Ideally you wouldn’t’ want to be under-insured or over-insured when it comes to insurance for your home. If you are under-insured, you risk being able to replace what you worked hard to obtain. On the other hand if you over-insured, you will be throwing money out the window, year after year. Getting the right coverage for your home involves reviewing your homeowner’s policy with your agent and doing a little research on your own. The following are a few suggestions:
Review your coverage annually ─ values change and so does the cost of insurance. Contact a few companies and compare cost on the same coverage, it may be time-consuming but it can also save you money.
Decide which coverage is right for you – Cash value coverage – reimburses for the value of your home based on its current condition, if your home is twenty years old you will receive the depreciated value. Replacement cost coverage – reimburses for the amount it will cost to rebuild your home with the same quality of materials at today’s market; no depreciation is factored into this coverage. However, in order to receive this benefit you will need enough insurance to cover the total cost to rebuild, do not include the value of the land.
Research construction cost in your area ─ call a few local home builders and ask what the average square foot construction cost in your area. If you have a large number of upgrades in your home, be sure and factor this into the equation. Also, keep in mind anytime you remodel and spend 5% of the value of your home or $5,000, whichever is less; this increase should be reflected in the value of your policy.
Deductible – review the cost savings that come with a higher deductible, it may help you save thousands over a decade and even more over a few decades. When choosing this option it is best to have an emergency fund set aside to cover this deductible.
Valuables – replacement cost coverage will allow you to replace items at today’s cost. If you wish to insure high value items you may need to purchase a rider on your policy to include these items.
Personal Liability ─ the cost of liability coverage is relatively inexpensive and can protect you from a lawsuit should any mishaps happen on our property. Depending on your assets you may protect yourself further with umbrella coverage.
Homeowner Insurance should help prevent catastrophic loss, if your home is destroyed you want to be able to rebuild or pay off the mortgage. By taking the time to evaluate the amount of coverage you need and how to cut cost where you can, you may be on the road to being neither over-insured nor under-insured.
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