important part of adequately protecting your home. Unfortunately, we live in a litigious society and it is necessary to maintain enough liability coverage to protect as much of your net worth as you can. Many times if you have high coverage and you get sued, the claim can be satisfied through just your insurance coverage. This way you can avoid having to liquidate assets to pay off the claim against you.
Because your home is one of your single largest financial asset, protect it, take care of it and it will always be there for you and your family to enjoy.
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