Protecting One of Your Largest Assets - Your Home
By John Kunze, Vice President of The Brooks & Stafford Company
The real estate market has been crazy these last two years. Many of the home values in our area have increased 25% or more. The cost of building a new home has seen similar increases. There are many reasons, including a limited supply of homes for sale, lower interest rates, increased cost of building materials, shortage of skilled labor in the building trades, etc.
But, what if there was a terrible loss to my home? Do I have enough insurance? Is my home properly protected? Understanding your insurance policy will help you protect your home in the way that is best for you.
Homeowner’s policies use a Replacement Cost as the basis of coverage and claim valuation. Replacement cost is the cost to repair or replace the damage to your home without any deduction for age or depreciation, not the cost you could sell your home. Make sure your policy is Replacement Cost contract and not an Actual Cash Value policy. Your insurance agent or company should be able to help you determine a fairly accurate estimate of your home’s Replacement Value. Once that is determined, make sure your agent includes a provision that each year changes your Dwelling Limit to coincide with the change in the new building costs – many companies call that “Inflation Guard Protection”.
How do I protect against a huge increase in my home’s valuation during the policy year? So, your Dwelling Limit is correct when you start your policy – but – the cost of labor, materials and fees increases the Replacement Cost by 15% or more before your policy ends. Most companies have available an “Extended Replacement Cost” coverage that will automatically increase the Dwelling Limit, some companies by 10% and others by 25%. A few companies offer Full Replacement Cost coverage that will pay the total cost of the damage even if it is much greater than the Dwelling Limit.
How do I make sure I have the best protection for me?
Meet with an insurance professional to discuss your personal situation, goals, and needs. An insurance policy is a complicated contract and having an experienced partner will help you navigate the differences between one company’s policy and another’s. Not all policies are created equal, and some companies have better terms and conditions than others. An insurance agent can provide you with information and options that best handle your personal situation and help customize the appropriate protection for you and your needs.
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