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Insuring a Very Important Asset: Your Home!

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Your home. It’s one of your most valuable assets. However, when you purchase homeowners’ insurance, it is often done during the closing process and usually completed very quickly. Studies have shown that almost 60 percent of homes in the U.S. are underinsured. This means in the event of a loss, such as a fire or windstorm, the homeowner may find they are responsible for a significant portion of the claim. Therefore, it is important to review your policy to ensure the coverage meets your needs and your home will be covered in the event of a loss.

Q: What is replacement cost coverage?
A: Replacement cost is how much it would cost to reconstruct your home as it is now. When you insure your home for 100 percent of the replacement cost, some insurance carriers will offer the option to purchase extended replacement cost coverage. This coverage would pay beyond your policy limits should you need additional coverage at the time of loss. For example, the cost of lumber has increased so rapidly in the past few years that the cost of construction for homes has skyrocketed. Many people may find they do not have high enough policy limits without this coverage. Most insurance policies will require that you insure your home to at least 80 percent of the rebuilding cost in order to receive a replacement cost settlement. If you don’t cover your home for at least 80 percent, the policy may provide you only actual cash value coverage. This would provide coverage that factors in depreciation related to the property’s age and condition. This could leave the homeowner with a lot of out-of-pocket expenses. We recommend purchasing both the 100 percent replacement cost as well as additional coverage.

Q: Why would I not just insure my home for the purchase price?
A: Some purchasers think they should just insure their home for the purchase price. If they have a mortgage on the house, the lender may require only coverage for the amount of the loan. However, the reconstruction costs may be higher than the market value of their home. Also, in some cases, based on location such as a house on a lake or near the beach, the market value may be higher than the reconstruction costs. Your insurance will cover the cost to rebuild the structure, so the market value is not a key factor in determining its replacement cost. 

Q: What about the contents of my house?
A: Along with making sure your house is insured for replacement cost, you want to make sure the contents of your home are also insured. If you do not add the replacement cost endorsement for your contents, your contents will be covered on an actual cash value basis. You want to make sure this valuable coverage is added to your policy. Also, it’s important to keep a good inventory of your belongings. An idea is to take a video of the inside of your house, including closets and drawers. Most people forget how much they actually have in their home. Also, you may want to think of scheduling valuable items, such as jewelry, fine art and other valuables. These can be added to your policy by providing your insurance provider appraisals and receipts for the items. 

Q: How do I know what is the best coverage for me?
A: The amount of homeowner’s coverage depends on each person’s specific needs. Obtaining the proper coverage and insuring your home to its full value can help avoid out-of-pocket expenses. Coverage for other structures on the property, contents of the house, additional living expenses and liability also needs to be considered. You should talk with your local independent agent about the appropriate amount of coverage for your home and the best way to structure your policy. Your agent can help you consider different options from various insurance companies so you can make an educated decision about the protection for your home.

By: Lori Anne Harris, GBA, HMS Agency

Lori Anne Harris had almost 35 years of experience in the employee benefits field with a top-tier health insurer before opening her own insurance agency, HMS Agency, Inc., a NYS Certified Women-Owned Business Enterprise, over 21 years ago. Lori Anne is a licensed life, accident/health agent and property/casualty broker. She is a graduate of St. Bonaventure University and has served as the chairman of the Capital Region Chamber’s Business Referral Group #1. She is an active member of the National Association of Healthcare Underwriters Women Presidents Organization, and serves on the board of the Ellis Hospital Foundation.