The standard homeowners insurance policies cover damage resulting from fire, hail, lightning, explosions. If you are in areas prone to earthquakes or floods, you need to get coverage for those risks, as well. Importantly, you should ensure that your policy’s coverage limits are high enough to pay for your property’s rebuilding costs. Your home’s purchase price or the current market price may be lower than or more than the cost of rebuilding your home. Additionally, if your policy is hinged on your mortgage (as required by some banks), it may not sufficiently cover your home’s rebuilding costs. To ensure your home is adequately covered, you should consider the factors that impact rebuilding costs. These include:
- Local construction costs
- Your property’s square footage
- How the exterior walls are constructed
- The style of the house, for instance, colonial or ranch
- Special features like exterior trim or fireplaces
- Whether the house includes custom-built features
- Significant home upgrades you’ve made
Whether or not your home is up to code
– Building codes change over time and may have shifted since your house was built. If disaster strikes, you may have to rebuild your property to the latest codes, and homeowners policies typically won’t cover that extra cost. If the elements in your property are not up to code, you should consider including a Law or Ordinance endorsement in your policy, which covers the cost of getting your property up to code when you’re undertaking covered repairs.
Whether your home is older with hard-to-replace features
– It’s expensive to recreate some features like ceiling and wall moldings and carvings in older homes. Therefore, some insurers may not offer replacement policies for such features. If yours is an older home, you should consider purchasing a customized replacement cost policy. This means your policy will cover repairs using today’s standard construction techniques and building materials.
Possible increases in the cost of building materials
– If you’re planning to own your home in the long term, you should consider including an inflation guard in your policy. With an inflation guard in place, your policy automatically matches your dwelling limit with the current construction costs during the renewal of your insurance.
Construction costs tend to spike after major catastrophes such as tornados and hurricanes due to the increased demand for construction workers and building materials. Therefore, you should consider getting a guaranteed replacement policy that will cover what it takes to rebuild your house regardless of costs. Also, extended replacement cost policies pay for 20% above your limits or more, depending on your insurer.
Determine How Much Insurance You Need for Your Possessions
Standard homeowners policies will cover your possessions at up to 70% of your dwelling insurance coverage. The standard coverage may be insufficient depending on what you own. To avoid underinsurance, list all your belongings and assess their value. However, there are limits on the amount of coverage provided by standard policies for items such as jewelry and silverware. Check if your policies’ coverage limits for expensive items are high enough to protect your valuable items. If the limit is too low, you should consider purchasing a special endorsement or a personal property floater.
Determine How Much Additional Living Expense (ALE) Insurance You Need
ALE covers the extra costs of temporarily living elsewhere while your house is being fixed after a covered disaster. ALE limits vary from insurer to insurer. For instance, some policies offer unlimited coverage for a set amount of time, and others only limit your amount of coverage. You can increase your ALE coverage by paying an additional premium.