The Four Rules of Home Insurance
Written by Susanne on November 9th, 2007
I know, I know, the topic of homeowners insurance is not the most interesting or engaging one out there.
But when my brother and his family were evacuated from their home in San Diego, I wondered if they were up-to-date on their coverage. Then it dawned on me that I hadn’t given any thought recently to my coverage. I do what most of us do: pay the bill every year and promptly forget about it.
Those Southern California fires are an excellent reminder to every homeowner: you should check your coverage once a year. You don’t want to discover you’ve got gaps in your coverage after your home is in ashes.
So let’s quickly review Four Basic Rules of Homeowners Insurance:
Rule No. 1: Inventory your stuff
If disaster strikes and you need to file a claim, you will have to prove that you owned the items lost. The easiest way to do this is to take an inventory of your possessions.
Take a video camera and use it to document your belongings as you walk through your home, paying extra attention to expensive items. Store the video in a secure place outside your home. Like a safety deposit box. Store any receipts for your belongings with the video.
Rule No. 2 Understand the difference between Current Value and Replacement Cost
Ask yourself: if my home is destroyed will my insurance cover the cost to rebuild?
A standard policy should cover the cost to rebuild your home in the state it was in at the time of your loss, limited to the amount stated under Coverage A in your policy. Most standard policies will not cover costs associated with rebuilding/repairing up to current building codes, so check to make sure your policy provides extra coverage for code upgrades.
For any destroyed items, you will most likely receive the current cash value for each item lost unless you purchased a policy covering the replacement cost.
For example, a 10 year-year-old TV may be worth $20 today, so that’s what the insurance company will pay you under the “current cash value” policy. If you had replacement cost coverage you would receive what it would take to purchase a comparable TV today.
Rule No. 3: Get the right coverage
Read your policy carefully and ask a lot of questions. Not everything will be automatically covered; there are usually limits for electronics, luxury items and collectibles. You may have to purchase additional endorsements in order to have full coverage on these items.
Rule No. 4: Don’t “set it and forget it”
Any major event (marriage, divorce, child on the way, or kids moving out) deserves a review of your coverage.
Just finished a home remodel? Time to review your policy. Just purchased expensive jewelry? Sold a collectible? Time to review the endorsements. Policies should be checked annually.
The California Fires were a wake up call for all of us! This weekend I’m getting the video out. Next week I’m going to set an appointment with my agent. How about you?
Good article.
After the fires, we realized we had made some upgrades that we were NOT adequately insured for, like new flooring and fixtures.
When I went to my agent she told me that during the fires and immediately after, there was a freeze on any changes to insurance policies. So all the people who tried to upgrade when they saw the fires coming their way were out of luck!
posted on December 26th, 2007 at 5:41 pm