3 Misconceptions That Can Put Your Home at Risk

Cost to Rebuild Coverage

The neighborhood, the amenities, the square footage – you carefully considered everything about your home before purchasing it. So carefully that perhaps your insurance policy was just an afterthought.

However, a home is one of the most valuable purchases you’ll make in life, so it only makes sense to protect it with adequate insurance coverage. But, what exactly is adequate for your home and why? The general rule of thumb is this: You insure your home for what it would cost to rebuild at today’s prices, using today’s building codes and standards.

In the insurance world, we generally refer to this as the “cost to rebuild,” and it’s essential to understand why it’s important. I’ve addressed three insurance misconceptions that should help.

  • Misconception 1: You should always insure your home for the market value.
    The cost of labor, materials and other expenses oftentimes make it more expensive to build a house than to buy one that already exists. And, that’s why you typically insure your home for more than what you purchased it. A home you buy for $200,000 may require $500,000 of insurance to completely rebuild it. Then again, if you pay a premium for the location of your home, you may need to insure your home for less than the market value. For example, you may pay $1.5 million for an oceanfront property and be able to rebuild the home for $750,000. Your home insurance policy would reflect only the cost to rebuild, without factoring in the high value of the land.
  • Misconception 2: Homeowners coverage should stay the same – or even decrease – over time.
    Your homeowners coverage shouldn’t decrease as your mortgage decreases. Just because you owe less on the home doesn’t mean it would cost less to rebuild. If you think about it, the cost of milk right now is far different than it was 20 years ago. Labor and materials go up in price as well, so your insurance shouldn’t fall behind. As you maintain and update your home, such as remodeling the kitchen or adding a deck, you should reassess your insurance coverage, too.
  • Misconception 3: You’re covered if your home needs to be brought up to code during a claim.
    Not necessarily – it depends on your policy. In some instances, you may need to purchase optional coverage to handle the increased cost of bringing your home up to code or complying with local ordinances.

The last thing any property owner wants is for their insurance policy to fall short when they need it. That’s exactly what might happen if you buy into any of these insurance misconceptions.

Instead, work with an independent insurance agent to help ensure you get the home coverage you want – not too little and not too much. An estimate of what it would cost to rebuild your home from a contractor or builder in your area may help, but it’s not necessary. Your agent will talk to you about the square footage, upgrades, special features and other aspects of your home to build the policy you want.

Remember, your insurance doesn’t buy you a house. It repairs or rebuilds the one you’ve got. So, be sure your homeowners coverage reflects the true cost to rebuild.

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Why a Home Inventory Is Important

Let’s try a little exercise: Can you list everything you own from memory?

Didn’t think so.

The fact is most people own more things than they realize. It’s easy to remember the cars, the computer, the TV. But what about that holiday china in the garage? Or every pair of shoes?

All of it is regarded as personal property for insurance purposes. And if your home is destroyed by fire or some other disaster, having a list of your possessions makes filing a claim easier — and helps you put your life back together.

Why should I complete a home inventory? What’s the best way?

Comparing the value of your belongings to the “contents” limit listed in your policy helps you make sure you have enough insurance to replace them if they are lost, stolen or destroyed as a result of a covered loss. The easiest way to take an inventory is to use a video camera, recording and describing items as you walk through your house. Or, you can use a regular camera and create a home inventory checklist.

Here are a few tips for completing and storing your inventory:

Add brand names and descriptions where you can, especially on large-ticket items. Serial numbers are helpful to note.

Keep any receipts you have with the list to make the claims process easier.

Store your video or photo inventory offsite so you won’t lose it if your house is damaged.

Update your personal property records when you purchase new furnishings and valuables.

Though the task may seem daunting, it’s important to try. An incomplete inventory is better than nothing at all.

How much insurance do I need?

We can assist you in analyzing your insurance needs and help you decide how to most effectively protect your personal property. You should consider full-value coverage, which will pay for the replacement value of your personal belongings. A standard policy typically covers personal property only up to its actual cash value, determined by taking the replacement cost and deducting depreciation, which can be substantial. (For example, a 5-year-old TV is usually worth much less than what it would cost to purchase a new one.)

Finally, remember your homeowners policy covers valuable items such as jewelry, furs, art and antiques, only up to set dollar amounts. If the cost of replacing them exceeds these limits, you may want to purchase scheduled personal property coverage.

The Insurance Information Institute has a FREE online tool that can help you create your inventory. Just visit www.knowyourstuff.org for more details.

We hope you’ll never need the home inventory, but preparing for the worst can prevent a lot of hassle later!

Contact Us!

At Jason Wright Insurance, we can work with you to make sure you’ve got the coverage you need, while at the same time using all possible credits and discounts to make that coverage affordable. Just give us a call at 812-402-9008 or send us a note at jason@jasonwrightinsurance.com. We want to help you meet your goals, and make sure what’s important to you is protected!