Your home is a large investment and can hold a lot of emotional and financial value. When a loss or damage occurs, you want to protect your home and possessions against financial loss which is why homeowners’ insurance is crucial. Policies can be challenging to understand, and many people turn a blind eye to their insurance once they purchased it but it’s important to do check-ups and understand your policy in case of an emergency. Here are 5 things that every homeowner should understand about their insurance policy.
1. Keep Pace with Factors that Impact Your Policy
There are many factors that impact your insurance, and those factors can cause the insurance on your home to fluctuate. Those factors can impact how much your insurance policy covers. When you are renewing your policy, it’s important to discuss with your agent to verify that your current coverage amount is realistic with the current economy. Here are some key factors that can influence insurance policies:
- Climate change – extreme weather caused by climate change can cause an increase in premiums.
- Renovations – home renovations increase the cost of rebuilding the home which affects your replacement value.
- Material costs – changes in consumer purchasing behaviors and supply chain issues can change prices on rebuild costs which can drive up insurance rates.
- Inflation – rate hikes affect home insurance because it increases the cost of expenses associated with owning a home.
2. Take Inventory of Your Belongings
In the event that you need to make a claim, you have to provide proof of what you owned and how much each item is worth. Creating an inventory of valuable items that are in your home and storing documents in an effective way is crucial for homeowners. Consider keeping physical and digital copies of receipts, contracts, or appraisals so that they can be easily accessed and always on hand. An easy way to start doing this is by starting in one room, documenting all of your valuable items, and then moving to the next room until the entire home has been recorded.
3. Understand the Type of Home Insurance You Have
For some, purchasing insurance is something you do and then put aside. During a loss, you can easily forget what is covered and how it will be replaced. That’s why it’s important to understand the type of home insurance you have and to revaluate if your current policy meets your needs and aligns with your budget. There are three different ways to insure the structure of your home:
Insurance will pay the policyholder the cost to replace the damaged property without deductions for depreciation. The amount is limited to a maximum amount.
Extended Replacement Cost
This policy covers costs up to a certain percentage over the coverage limit and gives you protection against increased costs like materials.
Actual Cash Value
Insurance will cover the costs to replace the home minus the depreciation costs for age and use.
4. Know What Your Insured Value or Limit Is
You buy home insurance so that it is there when you need it. Nothing is more stressful than finding out during a time of loss that your insurance does not cover what you need it to or what you thought it did. Working with an insurance broker and reviewing your coverage annually can make sure that you have sufficient coverage based on your current situation and home. Choosing a lower-tier policy may be a way to save a few dollars but it may cause stress if you are underinsured. When you review your policy annually you can guarantee that you are ensuring adequate coverage for your home.
5. What Happens During a Time of Loss
When you are speaking with your insurance agent, you should discuss what will happen during a time of loss. What will be covered by your policy? How much payment will you receive? How will you receive that payment? Some of these questions will be based on which type of policy you’ve chosen.
Actual Cash Value Policy
You will receive the fair market value of the property while taking into account factors that might reduce the value of the property like depreciation.
Replacement Cost Policy
Either repairs or replacements will be made with materials that are similar to the quality you previously had without additional cost for depreciation or betterment.
Extended Replacement Cost Policy
The cost of repairs or replacement will be made to your home, on the same site, even if they are more than the principal dwelling Replacement Cost amount shown on your policy, provided any defined conditions are met.
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