Insuring your car is important, but adequately insuring your home is more crucial, and trickier; plus, having solid home insurance is the key to personal risk management.
Most homeowners pay more attention to auto insurance than home insurance. It’s understandable since auto insurers bombard consumers with TV advertising. Additionally, most families have 2 or more cars, so most people spend more on car insurance compared to the typical home insurance policy.
But it’s more important, and trickier, to adequately insure your home. Insuring your car is important, too, but solid home insurance is the key to personal risk management.
Covering your house
It’s straight economics. Your home is almost always worth many times more than your car(s). And you need to protect your investment in your home from a wide array of hazards—from fire, theft, and vandalism to tornados, floods, and earthquakes.
Good maintenance is a key to minimizing loss, but many things are beyond your control. If a storm knocks a tree down on top of your home, you’ve got wind damage and probably water damage, as well as a tree inside your house. You want to be sure you are fully covered.
Setting your home value
How much insurance do you need? With cars, the insurer simply looks up the vehicle’s value and assigns it. In fact, your auto policy doesn’t even state the amount of coverage you have for your vehicle, just the deductible.
With a house, you need to determine the amount of insurance you need and it takes expertise to get that value right. The “dwelling value” in your policy represents the amount it would cost to rebuild if your home if it was destroyed. You’ll want to transfer all that risk to your insurer. It’s important get that number right: neither too low (the more common problem) nor too high.
How do you set that number? You’ll need to work with an insurance specialist like an independent agent or broker who uses sophisticated tools to figure out what it would cost to rebuild your home, including all upgrades and remodeling.
There are many factors to consider, starting with the cost of materials and labor in your local area, based on current surveys. Additionally, the figure should be adjusted for costs for upgrades required to meet current building codes. With older homes, those costs can be considerable.
The insurer should compare survey cost estimates with actual claim payments. By feeding its loss data into the cost estimator, the insurance company ensures that the calculation is based on reality.
Also important is the “guaranteed replacement cost,” which comes standard in better policies. That assures there will be enough money to rebuild your house, even if the cost exceeds the home insurance amount.
Not just your house
Homeowner insurance also protects your possessions, except motor vehicles, both in the home and almost everywhere else. Personal property is usually covered for 50% to 70% of the value of the home, and that’s ample for most people.
But there are coverage limits for certain single items. If you have especially valuable possessions, such as jewelry, antiques, silverware, furs, or fine arts, you’ll need a scheduled personal property insurance endorsement, or floater, to cover the items, which is available through your home insurance company.
The standard homeowner policy doesn’t cover floods or earthquakes. If you live in a flood plain or an area prone to earthquakes, you’ll need to add flood and/or earthquake insurance to be fully protected.
Liability insurance comes with your homeowner policy, and it covers bodily injury to others at your home and some other liabilities at home and away. The personal liability protection afforded by your home insurance follows you in most cases. It’s the least expensive component of the policy, and for a very small amount of money you can increase it from the default level to $500,000. For greater and broader liability coverage, add a personal umbrella liability policy, which is also available from most home insurance companies.
The right carrier
Choosing your insurance company carefully is equally important as getting the right coverages. Every home insurer can likely handle small losses without a problem. But you want to be sure your insurer will be able to take care of you if your home has major damage. A company that focuses on auto insurance and sells home insurance as an afterthought might not always come through.
Topnotch home insurers take their responsibility seriously. They have a substantial infrastructure in place that’s designed to help homeowners repair or rebuild their property. Besides having experienced adjusters, they have relationships with contractors of all types and can make referrals.
Good home insurers also are prepared for natural disasters by having catastrophe plans and teams that can be deployed rapidly. This helps them speed money and repairs to homeowners when a wildfire burns down hundreds of homes or a tornado turns a town into a pile of sticks.
Be sure you pay attention to the financial strength of your insurance company. A rating of “A“ or better with AM Best, the premier insurance company rating organization, is a good sign that your insurer has the financial mettle to handle claim payments and continue operating fr the years ahead.
Your home is typically your single largest asset. Insuring it fully with the right insurance carrier is crucial to protecting your financial well-being.
Robert Large is vice president of Pacific Specialty Insurance Company in Menlo Park, CA, which offers homeowners and recreational vehicle insurance. It is represented by independent insurance agents and brokers. Admitted in all states, it is rated A (Excellent) for financial strength by A.M. Best Co. He can be reached by email at firstname.lastname@example.org, on LinkedIn at http://tinyurl.com/ke2tgtu or on Twitter, @PSInsurance.