Homeowners Insurance – 5 Things to Check in 5 Minutes

Looking over my homeowners insurance policy isn’t something I relish. It’s not that it’s hard, it’s just that it’s one of those checklist kind of tasks you should probably do regularly but hardly ever do. But after reading a Wall Street Journal article this morning about how some insurance companies are switching customers from a standard dollar amount deductible to a percentage of home value, I thought I’d better check mine.

Without rehashing the entire article, the issue was born of the recent hurricanes in the southern U.S. and wind damage in the Northeast. Usually, the deductible on your home insurance is a flat amount, say $1,000. With these changes (and not all insurers are doing this), the deductible is a percentage of the insured home value. Of course, this change is disclosed but buried in the packet people receive each year from the insurer. JLP over at AllFinancialMatters actually read his, though, and caught the fact that he has one of these for wind damage.

So without further ado, here is the list of 5 things to check in your homeowners insurance.

  1. Check your deductibles. Make sure you know what the deductibles are for the various coverages you have. The higher the deductible, the lower your yearly premium. And understand what it means to have a percentage listed instead of a dollar amount.
  2. Make sure you have adequate coverage for the dwelling. It’s important that your coverage increase through the years along with the value of your house. Some insurers (like mine, USAA) do this automatically each years; others do not. Make sure you’d be able to rebuild your home with the amount of coverage you have. I’m not saying you have to be a contractor, but make an educated estimate based on recent new home sales in your area. Also make sure you’re not over-insured. You don’t need insurance on the full price that you’d get if you sold your home. That price includes land, which obviously won’t burn down (unless you live in Centralia, PA).
  3. Check your personal possessions coverage. Is this number enough to replace your stuff? Do you have replacement coverage or actual cash value coverage. The first will fully pay to replace your TV, even if it’s 10 years old. The latter will only give you the $25 it’s worth.
  4. Do you have ‘loss of occupancy’ or similar coverage? In the event you can’t live in the house, will insurance pay to put you up somewhere? For how long? Is there a dollar cap?
  5. Ensure you have appropriate riders. Homeowners insurance covers very little in the way of jewelry and electronics. So it’s likely only a small portion of your engagement ring would be covered, for example.

Do a quick audit of your homeowners insurance. It took me all of five minutes online for ours. And it gave me piece of mind that I’m not one of the people who has a percentage of value deductible.