Smart Insurance Tips for Homeowners

Take time periodically to review your homeowners insurance policy. Here are some items to consider:

The adequacy of your policy's limits. Investigate how much it would cost to replace your home and make sure your policy limits will cover that amount. Try to obtain guaranteed replacement-cost coverage, which involves the insurance company rebuilding your home even if the cost exceeds the policy limits.

Be aware, however, that some companies no longer offer this coverage and even those that do define "guaranteed replacement cost" in different ways. However, that doesn't mean you need to insure your property for its full market value. Even if your home is totally destroyed, you won't have to replace the land.

Some companies will rebuild a home no matter what the cost, while others cap their coverage based on a certain percentage of the policy's face value. Make sure your policy has an inflation endorsement that increases your coverage annually to take into account increases in construction costs.

Coverage for special risks. Basic policies protect you from fire, smoke, windstorms, vandalism, and lightning. The most comprehensive policies cover every peril except those specifically excluded, typically floods, earthquakes, war, and nuclear accidents. If you live near a flood plain or earthquake area, obtain specific coverage for these perils.

Other items covered by your policy. Your homeowners policy also typically covers personal property, other structures on the property, landscaping, loss of use when your property is destroyed, and personal liability coverage.

Carefully review the limits for all of these items, since you can generally add endorsements if you need additional coverage. Typical policies cover personal property for a maximum of 50 percent of the coverage on the home, usually paying actual cash value, which deducts depreciation from the amount paid.

Try to obtain a replacement-cost endorsement, which pays to replace your property and typically raises the limit to 70 percent of your home's coverage. Pay special attention to the limits on items like jewelry, antiques, collectibles, and works of art.

Finally, check your insurance company's ratings to make sure it is financially strong.