How to insure your home and personal belongings

When you insure your home, you are really insuring two distinct things.

• the structure of your home
• your personal belongings

The structure of your home

Three ways to insure the structure of your home:

• REPLACEMENT COST - Insurance that pays the policyholder the cost of replacing the damaged property without deduction for depreciation, but limited to a maximum dollar amount.
• ACTUAL CASH VALUE - Insurance under which the policyholder receives an amount equal to the replacement value of damaged property minus an allowance for depreciation. Unless a homeowners policy specifies that property is covered for its replacement value, the coverage is for actual cash value.

If you have an older home

You should insure your home for the total amount it would cost to rebuild your home if it were destroyed. If you don't have sufficient insurance, your insurance company may only pay a portion of the cost of replacing or repairing damaged items. Here are a couple of tips to help make sure you have enough insurance:

• For a quick estimate of the amount to rebuild your home, multiply the local building costs per square foot by the total square footage of your house. To find out the building rates in your area, consult your local builders association or ask your insurance agent to prepare an estimate to guide you.
• Factors that will determine the cost to rebuild your home:
  • the age of the home
  • local construction costs
  • basements & attics
  • the square footage of the structure
  • the type of exterior wall construction -- frame, masonry(brick or stone) or veneer
  • the style of the house (ranch, colonial)
  • the number of bathrooms, additions, decks, and porches.
  • attached garages, fireplaces, exterior trim and other special features like arched windows.
• Check the value of your insurance policy against rising local building costs each year. Ask your insurance agent or company representative about adding an "INFLATION GUARD CLAUSE" to your policy. This automatically adjusts the dwelling limit by a certain percentage when you renew your policy to reflect current construction costs in your area.
• Check the latest BUILDING CODES in your community. Building codes require structures to be constructed to minimum standards. If your home is severely damaged, you might have to rebuild it to comply with the new standards requiring a change in design or building materials. These changes could cost more. Generally, homeowners insurance policies (even a guaranteed replacement cost policy) won't pay for this extra expense. However, some companies offer an endorsement (ordianance and law/increased cost of construction) that pays a specified amount toward these costs. (An endorsement is a form attached to an insurance policy that changes what the policy covers.)
• Do not insure your home for the market value. The cost of rebuilding your house may be higher (or lower) than the price you paid for it or the price you could sell it for today.
• Some banks require you to buy homeowners insurance to cover the amount of your mortgage. Make sure it's also enough to cover the cost of rebuilding your home.
• Increase the limit of your policy if you make improvements or additions to your house.

Your personal belongings

Two ways to insure your personal belongings:

• REPLACEMENT COST COVERAGE - Insurance that pays the dollar amount needed to replace damaged personal property with items of like kind or quality without deduction for depreciation.
• ACTUAL CASH VALUE - Insurance under which the policyholder receives an amount equal to the replacement value of damaged property minus depreciation. Unless a homeowners policy specifies that property is covered for its replacement value, the coverage is for actual cash value.

Here are a few other things to keep in mind when your are insuring your personal belongings:

• Check the limits on personal items, such as jewelry, silverware, cameras, furs and computer equipment. If the limits are too low, consider buying a special personal property "endorsement" or "floater." An endorsement is an addition to your policy. A floater is a form of insurance that allows you to insure valuable items separately, and insure them while they are away from your home.
• Make an inventory of everything you own in your home and in other buildings on the property, except your car which must be insured separately. Write down the major items you own along with all available information:
  • serial number
  • make and/or model number
  • purchase prices
  • present value
  • date of purchase
• Don't forget to include indoor and outdoor furniture, appliances, stereos, computers and other electronic equipment, hobby materials and recreational equipment, china, linens, silverware and kitchen equipment, jewelry and clothing.
• Take either still or video pictures of these items. Attach receipts to the inventory when available. Store the inventory and visual records away from your home- perhaps in a safe deposit box.

Do you need flood insurance? 

Flooding is not covered by a standard homeowners insurance policy.

To determine if you need flood insurance, ask your insurance professional, mortgage company or neighbors about the flood history in your area. If there is a potential for flooding, you should consider purchasing a policy that covers the structure and your personal belongings. Flood insurance can be purchased from an insurance agent or company under contract with the Federal Insurance Administration (FIA), part of the Federal Emergency Management Agency (FEMA). Flood insurance is only available where the local government has adopted adequate flood plain management regulations under the National Flood Insurance Program (NFIP).