An Insurance Education, Part 2: How Much Insurance is Enough?

An Insurance Education, Part 2: How Much Insurance is Enough?

For a homeowner, understanding what to look at when choosing and customizing a policy is vital to getting proper coverage. This is the second article in a four-part series designed to help you get the best policy possible.

This week, we’ll look at how to measure the amount of insurance you buy against the amount you might possibly need, and how your premiums and deductibles can be tweaked for lower out-of-pocket costs if a major storm hits.

Basic Coverage

To start, you should have a clear idea of what it would cost to replace your home and all of your belongings in the event that your house was completely destroyed. This is not typically the same as the market value of your home, but another figure altogether. Building codes may have changed, or the value of the real estate itself may have gone up, which can skew appraised values up or down.

Most insurance agents utilize a home replacement estimator tool to help you determine the replacement cost value of your home.  This is not an exact science, so the majority of insurance companies will allow for a value range based upon the insurance carrier’s estimated value.

Your agent can also help you determine a general valuation for your contents, which has a separate limit than that which applies to your Dwelling (Coverage A). This section of your policy is known as “Coverage C”.

It would be helpful to bring an inventory (or at a minimum, an educated estimate) of your furnishings, electronics, clothing, and anything else that should be considered under your Coverage C limit.  Important to note is that any item not attached to your home should be considered part of your “contents”.

In addition, if you have any jewelry or contents that you would consider “luxury” items, discuss with your agent the possibility of “scheduling” (endorsing) the items onto your existing homeowners policy.

Coverage Limitations

However, once you know the estimated replacement value of your home and belongings, you need to look at separate sections of your insurance policy quotes to see what is covered and what is not. You may need to add one or more endorsements to help provide more coverage for circumstances or items not covered by your base policy.

In addition, your deductibles can affect how much coverage you actually benefit from. If your home is insured for $500,000, and you have a 2% hurricane deductible, the first $10,000 will come out of your own pocket. Paying a higher premium in exchange for a low $500 or $1,000 flat hurricane deductible could save you nearly five figures in case of a severe weather event.

For other areas to compare and contrast between policies, you can use the Olympus coverage checklist. This form will assist you and your agent in evaluating carriers and coverages based upon important key differentiators.

Next week, we’ll look at things to review annually before your insurance policy renewal.

This article is for informational purposes only and does not form a part of, replace, change or amend any terms, conditions, provisions or language within your Olympus Insurance policy. We encourage you to read your entire policy.