Ignorance is not Bliss when it comes to Your Homeowners InsuranceMost homeowners are lucky enough to only file claims for inconveniences like a burst water line, aging structure, or a small kitchen fire. Those unfortunate enough to find themselves in a true catastrophe, like those caught in the tornadoes and flooding in
Alabama and
Mississippi, find out too little too late that their
homeowners insurance will not cover major rebuilding costs.
While most home insurance policies cover tornadoes, they usually don’t apply to damage caused by floods or earthquakes. Unfortunately, and counter intuitively, while home property values have been plummeting during the housing crisis, insurance costs are still very much on the rise?
Why is it costing more to insure what is essentially less house? Because insurance premiums are not based on property or home values, they are based on rebuilding costs. During a down economy, supplies like lumber cost more than they normally would, thus raising the cost of your homeowners insurance. Thanks again, Lehman Bros.
Whether out of ignorance, or in attempts to save some cash, 64% of homes in the U.S. are under-insured. Fine and dandy while your house is still standing.
Don’t be caught off guard, review your homeowners insurance policy and be sure that your home is fully covered for any foreseeable catastrophe.
There are three kinds of home insurance coverage: replacement cost, extended replacement cost, and guaranteed replacement cost.
Replacement cost coverage will only pay out your claim to a certain dollar amount, no matter what. This type of coverage does not include the costs of inflation that may have increased since you took out the policy.
Extended replacement coverage tries to mitigate the cost of inflation by awarding the policyholder with 120% the agreed amount. Guaranteed replacement coverage, though understandably more expensive, will cover the entire cost of replacing your home.
Most homeowners’ insurance policies also cover damaged property. Usually, the insurance provider will award an additional 50% for the policyholder to replace their lost possessions. While electing to have your belonging insured at replacement cost, over cash value may be more expensive it is well worth the cost as many household belongings (TV’s, furniture, appliances) depreciate quickly. Having your things replaced at cash value will leave you shopping gat Goodwill, or with a severely under-furnished home.
Taking an honest inventory of the value of your possessions will make it much easier to find adequate coverage.