Advice on Homeowner’s Insurance and the Amount of Coverage

In an episode of Extreme Makeover: Home Edition, the crew helped a homeowner in a particularly bad situation. Having lost her home to fire, she found out that the insurance she had did not even cover the cost of tearing down the damaged structure, let alone rebuilding.

Consider it a wake-up call if you own a home – even if you recently bought your home.

As real estate values rise by 20 per cent or more each year in some areas, homeowners may find that the policy they purchased five years ago may not cover their home today. That isn’t even taking into account possible upgrades to the home.

That is one reason why Rommel Fernandez, an agent with Farmers Insurance, says that a homeowner’s insurance agent should be in touch regularly. “Your agent should be speaking with you at least twice a year,” he notes. While Fernandez says one point of contact may be to wish you a happy holiday, one of those contacts should be more in-depth, taking the time to find out whether you have made any changes to your home or family makeup.

The reason? Fernandez says homeowners need to reassess their homeowners insurance regularly – “at least every two years,” he suggests. An agent who stays in regular touch can remind a homeowner of the need to reassess their home’s value and resulting insurance coverage.

In addition to rising home prices, even relatively minor additions to a home can cause the cost of replacement (which determines the amount of coverage a homeowner should have) to increase significantly.

“Even if you’ve just changed flooring, say from carpeting to bamboo wood flooring,” Fernandez notes, a review of your homeowners insurance is in order. “Your carpeting might have cost about $20 per square foot to replace, whereas the flooring might cost $200 per square foot.” That can make a large difference should your home need to be rebuilt.

Other upgrades to your home, such as a new roof, room addition, or extensive remodeling, can also mean that you need to consider increasing the amount of homeowners insurance you carry.

Fernandez says that there are some common mistakes homeowners make when reviewing their insurance. Among the most common is to fail to consider their cars. Even though cars have separate insurance, your automobile (and the drivers who use it) should be considered.

Since cars and other household vehicles are housed in a garage, they are usually, to some extent, covered by homeowners insurance. And, should you be involved in an accident, your auto insurance may not cover what you are required to pay if you are sued. “People tend to overlook their liability coverage,” Fernandez says, noting that can be a costly mistake.

Particularly for homeowners with newly minted drivers in the household, an umbrella policy, and/or increasing the liability coverage, might be a wise idea.

In addition, Fernandez says individual items in the home are overlooked as well. “Usually, the insurance will not only cover the item in your home, but if it is damaged transporting it from one location to another,” he explains.

And even small things add up. Something as simple as a tree branch crashing through a window might cause thousands, or tens of thousands, of dollars in damage, depending on what is near the damaged window.

For those who just purchased a home, Fernandez says a common mistake is to rely solely on what the lender requires. “Different lenders have different requirements. Some lenders will just leave it up to the insurance company. And new homeowners often don’t really know how much coverage they should have,” he explains. “So your agent should be able to assess the right amount of coverage for you.”

Fernandez also says that homeowners shouldn’t under-insure out of a fear of termination. There are, generally speaking, two things homeowners can do to lessen the likelihood of having their homeowners insurance terminated.

The first is to reconsider if the amount of the claim is fairly small. “The best advice I can give a client in that situation is to really assess their loss,” he says. For instance, Fernandez says that if a homeowner loses a $1,000 television, but has a $500 deductible, it might not be worth it to them to file a claim for the remaining $500. (That amount might be tax deductible, too.)

The other area likely to trigger problems for homeowners, and increase their chances of cancellation, is when they are negligent. Fernandez cites a hypothetical example: “If your doors are unlocked, the burglar alarm was off, and you are broken into and make a claim,” he says, your chances of cancellation are much higher.

Truthfully, many of us don’t like insurance. Like planning for our own funerals, we have to think about the “what-ifs” that we really don’t want to happen. But by reviewing what insurance you hold once a year, and choosing an agent who stays in touch, you can be better prepared if and when one of the “what-ifs” occurs.

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