Insurance For Your Home Part II
In this post I continue on with tips on home owners insurance. Make sure that your home owner’s policy is a “replacement costs” policy.
Most policies sold cover replacement costs for structural damage, but it is wise to make sure that your policy is a replacement cost policy. A replacement cost policy pays for the repairs or replacement of damaged property with materials of similar kind and quality. The insurance company will not deduct or depreciate when rebuilding your home. Depreciation is the decrease in value due to the passage of time, wear and tear and other factors. If you have an older home, you may not be able to buy a replacement cost policy. Instead, you may have a modified replacement cost policy. This means that instead of repairing or replacing future typical older homes, such as lathe and plaster walls, solid wood doors, the policy will pay for repairs using the standard building materials and construction techniques in use today. If you have an older home and you want your home to be built back as it was, you should check carefully to insure that this is the way the policy reads. Most likely, you will need to purchase an additional rider or have additional language to your policy to insure a home built with older construction techniques.
Consider buying a guaranteed replacement cost policy. Guaranteed replacement cost policies will pay for whatever it costs to rebuild your home as it was before it was destroyed, even if it exceeds the policy limits. This gives the insured the protection against sudden increases in cost due to shortage of building materials, or booming real estate markets.
Insure that your home is not in a flood zone. Standard home owners insurance does not include flood insurance. Many people who were not within the typical 100 year flood plain but above have recently suffered damage to their homes because of flood waters far beyond those normally expected. You should contact the Federal Insurance Administration at 800-638-6620 to inquire about the National Flood Insurance Program offered through the government.
Make sure that you keep lists of all your personal possessions. Making lists of your personal possessions of everything you own in your home will assist you in making a claim should your home and possessions be destroyed. It is time consuming to make a paper list of everything, and some people choose to use cameras or video recorders to record the items in their home. The manner in which you record all your possessions is up to you, however, a written list along with photographs of more expensive items would be the best practice. Also, be aware that many items such as computers and jewelry have limits on the homeowner’s policy. So for instance if you have a lot of expensive computer equipment, you should insure that your policy actually covers them. You may need to buy a personal articles endorsement to cover items above and beyond the limited amount of protection offered in your homeowner’s policy. Very few policies have unlimited personal possession limits when it comes to expensive items such as electronics, jewelry and clothing.
There are two basic ways to insure your personal possessions. Replacement cost or actual cost value. A replacement cost policy pays the dollar amount needed to replace a damaged item with one of similar kind and quality without deductions or depreciation. An actual cash value policy pays the amount needed to replace the item minus depreciation. Suppose for example a tree fell through the roof and destroyed your refrigerator. At the time the refrigerator was destroyed it was five years old, but was in good condition. If you had a replacement cost policy for the contents of your home, the insurance company would pay to replace the old machine with a new one of similar type and quality. If you had an actual cash value policy, the company would only pay a percentage of the cost of a new refrigerator because a refrigerator that has been used would be worth less than its original cost. This means that you would either have to pay for the difference between the amount of the actual cash value and what it would cost to buy a new refrigerator or you would have to buy a used appliance.
Consider all of these factors in assessing in your present homeowners insurance or when buying a new homeowner’s policy to insure that you are adequately protected.