Check Up on Your Homeowners Insurance

Home prices in my area have bounced around a lot over the past few years. How do I know if I still have the right amount of homeowners insurance?

The amount of homeowners insurance you need is based on the cost to rebuild your house, not the market value. Even if housing values in your area have gone down, the cost of building materials may have increased, which would boost the replacement cost of your home. You can use the building-cost database that insurers use to estimate the replacement cost of your home at www.accucoverage.com (you’ll pay $7.95 for the service). The site asks about the size of the house, the building materials and other details. Or you can work with an agent or insurer to estimate the amount. Be specific about any upgrades to your house, including high-end materials you would like to be able to replace if the home were damaged.

Also be sure you’ve filled common gaps in coverage. For example, most homeowners insurance policies don’t automatically cover sewage backup, which can cause expensive damages if water or sewage backs up into your house. But you can generally get a rider that covers $10,000 to $20,000 in sewage backup damages for $50 to $75 per year.

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Flooding is not covered by homeowners policies, but you can get coverage through the federal government’s National Flood Insurance Program. Go to www.floodsmart.gov to look up your home’s risk of flooding and get price quotes.

Check the possessions coverage. Most homeowners policies limit coverage for possessions to no more than 75% of your dwelling coverage. For example, if you have a policy that provides $200,000 in coverage for your home, you’d have up to $150,000 in coverage for all of your possessions. But the policy may limit the coverage for certain categories of possessions, such as jewelry and antiques. If you have any valuable jewelry, artwork, antiques or other collectibles, you may want to buy special coverage to insure the items for their appraised value. This special coverage, called an endorsement or rider, also provides coverage for breakage, mysterious disappearance and theft from a location other than your home. Get the items reappraised every few years to make sure your coverage keeps up with their value.

And don’t skimp on liability coverage, which will protect your finances from lawsuits if, for example, someone gets hurt while visiting your home. It’s a good idea to have at least $300,000 to $500,000 in liability coverage, and you can buy an umbrella policy that adds an extra $1 million in coverage on top of both your home and auto insurance for about $200 to $400 per year. See How to Add a Personal Liability Umbrella Policy for more information.

To pay for the extra coverage, consider boosting your homeowners insurance deductible from $250 or $500 to $1,000 or more, which could reduce your premiums by up to 20% and prevent you from filing small claims that could lead to a rate increase or cost you a claims-free discount.