Your insurance company has told you about the importance of insuring your house to its full value, which is great advice! But are you also discussing insurance for your personal property, detached buildings, or additional living expenses when you review the policy with a professional insurance agent? Probably not. You need to consider your financial position after a total loss, when you could possibly have nothing.
Determining Insurance Values
Aside from single-value insurance products, which provide a single amount of coverage to split between many different expenses, many homeowner policies have looked pretty much the same for years. Your house is insured for an amount that the insurance company estimates it will cost to rebuild, with the estimate typically coming from a software program specifically designed to determine this value. Be sure you’re comfortable with this amount, remember it’s your house. But insurance coverage for things like your shed or garage (detached private structures), or house contents and other personal property, are most often simply based on a percentage of the insurance on the home.
Give Me an Example
Consider a simple example. The replacement value for your home, and therefore what you insure it for, is $200,000; this is the dwelling limit you would see on your property insurance policy. The coverage for detached private structures may then be based on 10% of your home amount, or $20,000 in this case. And the limit for your personal property/contents may be based on 70% of your home amount, or $140,000.
Is it Accurate?
Let’s say you decided on these amounts while reviewing your policy with your professional insurance advisor, who asked you to think about what your garage might be worth and what it would take to replace your personal belongings (including things like clothing, electronics, and furniture). And maybe you’ve even made a list or a digital recording of all your property so its easier to remember what you owned if it’s stolen or destroyed. But the question remains: how do you know if you have enough property insurance to replace all of your property?
Although in the example above $140,000 may sound like enough coverage for your personal property, is it really? What about sales tax? This alone will reduce what you can spend by approximately $15,000. Expenses to replace lost items add up quickly, and you can reach the maximum much sooner than you expect, meaning that you’d have to make up any difference on your own.
Who Makes the Decision?
Some insurers, especially those who provide the service of a physical inspection and evaluation of your property, will calculate the value of detached buildings like a garage or shed. But many larger stock companies will insure a property without every having seen or visited the premises; obviously, this make it very difficult to know how much insurance is enough. At the end of the day, it is your responsibility to place a value on what you own, including your personal property. Of course, valuing your property is not an exact science, and so the best insurance companies will let you know that you can buy extra coverage, up to a limit, at a very reasonable premium.
Educating yourself with respect to your homeowner’s property insurance coverage and limits empowers you to make an informed decision. Ask questions of your professional insurance advisor, and contact them at each renewal to review your insurance needs, which, keep in mind, will change over time. Many times, a decision is made to not increase limits or insure items to value because we want to keep our premiums at a minimum. But is that a wise choice? We need to consider the financial cost to ourselves and to our families if our insurance is not adequate, leading to a much higher price to pay at a time of turmoil. Don’t put yourself in that predicament, take the time and the money to purchase the right limits of insurance.
Article Written by Darcy Johnson
Erie Mutual Insurance Manager – Sales, Marketing & Business Development
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