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When is the Best Time to Review Your Homeowner’s Policy? The Sooner the Better.

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When was the last time that you read through your homeowner’s policy?  If you’re like most people, the policy was implemented with the purchase of a home and then filed away and not given a second thought because the premium is paid monthly with the mortgage payment.  Out of sight, out of mind!  Unfortunately, such disregard could mean that the values on your policy might not be accurate or liability limits could be insufficient if your sensitivity to loss has changed. It is not a bad idea to give your policy a quick once-over now that we are halfway through the year.

In the review process, it is key to understand what the policy covers and what it does not cover.  A typical policy will pay for damage to property and possessions in the event of certain storms, fire, theft or vandalism.  It also provides liability coverage if someone gets hurt on your property and decides to sue.  Homeowners insurance also covers shelter costs, so you do not have to face expensive hotel bills if temporarily displaced from your home.  The policy can also protect belongings outside the home, too.  If something is stolen from your car, auto insurance might not cover it, but your homeowner’s policy likely will.  A standard policy does contain exclusions, including earth movements (landslides, earthquakes, sinkholes), power failure, war, nuclear hazard, government action, faulty zoning, bad repair or workmanship, defective maintenance, and flooding.  Water damage is quite tricky and often forgotten. As a rule of thumb, water from above (rainwater or a burst pipe in an upstairs apartment) is usually covered, but water from below (backed-up sewers or ground flooding) generally is not. Be sure to review the exclusions in your policy so that you can properly assess your risk.  If your region is prone to floods and earthquakes, consider supplemental coverage.

The next step is to evaluate the adequacy of your policy’s limit for dwelling coverage, which is the coverage that protects from damage to the house and any attached structures. This is an essential step if you have not reviewed your policy in some time.  There are two key policy type distinctions that every homeowner should know, as they define how losses are covered: replacement cost versus market value.  Replacement cost covers repairing or replacing the entire home.  Market value covers how much someone would pay to buy your home and the accompanying land in its current condition.  A policy that is based on market value is typically less expensive, and offers an opportunity to recoup at least partial expenses after a loss.  Replacement cost is the most common in newer policies and may provide better coverage.  Two main factors affect the cost of replacing your home: labor and materials.  Both of these items can be impacted by current market conditions, including inflation, supply, and demand.  In an era of high demand for construction services and materials, the cost of replacing your home can increase significantly.  It is important to be aware of these changes to make sure that you have a proper limit on your policy.

As with the dwelling limit, you need to keep an eye on your personal property limit.  In fact, this limit is more likely to fluctuate than the dwelling limit.  If you are a consumer who regularly buys new things, it is probable that your personal property limit should be increasing.  At the same time, if you make any home improvements, those items will also require a higher limit.  As an example, even if you did not complete a major kitchen remodel but did switch out your appliances, that would still be a fairly significant increase in value.  Therefore, you will need to contemplate that in evaluating your personal property limit’s adequacy.

One part of the home insurance policy that is often taken for granted is the personal liability limit. Standard policies come with a $100,000 liability limit, which might have been sufficient at the time that the policy was written.  Is it now?  If your dwelling and personal property limit is significant, consider that there are assets that can be sought in the event of a claim against you.  By increasing the personal liability limit and possibly considering a higher umbrella policy limit, you will take a major step in protecting what is yours.  Liability limits can often be increased for very little additional premium.

Now is the time to go through your files and dust off your homeowner’s policy.  Life events, inflation, and the economy affect overall insurance needs and together, we need to make sure that you are adequately covered.  Please do not hesitate to reach out as we are here to help in the analysis.

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