Most of us take a “fix and forget it” approach to insurance. But insurance isn’t a crockpot dinner. Unlike Aunt May’s mouthwatering beef stew, insurance isn’t something you can just prepare, let simmer, and then return to when you’re ready to eat (or file a claim).
June 28 is National Insurance Awareness Day, the official annual reminder to review all your insurance policies for adequate coverage, changes in policy, and maybe even a pricing comparison. Whether you take advantage of this holiday or not, it’s important to take a look at your policies at least once year to make sure you have adequate coverage.
With regard to home insurance, in addition to an annual review, you should also revisit your home insurance coverage on these occasions:
- After repairs or significant home improvements
- When you purchase expensive or rare items such as electronics, jewelry or art
- After major life changes that affect lifestyle, such as having a baby or someone moving in or out of the household
- Before flood, tornado, wildfire or hurricane season
Replacement Value vs. Market Value
When reviewing your home insurance policy, make sure you understand the difference between your property’s market value and its replacement cost, which is what insurance covers. Replacement cost is the amount of money it would take to replace or rebuild your home in the event of a fire or other covered loss.
Replacement cost has nothing to do with your home’s market value, land costs or any loans you have on your property. Your insurance company will provide an estimate of your home’s replacement cost when you request homeowner’s insurance. Here are some of the most important factors used to determine your home’s replacement cost:
- Cost of construction in your area
- The size of your home
- The number of individual rooms and bathrooms
- The materials used in your roof
- Special features such as fireplaces
- Recent improvements or additions
Home Insurance Exclusions
You’ll also want to review exclusions in the policy. Does the policy cover weather-related damage or damage due to certain natural hazards, such as earthquakes, floods or sinkholes? (Hint: most home insurance policies don’t, so you may decide to purchase special insurance for this type of coverage.)
Other common home insurance exclusions include:
- Water damage from flooding or sewer backups
- Building code upgrades and repairs
- Poor construction or faulty workmanship
- Damage due to neglect or improper maintenance
- Power surges and outages (unless the surge was caused by lightning)
- Damage due to “earth movement” such as landslides, mudflows and sinkholes
- Chemical or nuclear contamination or proximity
- Acts of war (interestingly, acts of terrorism may be covered – but check your policy)
Home Insurance Cost
One additional area you’ll want to review on your home insurance policy is how much it’s costing you. If your deductible has gone up since you purchased the policy, your premium should have gone down. If your premium has gone up more than 5% annually, ask your agent to explain the increase.
Keep in mind that there are certain factors that can affect the price of your home insurance:
- Distance to Fire Station
- Roof Age
- Flood Zone
- Distance to Coast Line
(Tip: You can find most of this information on a Housefax Report, along with proximity to earthquake fault lines and sinkholes.)
If the overall cost still seems unreasonable, shop around (it’s easy to get online quotes) and see if your current insurer is in line with the market. Just remember that a better priced policy may not actually be a better deal when it comes to coverage or service, including the length of time it takes to complete a claim and the number of claims that are completed satisfactorily.
Remember, when it comes to insurance always:
- Shop around
- Understand the fine print
- Read reviews and recommendations
- Review annually or more often as needed