How to Avoid Under Insuring Your Home

It can be difficult to find the right amount of homeowners insurance for your home and personal belongings. If you are underinsured, you will not be adequately protected if your home is damaged or destroyed in a fire or other disaster. However, if you over-insure, you are essentially wasting money on unnecessarily high premiums each month.

Don't wait until a disaster occurs to realize you don't have enough homeowners insurance. Here's how to strike the right balance of coverage for you.

Inform Your Insurer About Home Renovations or New Features

Making improvements to your home ensures that you will love it even more, and it also increases the value of your home. However, if your policy has not been updated to reflect the increase in value, you may be underinsured. To ensure that your home is adequately protected, notify your insurance company of any home renovations. This includes improvements such as basement finishing, window replacement, and kitchen remodeling.

Home additions are also considered. Even if you don't do a complete renovation, you should notify your insurer if you add a pool, deck, or even a trampoline to your home. Otherwise, your policy will not pay out for damages or injuries, such as if a deck catches fire or someone is injured in the pool.

Make a Plan for Your Belongings — Especially Valuables

The contents of your home (your personal belongings and valuables) are covered by your policy's personal property, or "contents" component. To protect your belongings, make sure you have adequate coverage for your personal items and valuables, and that your inventory of what's inside your house is up to date.

Personal items worth a lot of money (such as art, jewelry, coins, antiques, and guns) are usually limited to $2,500 in coverage. If your belongings exceed this limit, you may need to purchase additional coverage (also known as an endorsement) up to the limit for these items.

Because a home insurance policy only provides actual cash value on contents, you'll also need an endorsement to qualify for replacement coverage. Because replacement coverage necessitates receipts and appraisals, you can begin an inventory of your belongings by storing photos and receipts in a secure location. Furthermore, most insurer websites provide home inventory apps, which will help to streamline the process and provide you with a safe backup in case you need to file a claim.

Assess Your Exclusions and Endorsements

Remember that endorsements are the parts of your policy that provide coverage, while exclusions are the parts that deny coverage. It is critical to thoroughly review both in your policy. The endorsements are very inexpensive, and they can provide you with the peace of mind that you are fully protected. Examining your exclusions, on the other hand, will assist you in determining how to protect your home from severe weather and whether you need to purchase additional liability insurance. Here are the endorsements and exclusions you should be aware of:

Home Insurance Exclusions

  • Wind and hail: Wind and hail are more common in certain states, and insurers in those areas will frequently include wind and hail exclusions in home policies. As a result, unless you purchase separate wind and hail coverage, you will be without coverage.
  • Dog breeds: Most home insurance policies include liability coverage for dogs. However, due to the high number and cost of bite claims associated with certain breeds, some insurers refuse to cover them. In contrast, states such as Pennsylvania, Michigan, and Maryland prohibit insurance companies from denying coverage to dog owners based on the breed of their dog. Those insurers may still choose to charge a higher premium. Because your liability coverage is determined by where you live and who your insurer is, you should double-check your policy to ensure you're covered.

Home Insurance Endorsements

  • Sewer and sump-pump backup: Damage from sewer and drain backup is one of the most common homeowner claims, with expenses ranging from $10,000 to $20,000. It's also typically excluded from a standard policy, so adding sewer and drain backup coverage to your homeowners policy is a wise decision.
  • Home-based business: A typical small home office will typically qualify for a home-based business endorsement, which will cover office equipment and related property. However, if you use your home to run a business, such as a salon or daycare, you'll need a separate commercial business property to be fully insured.
  • Special personal property coverage: If your expensive electronics are damaged by lightning, fire, or water (but not flooding), they will be covered as a "named peril" under your policy. But if those same electronics are damaged during a power surge, you won't be covered, since that's not considered a "named peril". You can, however, purchase an add-on endorsement that will protect your belongings in such a case.

How to Calculate the Cost to Rebuild Your Home

To ensure that you have adequate coverage, you must determine the replacement value of your home. If you've recently refinanced or purchased a newly built home, you'll have this information.

If neither of these scenarios apply to you, you can estimate your home's replacement cost by contacting a few local homebuilders and asking for the average building costs in your area. Simply multiply the cost of construction per square foot by the total square footage of your home. If the going rate is $200 and your home is 1,800 square feet, you'd buy $360,000 in insurance. You could also contact your insurance agent or company.

The following factors will influence the cost of rebuilding your home:

  • Costs of construction
  • Square footage
  • Craftsman and contemporary house styles
  • Count of rooms and bathrooms
  • Exterior wall construction methods, such as frame, veneer, or masonry
  • Roof style

Consider a Flood Insurance Policy

If you're like most people, you probably believe that flood insurance is only necessary if you live in a high-risk area. However, according to FEMA, more than 20% of flood claims originate in low- to moderate-risk areas. Furthermore, a standard home insurance policy does not protect your home in the event of a flood. You must instead purchase a separate flood insurance policy through the National Flood Insurance Program (NFIP) or a private insurance company that works with the NFIP.