I just called my insurer to review my policy. With storm season predicted to be the worst year ever, I checked for 4 things to make sure my house is sufficiently insured:
Insured value of Dwelling Protection
Replacement Cost Coverage (HO-728)
Home Protector (HO-125) for extra replacement costs
Loss Of Use Protection
I'll go into a bit more detail about why I focused on those things in the review.
Insurance Value of Dwelling Protection. This is based on the description of the property I provided to the insurance company. Square footage, finish & features, materials, # of rooms, bathrooms, etc. Some policyholders fail to update those values based on inflation or any improvements to the property. This alone can leave a homeowner underinsured. The insurance company uses this value as a limit for what they'd spend to rebuild the structure, in lieu of other coverages.
Replacement Cost Coverage (HO-728). This is the insurance policy's commitment to rebuild the home for the full insurance value, even if the rebuild costs more than the dwelling protection value. Rebuild costs tend to spike in the wake of natural disasters.
Home Protector (HO-125). Other insurers may call it "Extended Replacement Cost". I need it because building codes have improved since my house was built 50 years ago, and many items can't be replaced at their old quality (single pane windows, roof shingles, or electrical work, for example) and the homeowner would have to pay for those upgrades. My policy allows for a 25% cost overrun to stay up to code.
Loss of Use Protection. I'll need a place to stay while my home is not occupiable. It covers travel costs too, as I need to visit while the home is being rebuilt.
Research shows home insurance payouts on claims have fallen because policyholders are not keeping their policy up to date. Given skyrocketing premiums, it's understandable but can be a regrettable mistake.
For our clients, we'll review their policy to make sure they have sufficient coverage for storm disasters and many other potential losses. That's the value of a comprehensive financial plan from a CFP®.
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