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Answering all those burning questions you didn’t know you had about home ownership.

Do You Need More Homeowners Insurance? (Part 1)

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Jessica Dabkowski

Helping you with all things homeownership!

If I remember correctly, one of the girl scout mottos was “Be prepared.”  At the time this was a throwaway motto to me because I was eight; it was my mom’s job to “Be prepared”.  I just showed up for stuff, and everything I needed was magically available to me.  Thanks, Mom!

Once I became a homeowner (and later a mother), this motto came roaring back and lodged — permanently — in the front of my brain.  Control is an illusion and to some extent, we have to embrace the chaos, right?  Definitely true, but we lessen the chaos by taking basic precautionary measures.

One of these precautions involves making the right choices when it comes to your homeowner (hazard) insurance.  Do you need more homeowners insurance? It is important to choose a reputable insurance company. You also need to consider the right coverage for your specific situation, preferably at a decent rate.

What’s in a Homeowners Insurance Policy?

Keep in mind, homeowners insurance is really a collection of different kinds of coverage. It usually includes fire, theft, liability and windstorm wrapped up into a single policy.  Today we’re going to cover protection of your physical home.  In my next article, we’ll cover the belongings (your stuff!), theft and liability portions.

Whether you’re a current homeowner who may need to upgrade your coverage or a potential new buyer purchasing home insurance for the first time, review these steps so you have the right coverage for your specific needs. DISCLAIMER: I am not an insurance agent, companies differ as to what is standard in their policies and you should do your own research prior to making any decisions.

Cost to Build from Scratch

Your coverage should be based on the square footage of your home, but it must also factor in how much it will cost per square foot to rebuild in case of disaster.   

Case in point:  My in-laws’ neighbors house burned down in the middle of the night.  These neighbors rebuilt a brand new (and very….different…style) house from the ground up using their homeowners insurance payout.  You want to make sure you have enough money to rebuild the entire house.

Your mortgage company will likely only require you to purchase coverage insuring 80% of the replacement value of the home.  The bank always gets paid, man!  For instance, if the house burns down, you aren’t going to feel very motivated to pay the mortgage every month, are you?  The bank knows this and they force you to cover their risk with your policy.  The insurance company pays the bank first.

But if your house is destroyed, are you only going to rebuild 80% of your house? (I would be curious what components you will skip.  I would advise you to keep the roof.).  It is a little bit more complicated than that – Pete the Planner has a great article on how this works here

Since the pandemic, lumber and other materials have skyrocketed. If you can locate a washer and dryer combo that are not backordered, please let me know.  In other words, you may want to revisit your coverage levels. Is it sufficient to rebuild based on the cost of materials and labor right now? Share any upgrades with your agent so they can factor those in as well.

Remember, you don’t need to count the value of the land the house sits on, just the cost for a builder to build you a brand new house.

Loss of Use Coverage

Verify whether your insurance includes “loss of use” coverage.  Loss of use pays a set amount per day for you to live outside your home during construction.  If you don’t have this coverage (or enough), you are either going to be living in your parents basement (potentially with a spouse, kids, a dog and/or a cat) OR you are going to have to pay out of pocket to rent during this time.  You may also see this coverage referred to as “additional living expenses.”

Cover Those Assets

There are a lot of jokes in that heading, but none are appropriate.  Anyway, here are two more clauses that may make sense for you to include in your coverage:

Inflation protection.  This clause or rider automatically raises your coverage to reflect annual increases in homebuilding costs.

Earthquake, hail and windstorm.  Crazy stuff is happening with the weather, and a freak natural event can do a lot of damage to your home.  

What About Flood Insurance?

Coverage for water damage from water in your basement is different than having flood insurance.  Talk to your insurance agent about the difference. A standard policy only covers water in your basement under extremely limited circumstances. Homeowners insurance usually excludes water from outside making its way into your house due to weather. Make sure you understand what your policy covers if you end up with water in your basement, which is unfortunately very common in our area.

If your home does not sit in a zone where your mortgage company requires flood insurance, you can often get flood insurance for a few hundred dollars.  Flood insurance covers structural damage to your home in the event of a flood.  Some people like the added protection of the flood insurance.

If you are currently carrying flood insurance on your property, CALL ME!  There are services that will come look at your home, do some surveying and measurements and help you apply for a flood zone exclusion (if your home qualifies).  If you receive an exemption, your mortgage company should allow you to drop the flood coverage.  Even if you do not qualify for an exemption, you may be able to complete some mitigation measures. These measures, like installing flood vents, will drop the cost of flood insurance for your home.

Do You Need to Upgrade?

Call your insurance agent to discuss your current coverage. Let him or her know about any new home improvements or possessions that should be included in your policy. 

Stay tuned for Do You Need More Homeowners Insurance? (Part 2). We’ll be talking about coverage for your belongings, as well as liability coverage (oh, yes, I went there!). As always, never hesitate to reach out with any of your home ownership questions. If I don’t have the answer, I’m really good at finding someone who does!

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