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Homeowners Coverage Do’s and Dont’s

October 02, 2018

Replacement cost, actual cash value, covered perils, ordinance coverage, what does this all mean?  Homeowner’s insurance can be daunting and confusing.  Some insurance companies have coverage that the average homeowner wasn’t even aware was a thing!  The average homeowner may also be shocked to find out that they have limited coverage, typically $2500, for one piece of jewelry.  I could honestly write a book on all the nuances of home insurance, but I will try to keep this brief.

When you contact an insurance agent for a home insurance quote, regardless of the company, the agent has a program they enter information about the details of your home to establish a replacement cost.  This is necessary because even though you may have gotten an excellent deal on your house, it still has a certain cost involved in reconstruction in the event of a total loss.  Market value is totally different than replacement cost.  When the housing crash happened in 2008, market values decreased dramatically.  Banks were tight on lending practices and houses were not selling like they are today.  When that happened, many homes were being insured for more than their market value, mainly because the cost to build a particular home did not crash like the market.  A 2×4 costs more today than it did 10 years ago.  Siding costs more, bricks cost more and so forth.  So, when you’re considering replacement cost for your home, keep in mind that insurance is going to look at what it would cost to rebuild that home in the event of a total loss.  According to Home Advisor, the typical home with today’s construction cost is about $150 per square foot.  That is living square (finished area) feet.  So, in a 1600 square foot home, with standard construction materials, that would be $240,000.  We always advise our clients to also review their home coverage every few years.  If you have made any alterations to your home, finished a basement for instance, or if your home coverage does not include automatic inflation coverage, you may be underinsured.

Most home insurance also is written on a HO-3 form.  This is insurance jargon that I typically don’t like to use, but what it means is that your policy covers your home for certain types of losses.  If your home is struck by lightning, has wind or hail damage, has a theft, if your roof collapses from the weight of ice or snow, if a tree falls on your home, these are examples of “covered perils.”  There are other instances where you may have home coverage depending on your policy.  We always recommend that “when in doubt, get a quote.”  Your home coverage is always subject to a deductible.  Depending on the amount of damage that tree branch caused that hit your roof, it may not be worth submitting a claim.

On February 2017, we had what I refer to as a “micro-tornado” go through our property.  I had a utility shed in the back yard that it blew to pieces everywhere.  There were a few shingles that were loose on my roof, some trim that came off the side of an eave, a damaged gutter, a broken drain pipe, and a screen on a patio door that was bent in half.  The total cost of repairs, including the shed was about $2000, but my homeowners deductible is $1500.  Needless to say, I didn’t see the sense of submitting a claim for a mere $500.  Now, of course if you have a gaping hole in your roof and it is raining in your living room, by all means, let’s submit a claim!  Emergency mitigation companies are standing by and always able to help put a tarp on your roof to stop further damage in those situations.  If you are in need of immediate help from a damaging storm, we are here to help!

In all, there is a lot of coverage to a home policy.  It isn’t a one-size-fits all.  Whatever you have a question on, we’re here to help!  I worked for a wholesale-construction distributor for 3 years, my grandfather was a builder and I designed my own home.  Helping you protect your investment is my passion.  If you would like to know more about how your home policy works for you, give us a call.  Let us help protect your tomorrow today!

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