The New Year is always a time for resolutions. Unfortunately, many of our best intentions can fall by the wayside long before Groundhog Day. Contact us at 401-846-9629 to schedule a free Policy Review; we’ll help you to identify the best plans for you and your family.
As life changes and years pass, insurance needs can change dramatically. Just as we do an annual physical check-up, it is important to consider life stage events each year… marriage, children, divorce and retirement can all impact your insurance needs.
For most of us, our home is our most valuable asset; it is important confirm that your homeowner’s policy will provide enough coverage for:
- The structure of your home
- Your personal possessions
- The cost of living expenses if you must live elsewhere during repairs
- Your liability to others
You will need enough insurance to cover the cost of rebuilding your home at current construction costs, not including your land. For a quick estimate of insured value, multiply the total square footage of your home by local building costs per square foot. Other factors that determine rebuilding costs are:
- Exterior wall construction—frame, masonry or veneer
- Style of house, ranch, colonial, etc.
- Number of bathrooms and other rooms
- Type of roof and materials used
- Additional structures on the premise—garage, shed, etc.
- Fireplaces, exterior trim and other special features like arched windows, etc.
- Custom kitchens, baths, etc.
- Current improvements
Standard homeowners policies provide for coverage from disasters such as damage due to fire, lightning, hail, explosions and theft. They DO NOT cover floods, earthquakes or damage caused by lack of routine maintenance. Flood Insurance is available separately, let’s discuss!
Replacement Cost Polices
Most policies cover replacement cost for damage to the structure. A replacement policy pays for the repair or replacement of damaged property with materials of similar kind and quality. No deduction is taken for depreciation—the decrease in value due to age, wear and tear, and other factors.
Guaranteed or Extended Replacement Cost Coverage
After a major natural disaster, building materials and construction professionals are in great demand. This can push rebuilding costs above policy limits. To protect against such a situation; you can purchase a policy that will pay more than the policy limits.
These are updated periodically and may have changed significantly since your home was built. If your home is badly damaged, you may be required to rebuild your new home to meet new standards. Ask about an Ordinance or Law endorsement to your policy that pays a specified amount toward these cots.
Common to our area, you may need a modified replacement cost policy, this means that instead of repairing or replacing features typical of older homes such as plaster walls and wooden floors, with similar materials, the policy will pay for repairs using standard building materials and construction techniques in use today. Insurance companies differ greatly in how they insure older homes. Some will not insure older homes for the replacement cost because of the expense of recreating special features like wall and ceiling molding and carvings. Other companies will insure older homes for the replacement cost as long as the dwelling is in good condition. In our historic area, this is major consideration and important point of discussion for your policy review!
Most homeowner’s policies provide coverage for about 50-70% of the amount of insurance you have on the structure of your home. To determine if this is sufficient you should conduct a home inventory. There is a free home inventory app to simplify the process for you at www.KnowYourStuff.org. Bring this information with you to our policy review!
Replacement Cost or Actual Cash Value
You can either insure your belongings for their actual cash value, which pays to replace your home or possessions minus a deduction for depreciation up to the limit of your policy. Or you can opt for replacement cost, which pays the actual cost of replacing your home or possessions (no deduction for depreciation) up to the limit of your policy. Generally, the price of replacement cost coverage is about 10% more than that of actual cash value.
Insuring expensive items with floaters/endorsements
There may be limits on how much coverage you get for expensive items such as jewelry, silverware and furs. Generally, there is a $1,000 to $2,000 limit on jewelry and there may also be a limit on coverage for computers. If the limits are too low, consider a special personal property floater or an endorsement. These allow you to insure items individually or as a collection. With floaters and endorsements, there is no deductible. You are charged a premium based on what the item (or collection) is, its dollar value and where you live.
ADDITIONAL LIVING EXPENSES
Additional living expenses (ALE) is a very important feature of a standard homeowners insurance policy. It pays the additional costs of temporarily living away from your home if you cannot stay in it due to a fire, severe storm or other insured disaster. ALE covers hotel bills, restaurant meals and other living expenses incurred while your home is being rebuilt.
Coverage for additional living expenses differs, but many policies provide for about 20% of the insurance on your house. If you rent out part of your house, this coverage also reimburses you for the rent that you would have collected from your tenant if your home had not been destroyed.
LIABILITY TO OTHERS
This part of your policy covers you against lawsuits for bodily injury or property damage that you or family members cause to other people. It also pays for damage caused by pets. It pays for both the cost of defending you in court and for any damages a court rules you must pay. Generally, most homeowner’s insurance policies provide a minimum of $100,000 worth of liability insurance, but higher amounts are available.
Umbrella or Excess Liability
If you own property and or have investments and savings that are worth more than the liability limits in your policy, you may consider purchasing an excess liability or umbrella policy. Umbrella or excess liability policies provide extra coverage. They start to pay after you have used up the liability insurance in your underlying homeowners (or auto) policy. An umbrella policy is not part of your homeowners policy. You have to purchase it separately. In addition to providing a higher dollar amount, these policies offer broader coverage. You are covered for libel, slander, and invasion of privacy, which are not covered under standard homeowners or auto policies. The cost of an umbrella policy depends on how much underlying insurance you have and the kind of risk you represent.
WE’RE HERE TO HELP
Today, homeowner’s policies provide a wider variety of coverages than just 5-10 years ago. This is why it is increasingly important to review your policy annually. Let us assist you in navigating these options customize coverage that meets your specific needs.
Call us at 401-846-9629 to schedule your free policy review. We’re here to help!
Some content copyright 2011, International Risk Management Institute, Inc.
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