Insuring your home is increasingly complicated as actuaries calculate in increasingly bizarre weather and standards tighten. Fortunately, a little education goes a long way to ensure homeowners have confidence as they negotiate with insurance companies.
Insurance is, essentially, two bets. One is a bet on the likelihood something will happen to your home, and the other is a bet on how extensive the damage would be. Insurance companies spend a lot of time and money calculating the likelihood of various disasters and how much they would cost to cover. It's to their benefit to slightly underinsure your home, which is why Guaranteed Replacement Cost Coverage, which covers the complete cost to rebuild your home no matter the amount, is increasingly rare. To protect yourself against the insurance company's profit margin, there are several things you can do:
- Insurers generally cover a home's contents up to between 50% and 75% of the home's value, according to CNN Money. If you have nice clothes, artwork, or a lot of expensive electronics, an inventory will help you get a more complete level of coverage. CNN recommends Insurance Information Institute's inventory advice. III even has an app that will help you put together a list of your home's contents and value.
- To ensure you have sufficient coverage on the actual property itself, don't be afraid to seek the advice of a contractor. After all, a contractor is who you would be dealing with if something terrible were to happen. A contractor can help you assess how much it would cost to repair or completely rebuild your home and calculate if the dollar amount of coverage per square foot is enough. You want to pay attention to the dwelling limit on your plan.
- Home insurance doesn't account for everything on its own. There are several add-ons or elements of fuller policies that are very valuable protections. For example, liability coverage will protect you if your dog bites someone or someone is injured on your property. Inflation guards account for increased labor and materials costs in the future.
- Uphelp.org warns against simply relying on the purchase price, appraisal or estimated sale value of your home to determine if the dwelling limit is enough. This is because these values don't correlate with the cost to rebuild, only the value of the home existing in its present state.
- III has a handy checklist that helps you consider different insurance-affecting factors while you are shopping for a home. Insurers will be calculating distance from coasts, flood zone information, distance to fire hydrants and fire stations, and more. You should consider these as well while you determine how much home you can afford.