Is Your Homeowners’ Insurance Adequate?


When was the last time you reviewed your homeowners’ insurance policy? If you are like many, that is part of your house payment each month – you do not really observe the rising cost as you do not pay the premium directly.

The critical factor is to be sure you have adequate coverage. Marshall & Swift, a Los Angeles company, tracks the rebuilding costs for houses. Their statistics show that 61% of homeowners are underinsured. The average shortfall is 18%. You are not replacing at the Fair Market Value of your home; but what it would cost to build it at current labor and material costs. This can be higher than market value. The policy’s replacement value should increase annually.

You also want to consider an extra provision to rebuild at the current code requirements. This is not standard within most homeowners’ policies. But consider a home built in the 1950’s will have significantly different building code requirements today. Or our home build in a county with few code requirements 20 years ago. With the building expansion over the years, came an increase in code requirements.

You can evaluate the cost to replace your home at Compare their report to your current coverage. We were a little surprised at our replacement cost. It was lower than we expected; yet the value does not include the cost of the land.

The standard policy replacement cost covers 80% of the value. If your home is free of debt, you could have a loan again to rebuild. You may want to consider stepping up your homeowners’ coverage to 100% of the replacement value.

Coverage of personal property is usually a percentage – 75% of replacement value. You can add an additional rider to cover “extras” such as electronics, jewelry and art. These riders can require that you have an updated appraisal on your jewelry and art.

You may also consider creating an inventory of your personal belongings. If you have expensive purchases, keeping a receipt of your purchase helps document your “loss”. Having pictures to support your inventory list helps document your possessions and value as well.

Homeowners and renters’ insurance is a means to lessen your loss if a disaster or theft occurs. However, there are items that reduce your risk exposure, such as:

  • Smoke detectors, burglar alarms and deadbolt locks;
  • Sprinkler system with alarms that alert first responders;
  • Fire resistant roofing materials such as asphalt, rubber, cement and metal
  • Noncombustible siding
  • Fire extinguisher in the kitchen, as cooking equipment is the leading cause of home fires;
  • Replace rubber hoses on the washing machine with steel-braided reinforced hoses, in order to prevent water damage on extended leaves from the home

The website gives tips and suggestions for minimizing damages from freezing, lightening, hurricanes, wildfires and earthquakes.

The next posting will discuss part of the claims process.



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