How To Avoid Underinsuring Your Home
Your home is one of your greatest assets and a significant long-term investment. As such, it’s vital to protect your home and its contents with adequate homeowners’ insurance. Recent research found that many homeowners lack proper coverage.
Nearly 2 out of every 3 homes are underinsured—which means that the policy doesn’t have sufficient limits or coverage features to cover the expense of a potential claim. What’s worse? The average underinsurance amount is over 20%, with some homes being underinsured by as much as 60%!
Don’t let your home become another statistic and suffer the devastating consequences of inadequate coverage in the event of a loss. We’ve compiled a list of elements to look out for to ensure your homeowner’s insurance policy meets your unique needs and can offer the best possible protection when disaster strikes.
Coverage Elements to Consider When Insuring Your Home
Homeowners insurance offers financial protection in the event of an unexpected disaster or accident involving you, your home or your personal property. However, homeowners’ insurance policies consist of several different types of coverage. You must review each form of coverage included in your policy to confirm you are insured adequately for your specific risks.
Here are 5 key coverage elements to look for:
1. Dwelling Coverage
This is the portion of your homeowner’s insurance policy that can offer compensation for the cost of repairing or rebuilding the physical structure of your home if it gets damaged or destroyed by a covered event (e.g., a fire, a windstorm or vandalism). To secure proper dwelling coverage:
- Have enough coverage to compensate the full cost of rebuilding your home in the current market—including construction expenses (e.g., labour and materials) and the associated costs so your home is compliant with any new or updated building codes within your community. Many homeowners make the mistake of only purchasing enough coverage to compensate the real estate value of their home, which is typically far less than the cost of rebuilding.
- Don’t forget any important features of your home’s structure when determining the cost of rebuilding, such as flooring, countertops, and the type and quality of materials used throughout the structure.
- Avoid making a rough estimate when determining the cost of rebuilding! Consider getting assistance from a qualified property valuation expert to ensure a correct calculation and adequate coverage.
- When you make changes to your home, recalculate the cost of rebuilding your home and review your coverage needs. Examples of bigger renovations include the bathroom, remodeling the kitchen, or adding an attached garage.
2. Other Structures Coverage
Is the portion of your homeowner’s insurance policy that can help cover the cost of repairing or rebuilding any detached structures on your property (e.g., a shed or fence) if they get damaged by a covered event. Like dwelling coverage, it’s crucial to ensure that you have enough other structures coverage to compensate the entire cost of rebuilding any of your detached structures. Be sure to re-evaluate your coverage needs whenever you make changes to any of your detached structures or add new ones to your property.
3. Personal Property Coverage
Is the portion of your homeowner’s insurance policy that provides reimbursement for the cost of stolen or damaged items inside your home, such as furniture or electronics. To ensure adequate personal property coverage:
- Ensure you have the best form of coverage for your unique needs. There are two forms of personal property coverage—replacement cost and actual cash value.
- Replacement cost coverage can offer compensation for the cost of replacing your stolen, damaged, or destroyed property with a brand-new version (if it’s similar in kind and quality) following a covered event.
- Actual cash value coverage can offer compensation for the depreciated value of your property. This value is determined by the age, condition and expected remaining useful life of your property prior to the covered event.
- Maintain an up-to-date home inventory checklist (be sure to include photos) of all your belongings and their original value, as well as an estimate of their current value. This practice will help you better determine just how much coverage you need to fully protect your personal property. However, keep in mind that certain high-value items—such as jewellery, collectible items or fine art—won’t be covered by your homeowner’s insurance policy and will require specialized coverage.
4. Loss Of Use Coverage
Is the portion of your homeowner’s insurance policy that can help pay for temporary living expenses if you have to move out of your home while it’s being rebuilt or repaired due to a covered event. Loss of use coverage typically equates to up to 20 percent of the insured value of your home. Make sure you consult your broker if you are concerned that such value won’t offer enough financial protection for your temporary living arrangements.
- If you conduct business within your home, this form of coverage will not protect against any loss of income related to your business — you will need to secure specialized coverage for business-related risks.
5. Liability Coverage
Is the portion of your homeowner’s insurance policy that can offer compensation for the expenses if you are found liable for injuring another person or damaging their property. These expenses include medical payments, pain and suffering settlements, lost wages, legal costs and death benefits. Because these expenses can be significant, it’s vital you have adequate liability coverage tailored to your specific risks. Most homeowners’ insurance policies typically offer a minimum of $100,000 in liability coverage. But, depending on your risk profile, you may need to consider securing additional coverage. You may even want to consider purchasing personal umbrella insurance, which can provide additional compensation if your liability coverage is exhausted following a covered claim.
Other things to keep in mind:
- Keep in mind that some events—including overland floods and earthquakes—are not always considered covered events on your homeowner’s insurance policy. If you live in an area that has an elevated risk of these weather-related catastrophes, you will need to obtain additional, specialized coverage.
- You will usually (apart from liability coverage claims) pay a deductible before your homeowner’s insurance kicks in.
- Every coverage has a limit — be sure to review your coverage limits to ensure maximum protection!
We’re Here to Help
There are a variety of factors to consider so your home is properly insured. The team at Access Insurance is here to walk you through your homeowner’s policy and help you secure ultimate insurance protection for your personalized risks—ensuring full coverage in the event of a claim.
For further insurance guidance, contact us today!