As a homeowner, your home is your castle and, most likely, your most precious and important asset. That’s why you need to get adequate insurance to cover the cost of any damage to your home. To protect your home from disasters, you should frequently update your insurance to include major improvements and increased building costs.
When it comes to insuring your home from natural disasters, there are some key questions that you should ask yourself. We are going to highlight them here so that you are adequately prepared for any type of disaster. Here’s what you should be asking:
1. Do I Have Enough Insurance to Rebuild My Home?
Your insurance policy should cover the cost of rebuilding your home at current construction costs. Unfortunately, most homeowners simply purchase enough insurance protection to satisfy their mortgage lender. Others confuse the real estate value of their home with what it would cost to rebuild it. Quite simply, you should have enough insurance to rebuild your home if it’s destroyed completely in a natural disaster. Be sure to consider the following:
· Replacement Costs
Most insurance policies cover replacement costs for damage to the structure. A replacement cost policy pays for the repair or replacement of damaged property with materials of similar kind and quality.
· Extended Replacement Cost
This type of insurance policy provides additional insurance coverage of 20% or more over the limits in your policy, which can be critical if there is a widespread disaster that pushes up the cost of building materials and labor.
· Inflation Guard
This insurance coverage automatically adjusts the rebuilding costs of your home to reflect changes in construction costs. Find out if your policy includes this coverage or if you have to purchase it separately.
· Ordinance or Law Coverage
If your home is badly damaged, you may be required to rebuild it to meet new, and often stricter, building codes. Ordinance or law coverage pays a specific amount towards these costs.
· Water Backup
This insurance coverage insures your property for damage from a sewer or drain backup. Most insurers offer it as an add-on to a standard policy.
· Flood Insurance
Standard home insurance policies provide coverage for disasters such as fire, lightning, and hurricanes. They don’t include coverage for flood, including from a hurricane. Flood insurance is available through the federal government’s National Flood Insurance Program but can be purchased from the same agent or company representative who provides you with your home or renters insurance.
Make sure to purchase flood insurance for the structure of your house, as well as for the contents. Excess Flood Protection, which provides higher limits of coverage than the NFIP in the event of catastrophic loss by flooding, is available from some insurers. Keep in mind that there is a 30-day waiting period before the insurance is valid.
2. Do I Have Enough Insurance to Replace All My Possessions?
Most homeowner’s insurance policies provide coverage for your personal possessions for approximately 50% to 70% of the amount of insurance you have on the structure of your home. So, if you have $100,000 worth of coverage on the structure of your home, you would be covered for $50,000 to $70,000 worth of the contents of your home, depending on the policy.
The best way to determine if this is enough coverage is to conduct a home inventory, which details everything you own and the estimated cost to replace them if they are stolen or destroyed by a disaster. Keep your home inventory in a safe place if you have physical copies, or store in the cloud if you are using a home inventory app.
You can get your possessions insured in two ways: by their actual cash value or their replacement cost. Make sure you review with your insurance professional which type of coverage is best for your particular situation.
· Actual Cash Value Policy
This insurance coverage pays for the cost of replacing your belongings minus depreciation.
· Replacement Cost Policy
This insurance coverage reimburses you for the full current cost of replacing your belongings.
To illustrate the difference between the two types of policies, suppose, for example, a fire destroys a 10-year-old television in your living room. If you have a replacement cost policy for the contents of your home, the insurance company will pay to replace the TV with a comparable new one. If you have an actual cash value policy, it will only pay a small percentage of the cost of a new TV, because the old TV has been used for 10 years and is now worth a lot less than its original cost.
Some replacement cost policies specify that the insurance company purchases the new item as they may be able to purchase at a bulk or special rate. The price of replacement cost coverage is about 10% more than that of actual cash value.
3. Do I Have Enough Coverage for Additional Living Expenses?
Coverage for additional living expenses pays the extra cost of temporarily living away from your home if you can’t live in it due to an insured disaster such as a hurricane. It covers hotel bills, restaurant meals, transportation, and other living expenses incurred while your home is inaccessible or being rebuilt. It is important to note that it covers only those expenses over and above your regular living expenses, so it would not cover your mortgage or regular trips to the grocery store. If you rent out part of your house, this coverage also reimburses you for the rent you would have collected from your tenant if your home hadn’t been destroyed.
Coverage for additional living expenses differs from company to company. Most policies provide coverage for about 20% of the insurance on your house. Some companies will sell you a policy that provides you with an unlimited amount of loss of use coverage for a limited time. Ensure you know exactly how much coverage you have for additional living expenses and whether there is a time limit. If the standard coverage is not adequate, it can generally be increased for an additional premium.