Being a homeowner come with a long to-do list. Paying property taxes. Checking smoke and carbon monoxide detectors. Fixing leaks and broken doors. The list goes on and on but one thing many people forget to not only add to the list but follow through with it is an annual homeowner insurance review. Forgetting or failing to do this yearly could cost you in the long run.
More than half of homeowners (52%) don’t have a clear understanding of their coverage according a recent J.D. Power survey. There is also the common misconception among policyholders that the amount of dwelling coverage is correlated to their home’s real estate market value when in reality it’s tied to the cost to rebuild the home. And a recent Marshall & Swift/Boeckh survey found that 60% of homes are undervalued when it comes to insurance with an average undervaluation of 17%.
Here are three reasons why you should review your policy every year with your insurance broker or attorney.
1. Prices Rise and Fall – Just like most goods and services, construction costs rise and fall. Let’s say you had your home insured for $250,000 when you bought it 10 years ago. And then let’s say a fire destroyed it this year (no casualties of course). You receive a check from your insurance company for $250,000. You’re eager to start the rebuild process but after getting multiple construction bids you find out it’s going to be $350,000 to rebuild. That $100,000 gap in coverage could force you to have to scale back on the rebuild.
2. Change Happens – You installed hand scrapped hardwoods. You swapped out the linoleum in the kitchen with granite. You gutted the master bathroom. You overhauled the guest room. Any major home renovation or upgrade will most likely affect the value of your family’s home. Home improvements can also qualify you for additional discounts on your insurance policy. For example, installing a home security system could reduce your insurance premium by 2 – 10 percent.
3. Valuables Are Often Overlooked. Your spouse bought a new set of golf clubs or new skis for the whole family. You inherited a family heirloom. Your parents surprised you with an expensive work of art for your birthday. You bought a piano so your son can be the next Mozart. Your existing policy provides standard coverage for your home and belongings but oftentimes doesn’t provide sufficient coverage for all your valuables. It’s important to contact your insurance agent each time you bring in something valuable to your home to make sure your current coverage is sufficient or an increase in your premium is necessary to protect you in case of loss or damage.
For the majority of people their home is their biggest investment. Conducting an annual insurance review is critical to protecting your most valuable asset.