Your Current Homeowner's Policy- Is It Enough?

So, you purchased your dream home over five years ago. When you applied for your mortgage, your mortgage company insisted that you purchase mandatory home insurance. This insurance was equal to the appraised value of your home. Since then you've added a Jacuzzi and sauna, new antique furniture, received some diamond jewelry for your birthday, and your property has increased in value.

Well, now you're wondering if your current home insurance policy is enough to cover these improvements and new purchases. In this article, we'll take a detailed look at homeowner's policies, what they cover, and how to make sure that you, your home, and your possessions are adequately covered.

  1. Homeowner's policy defined. First of all, let's define a homeowner policy. In a nutshell, a homeowner's policy protects not only the house's structure in case of damage but the owner's possessions and people inside the house (homeowner, spouse, parents, household employees, guests, and visitors). In essence, a homeowner's policy combines hazard insurance with personal liability insurance (due to negligence) and provides a legal defense in the amount of the purchased policy.
  1. Become familiar with your homeowner's policy. Now that you know what a homeowner's policy is supposed to cover, you must become familiar with your unique policy. Take some time to thoroughly review and understand it. While reading the policy, ask yourself the following questions:
    1. Are we protected against theft, fire, smoke, lightning, etc?
    2. Are we protected against war, flood, earthquakes, and other disasters?
    3. How much coverage do I currently have? How much do I need?
    4. Does my policy protect my higher priced items like my antiques, jewelry, fur coats? Have these items been appraised? When were they appraised? Is my insurance company aware of any newly purchased items?
    5. What exactly is my deductible? Can I cover this amount in the event of an emergency? Should I increase this deductible to get lower premium payments?
    6. What type of property valuation does my insurance company utilize, actual cash value or replacement cost? (Actual cash is a valuation that pays an equal amount to the replacement value of your property minus depreciation and a replacement valuation pays the full value of the item today and doesn't take into account depreciation.) Replacement insurance tends to cost more as it is the insurance policy of choice.
    7. How much coverage do I have for my possessions? Is it half of what the home is worth or is it more?
  1. Conduct a home inventory. Now that you know what is covered, you'll need to determine if you have enough coverage to cover your personal possessions. This can be done by hiring a professional appraisal or doing it yourself. If you decide to do it yourself, you will need to go from room to room and make a detailed list of your personal property including any jewelry, computer equipment, instruments, clocks, linens, etc.  According to Marcie Thomas, a certified appraiser with Marcie Thomas' Appraisal Service, "People are often reluctant when it comes to hiring an appraiser due to the extra costs involved. However, a qualified appraiser is well worth the effort. It is our business to know the costs of household items and we can help you get the most money for your belongings with a certified appraisal. A good appraisal is the homeowner's pot of gold at the end of a bad storm."
  1. Get a home appraisal. If you truly believe that your house has increased substantially in value or you've made significant improvements to your home, you should get a formal appraisal by a licensed appraiser. This will ensure that you know the value of your house and that you own enough insurance to adequately protect it. After all, houses are investment and typically go up in value every single year. So, you want to make sure that you have enough coverage to cover these value improvements.
  1. Evaluate your insurance coverage. With your home inventory list in hand and your appraisal, contact your insurance agent and make sure that you have enough coverage. If your current coverage is not adequate, be wiling to pay additional funds so that you can get the coverage that you need.

In conclusion, a homeowner's policy can be very important. It not only protects your home's structure but also protects your possessions and the people inside your home. It provides legal protection and ensures that you have adequate coverage.

Additional Reading:

Home Insurance Questions and Answers
Do You Need a Home Contents List For Home & Contents Insurance?
5 Ways To Save On Home Insurance

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