Your home is likely your most valuable asset–make sure it is properly protected. While insurance agents will help determine the kind of coverage you can buy, it is ultimately your responsibility to know what the policy covers. And remember, insurance agents are salesmen and typically work on commission. This isn’t a bad thing, but be aware of what type of coverage you actually need so that you can spot it when you’re being sold something you don’t truly need.
This has been a topic of renewed discussion recently with all of the floods and severe weather in the midwest. Many people had assumed that they were in no danger of a flood, and now that their home is under water, they find their policy isn’t going to cover the damage.
1. Review your policies annually. A walk-through of your coverage needs with your agent may identify other coverages (i.e., jewelry, artwork, etc.) that you need, as well as ways to save on premiums such as bundling auto and home insurance coverage together with one provider or requesting higher deductibles to help contain your costs.
2. Identify risks you face that are not covered by your homeowners policy. Disasters such as floods and earthquakes need a separate policy or riders to protect your home if tragedy strikes.
3. Understand how much coverage you have. Many homeowners believe their insurance policy will replace their damaged or destroyed property regardless of the amount of damage incurred. Remember, it is generally not your home’s market value that is covered, but rather its replacement cost. Home additions and major kitchen or bath remodeling projects can add significant value to your home, which may not be covered by your current policy. It is important to that your coverage is sufficient, based on your home’s replacement cost.
4. Do your homework when shopping for insurance. Get quotes from different carriers. Since rates can vary, make sure you compare coverage on an apples-to-apples basis so you can spot when a lower price really just represents less coverage. Consider higher deductibles to help reduce your premiums or ask if discounts are available for installed safety and security devices such as smoke detectors and alarms.
5. Research carrier performance. Ask your friends and neighbors for references. Also research the financial strength of carriers through independent third-party sources such as state insurance departments, A.M. Best, Standard & Poor’s, and customer satisfaction ratings at the J.D. Power Consumer Center.
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About the Author: Jeremy Vohwinkle is a Chartered Retirement Planning Counselor® and spent a few years working as a financial planner. Today, he helps people make the most of their money by writing about personal finance here and elsewhere on the web. Jeremy is also Coach at Adaptu and a regular contributor for other publications such as Intuit, and American Express. Be sure to follow Jeremy on Twitter or Google+.