Property insurance encompasses protecting property against perils such as fire, flood and theft. When thinking of insurance, peril is the cause of a loss from things such as tornadoes or fire while a hazard is a condition that magnifies the chance of a loss due to a peril.
Insurance companies have been protecting people and businesses for centuries, and they’ve seen risks, hazards and perils you never dreamed you had.
Insurance companies are well prepared to protect you from many common perils with a standard policy at a reasonable price. An important consideration is what your policy covers and how it works. An annual review of your insurance policy with your agent will ensure you need what you’re paying for and that no new risks have emerged.
To avoid spending money on coverage you don’t need, consider carefully the various types of property and casualty insurance policies customarily available before you talk to your insurance agent.
When purchasing insurance it is important to know ahead of time what possessions you have that need to be protected. Walk around your home making a list of everything you have or that holds value to you. A better way of inventorying your home is to use a video camera. Walk through each room of your home, including attics, basements and sheds and pan across the room mentioning anything of importance. Be sure to make a copy of the tape and keep it in a safe place such as a safe deposit box.
Ensure your insurance covers these four key areas:
1. The structure of your house
2. Your belongings
3. Your liability to others
4. Your living expenses if you’re forced out
The purpose of your homeowner’s policy, and the reason for making a list of your belongings, is to ensure that if there’s a disaster, you can rebuild your home and replace everything in it. Also you need enough liability coverage to protect you in case someone has and accident on your property and sue you. Living expenses cover the cost of making your home livable or living elsewhere while your home is being repaired or rebuilt.
Replacement value insurance can be very complicated and rather unsettling for many people.
Many times people are surprised by what their valuables are actually worth at the time of loss. For example, a brand new big screen TV that cost you $3,000 3 years ago may only be worth $1,000 now, a far cry from what you paid for it.
The solution is replacement value insurance. Replacement value insurance coverage will allow you to replace everything you lost with similar, new items. Make sure that your policy spells out that both your home and its contents are covered by replacement value insurance.
After inventorying your home you may wish to think about any floaters or insurance riders you may wish to add to your policy to cover specific high value items.
Many policies have a limit on the maximum amount that will be paid out for a single item. For example you may have a top of the line computer with many expensive upgraded parts that may have cost you thousands of dollars more than the original price of the PC. Your standard policy may not offer more than $1000 for a computer, much less than its value with the upgraded parts. With a floater, and the receipts or video proof of the parts, you will never have to worry about proving you owned an item and there will never be a dispute over what it’s really worth.
An important rider to consider if needed is flood and earthquake coverage.
Most policies do not cover these disasters and many companies do not even offer it due to the massive potential overhead if there is a disaster. If you are in an area that is prone to natural disasters you will have to request this extra coverage. For flood insurance, you can also contact the National Flood Insurance Program. In California, you can get earthquake coverage through the California Earthquake Authority.
When it comes to replacing your home, look for extended or guaranteed replacement value coverage. Guaranteed replacement covers rebuilding no matter what the cost but it is not offered much any more. Instead many companies offer extended replacement value insurance, which will cover up to 100 percent of the value of the home.
An important consideration is inflation and the value of your home. Your home may have cost $125,000 10 years ago to build but now it may cost $175,000 to rebuild. When reviewing or renewing your policy ensure that the value of your home is inline with its current value. If there is a discrepancy you may find yourself either having to rebuild a smaller home or having to pay the difference between what the insurance policy paid and what it actually cost to rebuild.
A final important point is to understand the claims process. Two policies may offer the same coverage but how they handle your claim can be vastly different. Have the agent explain exactly how claims are handled, especially when it comes to writing you a check.
Some property insurance policies will give you the cash value of your possessions right after a loss, but wait to cover the replacement value until after you’ve replaced your items and have the receipts to prove you did.
This can be a problem if do not have the cash reserves to purchase everything up front.
Equally important is knowing how long you have to replace your things.
If you are living in a hotel while waiting for your home to be rebuilt you will not want to be purchasing and storing your big screen TV and a garage full of tools. Or worse yet, finding out you purchased the replacement items after the allowed time to replace everything and thus not being compensated.
Homeowners insurance is a very important decision that should not be made in haste.
You have worked hard for many years to acquire many nice belongings and it would be a shame to lose it all because you didn’t examine and think about your insurance coverage.
However, by taking a little time now to think about it you will be able to sleep much better knowing that there will not be any problems in the event of a disaster.