Homeowners’ Insurance Do You Have Enough Coverage?

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Homeowners’ insurance protects you from loss after major damage or calamity. Every now and again, say finance consultants from USA Today, it is a good idea to review your policy to be sure you have enough coverage to meet your needs.

A standard homeowners’ policy includes:

Hazard insurance covers physical damage or loss to property and possessions caused by fire and smoke, wind, hail, lightning, explosions, volcanoes, riots and vandalism, theft, water damage and similar events. Flooding, earthquakes and some other disasters are commonly excluded, so check your policy for exclusions and add coverage if necessary.

If your house is destroyed, the amount you receive to rebuild under a standard policy with “replacement cost” coverage will be a set dollar figure, which was calculated in advance using information you provided to the insurance company about the house’s size, location, number and type of rooms, etc. If disaster strikes, this figure could be low, particularly if you have made improvements.

Also, if your policy pays the “actual cash value” of your house, you get the house’s replacement cost minus any depreciation or wear and tear- which means you are almost guaranteed not to have enough to rebuild. If this is the way your policy reads, start looking for new coverage. Be sure it covers living costs while your home is being rebuilt and replacement costs for possessions destroyed.

Liability insurance – covers accidental injuries to people on your property or caused by members of your household (including pets). This includes medical payments as well as personal liability covering legal fees if you are sued.

Standard homeowners’ policies traditionally provide around $100,000 in liability coverage. You can imagine how someone’s medical bills could top that amount and if you’re sued, you could end up paying even more. Rather than putting your house at risk of being sold to pay a court judgment, make sure your liability coverage is at a realistic level- between $500,000 and $1 million.

Last but not least, check your deductible – the amount you must pay after a loss before your insurance company steps in. Most homeowners agree to a $500 deductible (for the hazard portion; liability insurance doesn’t normally carry a deductible). Raising your deductible will allow you to reduce your premium costs and may keep you from being too quick to call your insurer for coverage. The more claims you make, the more likely the insurer is to raise your premiums or cancel your policy.