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Review your home insurance annually

Reviewing your home insurance, whether you own a single-family home, a duplex, a condominium, or a mobile home, or rent your housing, is necessary at least once a year to be sure you're protected in case of disaster. You also want to be sure you've informed your insurance company of any home improvements or major new purchases you've made, so if the time comes to file a claim, you'll get paid the proper amount.

Notify your insurer of these:
  • Structural additions to your home
  • Installation of a pool
  • Purchase of a dog (specific breeds can be trouble; see Home insurance for dog lovers)
  • Installation of central air conditioning
  • Construction of a new garage or storage shed
  • Substantial renovations to your home, including a new roof

Robert Hartwig, chief economist for the Insurance Information Institute, estimates that about two-thirds of policyholders nationwide don't have adequate coverage in their policies. "If you bought your house 10 years ago and haven't updated your policy, during that time the cost of rebuilding may have gone up by as much as 50 percent," he says.

Here's a checklist of things to review.

  • Do you carry actual cash value or replacement cost insurance?
    Actual cash value means you'll get money to replace items in your home minus depreciation for wear and tear and age. If you bought a 35-inch television two years ago, you won't get what it would cost to buy a new one; you'll get whatever your old one is worth now. Replacement value pays you what it would cost to buy a brand new television to replace the one you lost. Consider upgrading to replacement-cost coverage.
  • Will the amount of insurance you have be enough to rebuild your home in today's economy?
    The cost of building materials and labor have increased dramatically in recent years. Some basic insurance policies have a specific dollar limit on what they will pay out, regardless of any increase in value of your home. Other policies automatically adjust the value of your home according to inflation and current markets. Those that are self-adjusting can be more expensive, but may be worth it in the long run since you don't have to update the policy yourself.
  • What are the limits on coverage of the contents of your home?
    Most insurance policies have a dollar limit on how much will be paid out for the entire contents of your home. If you have a collection of antiques or other valuables that exceed the limit, you should add a rider to the policy to cover those additional items.
  • Do you have an inventory list and photographs or a video of your possessions?
    If you have receipts for items you've purchased, put them in a safe deposit box at the bank. If not, or in addition to those, take photos or a video of the contents of your home. By storing all of these in a separate and secure location, you can provide the insurance company with information on what needs to be replaced.
  • Does your home insurance provide reimbursement for living expenses while you wait for your home to be repaired or reconstructed?
    Not all insurance policies cover this, and many that do have low limits on how much an insurer will pay. Read your policy and, if you want to add this coverage or increase the benefit, contact your agent or insurance company.
  • If you rent your housing, do you have renters insurance?
    The landlord's insurance will cover the structure, but it won't protect your possessions inside your home. Could you afford to lose all your furniture, clothes, TV, and other personal possessions? Renters insurance is a necessity if you want to be able to replace the contents of your home in case of a disaster.
  • If you live in coastal areas where hurricanes can cause flooding, do you have flood insurance?
    Even if you don't live in a flood plain where flood insurance is required, you may want to consider flood insurance if you live along the coast. Flood insurance is usually available through your home insurance company but the policy is provided by the Federal Flood Insurance Program. You can get replacement-cost coverage for the structure of your home, but only actual cash value coverage is available for your possessions. If you don't have this yet, now is the time to get your application in, because the policy takes 30 days to take effect. Hearing a flood warning on the 11 o'clock news isn't the time to apply.
  • If you've made improvements to your home and haven't reported them to your insurance company, can you still expect coverage of them?
    If you've added a garage, or a pool, and failed to tell your insurer, don't expect them to be covered. Any external structures or additions to your home that will increase its value need to be reported. Otherwise, don't expect to get reimbursed for the increase in value.
  • Are your liability limits high enough?
    If someone is injured on your property, regardless of who is at fault, the liability portion of your insurance will pay for injuries. However, liability coverage does have limits. Make sure yours is high enough to protect your personal assets in case of a lawsuit. Your home insurance should keep you from losing your shirt and your home.

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