As home values rise, so does the need for adequate insurance coverage. Check your coverage with your insurance agent every year to make sure you’re covered “just in case”. Your real estate agent can help you determine the value of your home, which is a good guideline for adequate homeowners insurance. Sometimes it is also referred to as fire insurance or hazard insurance. It’s better to have it and not need it than to need it and not have it, right?
What is not covered
You pay your annual homeowners insurance premium, so you’re protected against property damage, right? Not always! Homeowners may not realize that their policies may not cover damage caused by:
- Earthquakes
- Floods
- Mold
- Pets (dogs, cats, etc.)
- Pests (termites, birds, rodents, bats, etc.)
- Cracks or sedimentation
- Water or ice (especially on fences, patios, sidewalks and swimming pools)
- “preventable” damage
- War
- Nuclear explosion
For more protection, many homeowners add additional insurance; for example, personal comprehensive liability insurance. Umbrella coverage is highly recommended for property owners with multiple assets. Check with your insurance agent or intermediary.
How much to insure?
When you insure your home, you must insure for the total amount it would cost to rebuild your home if it were destroyed. If you do not have sufficient coverage, your insurance may only cover part of the costs. Ways to insure are:
1. Replacement costs insurance that pays the cost of replacing the damaged item without deductions for depreciation, but limited to a maximum dollar amount.
2. Guaranteed replacement costs – insurance that pays the full cost of replacement of damaged property, with no deductions for depreciation and no dollar limit. This protects you against rising construction costs.
3. Actual cash value – insurance that pays the replacement value of damaged property less a depreciation allowance, up to the actual cash value.
If your house burns down, how much would it cost to rebuild your house? Measure the square footage of your home and multiply by the cost of construction in your area.
California’s Central Coast, for example, costs about $175 per square foot to build. For an average 1,500-square-foot home, this is more than $250,000. So if your insurance is only $100,000 and the whole house is destroyed, you could end up with a $150,000 loss because you’re underinsured.
Factors that determine the cost of rebuilding your home:
- Local construction costs
- Square images of structure
- # bathrooms, other rooms
- Exterior wall construction (framework, brick/stone, veneer)
- House style (ranch, colonial)
- Roof type
- Attached garages, fireplaces, exterior trim and other special features
Is your home contents insurance sufficient?
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