The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Information on this website may not be current. This website may contain links to other third-party websites. Such links are only for the convenience of the reader, user or browser; we do not recommend or endorse the contents of any third-party sites. Readers of this website should contact their attorney, accountant or credit counselor to obtain advice with respect to their particular situation. No reader, user, or browser of this site should act or not act on the basis of information on this site. Always seek personal legal, financial or credit advice for your relevant jurisdiction. Only your individual attorney or advisor can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, contributors, contributing firms, or their respective employers.
Fire, flood, earthquakes, hurricanes, wind, falling trees and burst water pipes are just some of the hard-to-predict events that could damage or destroy your home and its contents. Or someone could take a spill down your stairs and decide to sue you. And, of course, don’t forget about thieves, who could ransack your abode and steal your valuables.
No matter where you live, having the right kind of home insurance — and enough of it — is both costly and vital. Yet with a little effort, you can cut your premium in half. But first …
Most policies cover homes and personal property (the items inside your home) for actual cash value (ACV), which is based on what they’d be worth today, considering wear and tear. If the roof is 12 years old, it will be valued at that amount — not what it will cost you get a new roof.
To insure the full cost of replacing your home and possessions, you need to buy a more expensive replacement cost policy. While replacement cost policies will run you in the range of 10% to 20% more than ACV policies, experts generally recommend them because they’re more likely to get you back to where you were before your home and possessions were destroyed. There’s a more extensive (and expensive) version of this coverage called guaranteed replacement cost, which will cover the cost to rebuild your home as it was before it was damaged, even if that costs more than the value of the property (though there are limits on this).
If you have a cash value policy and disaster strikes, the check you get from the insurer will be for a lot less than you’ll need to rebuild. Think about that roof. Every house in the neighborhood needs a new one. There’s a high demand for roofers, the cost of labor and materials has gone up, and if you’ve got a cash value policy, you’ll only get reimbursed for the value of your 12 year old roof. However, it will probably cost you thousands more to get a new one.
With cash value coverage, you’ll take a hit on your personal property losses as well, since you’ll only be reimbursed for the depreciated value of each piece of personal property.
You might think that if you spend the extra money for guaranteed replacement cost insurance, the policy will actually pay the entire replacement cost. Not necessarily. Some companies will pay the actual replacement cost; others limit their payment to 125% or 150% of the face value. Be sure you know exactly how your policy defines this coverage.
A ballpark figure on your home’s value is a useful starting place, but that won’t tell you how much it’s going to cost to rebuild. You’d be wise to get a professional estimate of the replacement cost of your home. Ask insurers, get a friendly local builder to give an estimate based on current local conditions and crunch the numbers with an online replacement cost calculator. You can then use those figures to make sure you insure your home for 100% of its replacement cost.
Also check if your policy has automatic inflation protection, which increases its face value each year based upon construction costs in your area. It’s another way to make sure your home remains sufficiently insured.
Although they’re not identical, home insurance policies are standardized to some extent. Still, they can be complicated. Take the time to understand what the various policies will cover and what they won’t.
Homeowners insurance premiums are determined by a variety of things, including what it would cost to rebuild your home, where you live, what your home is made of and your history of making insurance claims. Your credit and even your pets can also have an effect on how much you pay.
It’s well worth investing the time to lower your home insurance costs. With a little effort, you can cut your premium by as much as 50%, not just this year, but for years to come. Of course, homeowners insurance rates simply costs more in certain parts of the country. If you live along a coastline, for example, your costs are going to be high no matter what you do. As such, it’s all the more important for you to follow these steps to help you save.
Tip: Consider covering some claims on your own – or even withdrawing a claim you’ve made – to avoid falling into the bad risk zone. Ask your insurance agent for some guidance on this.
You’ll have the least grief with a claim if you keep receipts, obtain written appraisals for anything of substantial value and create a detailed inventory of your possessions. Now. Before the storm hits.
A detailed list of your belongings can also help you figure out how much coverage you really need. Then, down the road, if you file a homeowners claim, you’ll have the documentation in hand.
Major categories mentioned often by insurers include jewelry, cash, art, furniture, appliances, electrical equipment, heirlooms, rugs and clothing. Keep an up-to-date copy of your list in a safe place, such as a safe deposit box, at your office or with your attorney.
You want a formal, detailed inventory with careful descriptions of your pricey belongings, brand names, receipts, dates of purchase, professional appraisals and photo or video records. Don’t forget to update your inventory periodically to cover new purchases.
This article has been updated. It was originally published August 1, 2010.
Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.
Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.
Try ExtraCredit for free
Over $100 of value. Cancel anytime.
Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them. Compensation is not a factor in the substantive evaluation of any product.