Do you have sufficient homeowners insurance?

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February 10, 2012


During the home buying process, it's easy to get preoccupied with the initial costs, ranging from mortgage payments and closing costs to home maintenance and purchasing furniture. But one of the most important financial considerations homeowners will also factor in is the cost of insurance.

Homeowners insurance is crucial to protecting a new or current owner's property investment and assets. Adequate coverage will protect homeowners from fire, theft, natural disasters and injury of others on their property. But choosing the right package takes research and thoroughness, and some may be surprised to find they do not have sufficient coverage. To avoid potential insurance shortages, homeowners should review their policies for a few key points.

What is the policy worth?

Many individuals make the common mistake of purchasing a policy that is equal to the value of their home or the initial purchase price. However, the Insurance Information Institute explains that homeowners should purchase a policy that covers the costs of rebuilding a home and replacing assets in the event of an emergency. For this reason, homeowners should explore the price of rebuilding materials per square foot and keep a thorough list of their belongings that would need to be replaced. When factoring in rebuilding materials, individuals should focus on the materials used, the costs of hiring a construction team, fees and the price of making living accommodations during the rebuilding process.

What does the policy cover?

Homeowners policies cover a wide range of disasters, but not all types of 
catastrophes are included under standard policies. For example, most homeowners living in flood pains will be required to purchase flood insurance as a separate policy or rider. In addition, most standard policies do not cover the costs of earthquake damage. Individuals living in areas that are prone to certain types of disasters should make sure they fully understand their policy and shop around for additional coverage if needed.

Types of additional coverage

In addition to additional coverage for natural disasters, homeowners who have valuables in their home - including jewelry, artwork, antiques, collectibles and family heirlooms - may want to purchase valuables coverage for these items. These assets will need to be appraised by a professional in order to determine how much additional insurance is needed.