If you own a house, homeowner’s insurance is a necessity. Not only do you need it to protect your home and possessions against damage and theft, your mortgage lender will also require that you carry it. But it’s not enough to simply have coverage, you need to have the right coverage. David Miller, vice president client executive for Plexus Private Client Solutions says a good time to review your policy is when you are renewing it.
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“Insurance companies have the right to change your contract upon renewal,” says Miller. “If you aren’t really paying attention to it, you could end up with some surprises.”
Miller highlights seven questions to ask yourself when you are renewing your homeowner’s insurance policy:
Am I underinsured?
Nationwide estimates about two out of every three homes in America are underinsured. When purchasing coverage, Miller says a lot of people take into account the market value of their home and not the replacement cost. What if your home was picked up and moved to a less desirable area? While the cost of building the house would be similar, the market value would be wildly different because of the neighborhood. If your home is insured based on its market value, that leaves you at risk of having incomplete coverage. In the case of a total rebuild, Miller says most people end up paying a lot of money.
Is my deductible too low?
Your deductible is the amount you have to pay before your insurance kicks in. Miller says many insurance companies are starting to provide premium reductions for consumers with higher policy deductibles. Consumers should ask their agent what kind of premium credit they would get if they moved to a higher deductible. His rule of thumb is to accept a higher deductible when the increase in deductible divided by the premium savings is five years or less.
Has my deductible changed?
Miller says a growing number of insurance companies are changing policy deductibles from a flat deductible to a percentage deductible. Let’s say you have a $500,000 home and a $1,000 deductible. Your insurance company changes your deductible to 1%. This means you now have to fork over $5,000 when filing a claim! He says that’s why it’s important to read the fine print. While companies can’t change your deductible in the middle of a contract, they can do so upon renewal. Miller says consumers should also be aware that some companies have begun implementing higher deductibles for certain types of losses, such as wind or hail.
Do I have enough sump pump/sewer coverage?
Don’t assume that you have sump pump failure coverage. Miller says water damage from a sump pump failing or water that backs up from a sewer drain can be very costly. Most insurance companies will exclude this damage as a cause of loss. However, you can usually buy back a limited amount of coverage. If you have a finished basement, it makes sense to do business with an insurance company that offers broader limits.
Does my policy cover claims for personal injury?
With the advent of social media, Miller says personal injury claims are becoming prevalent. Personal injury refers to things such as libel, defamation or invasion of privacy. What does this have to do with homeowner’s insurance you might ask? While you might be careful about what you do or say online, your child may not. Miller says adding this coverage to your home insurance often costs less than $50 a year.
Are my valuables covered?
Miller says most policies limit the amount of coverage for lost or stolen jewelry to $2,500 after your deductible is applied. If you have jewelry worth more than $2,500, you can do what’s called “scheduling the jewelry.” Scheduling personal property simply means adding coverage for high-value items. Depending on the company, he says it may only cost you $12 to $15 per thousand dollars.
Is my homeowner’s liability limit too low?
Every homeowners’ policy has two types of coverage: liability and property. Property coverage includes your house and furniture. Liability coverage protects you if someone is injured and it is your fault. Miller says getting the maximum amount of liability insurance makes a lot of sense. He says going from $300,000 liability to $1 million is only an extra $60 to $70 a year. What’s more, liability coverage is not just for what happens in your home, it follows you wherever you go.
Your insurance agent should contact you before your policy’s renewal date to discuss resigning. When reviewing the contract, don’t be afraid to ask questions. Bring up any new occurrences that could warrant adjusting your coverage, such as an expensive jewelry purchase. Review the renewal package closely, especially the cover page. The cover page will give a summary of your policy and note anything that has changed. Make sure the coverage is still meeting your needs.
“You go your doctor every year to get a checkup,” says Miller. “It’s no different with your homeowner’s insurance.”
Linda Bell joined FOX Business Network (FBN) in September 2014 as an Assignment Editor. She is an award-winning writer of business and financial content. You can follow her on Twitter @lindanbell.