Home Owners Insurance – Do You Have the Right Coverage?

I was talking with my State Farm Insurance agent, Darlene Crews, about home owners insurance yesterday and whenever I talk with her I learn something new.  Most people know they have a policy and the basics of that policy, but do you know if you have the right coverage?

Let’s focus on three areas related to a home owner’s insurance policy:

• Types of coverage

• Deductibles

• How to keep your insurance low

Types of Coverage:

Most standard coverage’s in a homeowners insurance policy include:

• Dwelling Coverage– This coverage is used for a complete rebuild or partial repair depending on the damage done to home for a named covered peril loss. (Such as Storm Damage, Fire, Theft etc…) Some policies might have verbiage called replacement cost or some will a percentage above and beyond your dwelling limit that would extend coverage up to the percentage amount if needed.

• Dwelling Extension Coverage– Extends coverage to anything that is not permanently attached to the home such as: (Fence, Gazebo, Swimming Pool or Detached Garage)

• Personal Property Coverage– Will extend coverage to the personal items in your home. This will include anything that is not permanently attached to a wall, ceiling or floor. (Including appliances)

• Limited Replacement Cost– this covers items that are not replaceable for example, antiques. In order to determine value the insurance company would use today’s cost new minus depreciation minus deductible.

• Mold/Fungus Coverage– Will extend coverage to a covered loss with mold and fungus if it is a sudden or accidental. It will not cover a leak that has been dripping over time and created mold/fungus

• Liability Coverage– Covers if a claim or suit is brought against the homeowner (insured) for bodily injury or property damage.

What it does not include:

• Flood– This coverage can be purchased through your insurance carrier but is mandated and regulated by FEMA with non-negotiable pricing.

• Earthquake– Earthquake insurance can be added to any policy at the request of the homeowner

The first thing you should always look for in your homeowners insurance policy is your homes replacement coverage.  This means that if you have a covered loss your insurance policy will cover the replacement of your home.  Determining replacement cost can be done a couple of different ways.

• 360 Value– not all companies use this tool. When your buy a home or get new coverage the insurance company will have the home owner fill out a document which includes everything about their home. Square footage, materials used to build the home, flooring type, type or roof, type of foundation, etc. This tool gives my insurance agent an overall picture of the construction and materials of the house and helps determine the value of the home for the insurance policy.

• Appraisals– Appraisals can be used to determine the value of the home – only if they full appraisals not a drive by. There is a big difference between a full and drive by appraisal.

Drive-by Appraisal vs. Full Appraisal:

A drive-by appraisal uses a similar process for estimating the market value of a home as a full appraisal.  However, the difference is that an appraiser completing a drive-by appraisal is essentially examining only the exterior of the home.  The appraiser must rely on outside sources for their information. These outside sources of information could include tax records or multiple listing service record to obtain the age, size, and other characteristics of your home.  These types of records might not always be accurate but it provides basic information about the property to complete the appraisal.

A full appraisal also known as the Uniform Residential Appraisal Report (URAR) and is designed for the valuation of one-unit residential properties.  When a full appraisal is completed, the appraiser will state a valuation based on an interior and exterior inspection of subject property and exterior inspection of all comparable sales.

Once a valuation has been determined on the home- a replacement cost on your insurance policy can be set.

Deductibles:

A deductible is what the home owner will have to pay when they file a claim.  There are different amounts for deductibles and they impact the price on your home owner’s policy – the higher the deductible the lower the policy price.  For years the minimum deductible was $500.  Most insurance companies have dropped the $500 deductible and have a minimum of $1000.

How to determine the right deductible for you depends if you plan on filing claims.  If you plan on filing claims instead of paying for the repairs out of your own pocket – take the lowest deductible.  If you plan on paying for repairs yourself then have a higher deductible.  I have a $2500 deductible.  The reason for this is that I would rather pay for smaller repairs myself, and because of this my insurance policy is lower it is currently $521.00.

Let’s talk about filing a personal property claim.  The contents in or home were damaged or stolen.  When filing a claim on your personal property there are two was to get your “stuff” replaced.

• Cash Settlement Option– to determine a cash settlement the insurance company will use the following method today’s cost new minus depreciation minus deductible. Once this is completed the home owner will get a cash settlement on all items.

• Replacement CostOption-the home owner is replacing the items by buying the exact items and getting reimbursed at 100% of the value minus the deductible.

Always take replacement cost because you will get 100% of the value compared to a lump sum that subtracts depreciation.

 How to Keep Your Insurance Policy Price Low:

There are three was to keep your insurance policy price low

• Raise your deductible– if your deductible is $500 or $1000 raise it up to $2000 – $2500. Only do this if you can afford it.

• Get a monitored alarm system – this will not only give you piece of mind but will reduce your overall price on your policy

• Bundle your policies (also called multi-lining)– have all your insurance policies with one company. The same concept as bundling your phone, cable, and internet together. Lower rate.

Knowing what coverage you have and if it is the right coverage is important.  Get a copy of your home owner’s insurance policy, check your coverage, call you insurance agents and ask questions to make sure you are covered correctly.  Feel free to call me if you have questions or my insurance agent – Darlene Crews – 404-351-3856.  She is great and will help you out any way she can.