Homeowners insurance is essential because it protects your most significant purchase and most valuable asset. Homeowners insurance is designed to help you cover the repair costs when your home is damaged by a covered peril, recover the costs of stolen personal properties, and pay for the replacement cost of your home if it becomes necessary.
You are required to purchase an insurance policy when you initially buy your home, and your lender probably made it mandatory to pay the insurance premiums automatically from the escrow account. Unfortunately, this makes it easy for people to neglect to update their insurance policies as time goes on.
At least every two years, you should review your policy with your insurance agent and shop around for a less expensive policy if available.
Too Much Coverage
In general, the insurer will increase your Dwelling Coverage by the inflation rate to make sure that you’re fully covered. However, some insurers are too aggressive with this increase causing your premium to go up too much as well.
If you see your premium goes up substantially year-over-year, make sure you review the Dwelling Coverage amount with your insurance agent.
Too Little Coverage
However, the opposite is also true. If your home has appreciated in value, you might want to increase the amount of coverage on your policy. Your home might have increased in value because of market forces, or if you made improvements to your property.
Remember that the market value of your home and the coverage amount is not the same. At the minimum, your dwelling coverage does not cover the value of your land. To make sure you’re fully protected, let your insurance agent know about recent improvements that you’ve made to the property and any major component you’ve replaced.
Liability Coverage
In addition to protecting your house, your homeowners insurance also protects you against liability lawsuits.
Is the amount of liability coverage still right for your current situation? When you took out the policy initially, you might skimp on this coverage to save money. If your income or your net worth has increased substantially, and you may want to increase your liability coverage.
Covered Perils
Homeowners insurance does not protect you against every possible loss. These insurance policies come in many flavors, i.e., basic form, broad form, and open perils. The basic form provides you with minimal protection, and open perils offer you with the best protection. However, even open perils coverage has exclusions (e.g., cause of loss that the insurance company will not cover).
Be sure to review your policy with your agent to make sure that your policy provides you with the coverage you need. You may be surprised that something you thought would be covered is, in fact, not covered by your policy.
Bottom Line
Your home is a major purchase. Repairing or replacing it can get quite expensive. The right amount of insurance coverage can help you ensure that you aren’t financially devastated by unexpected events. As a best practice, you should review your policy every two years and shop around for a less expensive policy.
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Pinyo is a full-service Realtor with Berkshire Hathaway HomeServices PenFed Realty and an insurance agent with McEvoy Insurance & Financial Services. He specializes in representing clients in the purchase and sale of residential and investment properties throughout Virginia and Maryland areas around DC.