The Homeowner’s insurance policy calls for a “dwelling” limit which is the amount that would be the equivalent cost to replace your home. This often has little to do with appraised market value or even the original purchase price of your home. And take note that homeowner insurance does not cover the land value of your property.
Your insurance policy is not governed by real estate market forces but by the re-building cost for your home. Insurance companies have formulas used to evaluate the replacement cost of your home. Since the formulas are unique for each insurer, there are different limits of coverage for your dwelling limit.
The following information can be useful to check if the limit set by your insurer accurately reflects the cost to rebuild your home in the event of a total loss:
• Document all offers and deals with your insurer.
• Review the replacement cost of your home and be familiar with the building materials and associated costs that make up your home. Know also any changes to your home that may cause your dwelling limit to increase or decrease in value.
• Be updated to the current building costs in your area.
• Save receipts and maintain records of updates, renovations, and improvements to your home.
• Contact your broker or insurance company if you think your policy limits are inaccurate and have them reviewed.
The “contents” limit stipulated in the insurance is generally around 50% of the dwelling amount. This is, however, just a guideline only. The most competent source on the replacement value of your personal possessions is you. Be sure to account all of your personal property when calculating the contents limits and understand the coverage amounts for specific types of personal property such as:
• Fine art collection
• Jewelry
• Silverware
• Antique collection
• Other collectibles
• Computer and accessories,
• Firearms
• Business personal property
• Money
The limited coverage amounts for these types of personal property are not from the contents limit. These are included in the overall contents limit representing the maximum paid out for that specific type of personal property. It is very important to add an endorsement coverage (sometimes referred to as a “rider” or a “floater”) which takes into account the personal property value above the special limits. Remember that personal property also includes clothing, shoes, accessories, and personal items. That’s why you should also take into account the small sundry items things you use to run your household chores and enjoy your home. Oftentimes people just concern themselves with big ticket items and neglect to account for the small things like kitchen utensils, linens, curtains, etc. when calculating for these limits
Under insurance can be a real nightmare as discovered by homeowners who lost their properties in the Northern and Southern California fires. The insurance must be able to cover a major part of any rebuilding effort as well as the contents to start a new life in a new home. An integral part to owning any property is protecting the property as best as you could. Homeowners insurance is a vital form of protection. Knowing and understanding the coverage limits of your policy will greatly add to your peace of mind in any loss situation. GP
