Homeowners' insurance isn't a fun topic to discuss. We don't want to think about what could happen to our homes in a natural disaster or other catastrophic event. Denial doesn't make these tragedies any less likely to occur, but it does make them potentially more devastating than they might otherwise be. Proper planning can make it a little easier to get through tough times.
Now, you may think you've addressed all of your insurance needs, and thus be inclined to skip the rest of this article. After all, you bit the bullet and went to an insurance agent, sat through a meeting in which your agent discussed every possible type of coverage anyone could ever possibly need, and picked what you thought was a reasonable selection of policies and coverage. Doesn't that mean you're done worrying about insurance?
The answer, sadly, is no. Insurance is designed to protect you against risks that you face, and because the risks you face change over time, so should your insurance. Because many people are uncomfortable with insurance, they often retain policies and types of coverage that they no longer need, but fail to obtain new policies and types of coverage that they may need for the first time. Here are some guidelines for deciding whether your insurance is doing its job for you.
What to check for
With hurricanes, mudslides, wildfires, earthquakes, and other natural disasters posing a threat, insuring your home is essential for most people. When you first get your policy, figuring out what it should look like is relatively easy. Since you know what you spent to buy your home, you can be reasonably assured that your policy will insure you at least up to what you paid.
However, since real estate values rose so dramatically for such a long period, many insurance policies' coverage limits have not kept pace. In addition, rising construction costs may require higher coverage amounts. If you don't take an active role in managing your insurance, your insurance company may leave your policy coverage unchanged or make a small adjustment for general inflation.
For example, if you paid $200,000 for your home 15 years ago, and it's worth $600,000 now, your homeowners' policy may still have coverage limits that are a lot closer to $200,000 than $600,000. Indeed, many insurance companies have made changes to policies that eliminated unlimited payments for replacing your home and replaced them with provisions that put a cap on such payments -- often 125% of the current policy limit. That might sound sufficient, but if the policy limit doesn't reflect current conditions, then you still may be dangerously unprotected without even knowing it.
Fortunately, this problem is relatively easy to fix. Just look at your policy and get in touch with your insurance company to make sure your coverage does what you need it to do. If you need changes, your insurance company may be able to accommodate your needs. If the company can't, or if it chooses not to, you can always look elsewhere to get a policy that will work for you.
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