How to Know if you Have Enough Homeowner’s Insurance


Tim Lucas
Military VA Loan editor

By Lee Nelson

You finally found the house you have been dreaming of. The mortgage papers are ready to sign. But you need to find the right home insurance to protect your new investment, yourself and your belongings. You hope nothing will ever happen, but that’s what insurance is all about – helping you when the unknown happens.

What if a fire burned down your new place? Everything inside that you have been collecting for years are destroyed from your tools to jewelry to artwork. Can you imagine replacing everything you own from your underwear to your china to your bed?

“Home insurance is for your peace of mind,” says Chris Hackett, director of personal lines policy for the Property Casualty Insurers Association of America (PCI) in Chicago. “And it’s important to be insured for for 100 percent of the replacement cost of the home. The replacement cost is the amount necessary to rebuild your home just like it is now in quality and materials.”

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When you first apply for home insurance online or through an agent, there will be lots of questions to answer about the features of the home from the kind of floors it has to the square footage.

“You need to answer those precisely so the insurance company can arrive at an accurate replacement cost figure,” he says.

And what about all that great stuff inside your home? For the sake of easy math, Hackett gives an example of what most insurance companies will give to replace your personal property if everything is destroyed in such disasters as a tornado or fire.

“If your home is insured for $100,000 for the dwelling, the coverage will also give you between 50 to 70 percent for your property inside – depending on the policy and the insurance company,” he says. “Most give closer to 70 percent, so that means you would get $70,000 of coverage for your furniture, electronics, appliances, clothing and everything else inside.”

But if you have expensive items such as jewelry, artwork, coin collections and more, you will probably need to buy an endorsement, floater or rider – as they are called. They are extra protection that will give coverage for items of higher value such as heirlooms, artwork and more.

“Floaters are usually charged by the percentage of the value of the item. It also depends on the item itself, and where it is kept,” says Jeanne Salvatore, senior vice president of public affairs and consumer spokesperson for the Insurance Information Institute (III) in New York City. “A ring that you wear every day on your finger will cost more to ensure that on that you keep in a safety deposit box.”

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Sometimes, it’s all about common sense.

Salvatore also adds that when you get home insurance, you automatically get about $100,000 or more in liability protection. It is a homeowner’s responsibility if something happens such as someone falls on your icy sidewalks and breaks a hip.

Umbrella policies are available to give you more liability coverage in excess of the limits in your property insurance policy, Hackett says. You can get coverage of $1 million to $5 million in case you are sued, and all your assets are at risk.

Regular home policies do not cover flood or earthquake disasters.

You can go to floodsmart.gov and put in the address of your new home. The risk of your home flooding is stated (such as low to moderate risk or high risk), and then the estimated cost of getting flood insurance is also given. Floor insurance is bought through the National Flood Insurance Program administered by the Federal Emergency Management Agency (FEMA). Some private insurance companies also offer flood policies.

“If you are in a flood zone and you have a federally-backed mortgage, you will be required to have flood insurance for your home,” Hackett says.

A way to find out if your home has ever been flooded before – even if it isn’t in a flood zone – is to order a C.L.U.E. report. That stands for Comprehensive Loss Underwriting Exchange, says Hackett.

“It shows when an insurer reports a loss on the property. It shows what claims were made in the past such as if there were water damage losses listed. That could be a red flag to dig a little deeper,” he says.

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According to the Wisconsin Office of the Commissioner of Insurance, C.L.U.E. reports can be accessed only by the owner of a home, the insurer or lender for the property. However, you can request the current owner of the property to order the report for you.

For earthquakes, you need to talk with your insurance agent about the cost and the risks. Most private insurance carriers do offer it, says Salvatore. If you are in California, you can purchase it from the California Earthquake Authority.

Your home owner’s insurance policy will also cover additional living expenses if your home becomes uninhabitable from a covered loss. For instance, if there has been a fire inside the home and you can’t live there until repairs are made, the insurance company will give you money to live somewhere else. Usually, the coverage amount is about 20 percent of your home insurance coverage, and it only covers just living and eating, says Hackett.

For example, if you had coverage for $100,000, you would get up to $20,000 that would cover about 12 months out of your home if that’s the amount of time you’ll be out of your home, she says. If it’s a shorter time, you’d get percentage per day from that 20 percent.

“It’s just always worth asking questions of your insurance agent,” Hackett says. “If you feel you need more coverage in any area, it usually is available and it’s for a negligible amount.”

Lee Nelson writes for national and regional magazines, websites, and business journals. Her work has appeared in Yahoo! Homes and many Hearst publications such as Life@Home and Women@Work.