It may seem like “50 Shades of Boring,” but your homeowners insurance policy is a must-read. Knowing the ins and outs of your coverage before you need to file a claim is the key to a smooth recovery. An hour of reading is all it takes to join the ranks of the savvy 40 percent!
Note: Homeowners insurance policies vary greatly, so this list is by no means comprehensive. Always seek guidance from your agent before making changes to your coverage!
Check the breakdown. Homeowners insurance consists of three components: structure (the actual house), contents (your stuff) and liability (protection if someone sues you) coverage. Make sure you know how each bucket stacks up, rather than thinking of your policy as a catch-all.
Look for coverage gaps. Did you recently inherit your grandmother’s brooch collection or have you built a tree house in your backyard? These things affect your insurance needs! Cross-check your policy with our list of common things that aren’t covered and adjust as needed.
“Replacement cost” vs. “cash value.” Does your policy insure the contents of your house for “actual cash value” or “replacement cost?” This language is important because “cash value” covers what something is worth today, not what you paid for it originally. It’s best to be covered for replacement costs since an item’s value depreciates, and you’ll ultimately lose money if you’re only reimbursed at its price today.
“All risk” vs. “named peril.” Scan your policy’s language to determine whether your policy is “all risk,” which means you’re covered against a broad range of losses, or “named peril” which outlines a specific list of things you are protected from. In general, “all risk” policies are a safer bet because they’re more inclusive.