If an unexpected storm blew through your home today, would you be covered for the damages? Or would you need to tap into your emergency fund?
Severe weather events seem to be on the rise. This year, we’ve had wildfires in Colorado, Northern California, Hurricane Laura in the southeast, and the derecho wind storm in Iowa…and that was just in August. Coloradans may feel safe in comparison, but natural disasters can happen no matter where you live. The Denver area is home to plenty of weather extremes, where residents may experience tornados, hail, or the occasional blizzard.
That’s why homeowner’s insurance is a key piece of your overall financial preparedness. If you’re buying a new policy, here are some things to double-check for. If you already have a homeowner's insurance policy, go back and review the details to see if you missed anything.
Homeowners Insurance Basics - Types and What’s Covered, etc.
Homeowners insurance protects you financially in the event of damage or theft. Although homeowner’s insurance isn’t required by law, most mortgage lenders require you to have home coverage throughout the duration of your mortgage term. Plus, homeowner’s insurance can protect you from ruinous financial loss in case of emergencies like fire, hurricanes, or floods.
Exact coverage will vary depending on your plan. Typically you pay a monthly or annual premium and get some combination of these basic protections:
- Dwelling - Also called hazard insurance, this covers the structure of your home (walls, foundation, etc.)
- Other structures - Protects other structures on the property like a detached garage or fence
- Personal property - Covers just the personal belongings in the property
- Loss-of-use - Pays the cost of a hotel if your home is too damaged to live in
- Personal liability coverage - Covers legal expenses if you’re sued because of an accident in your home
- Medical payments coverage - Protection for medical bills if someone gets injured on your property or by your pet
While most standard home insurance policies include these basic types of coverage, not all home insurance is alike. Read your plan thoroughly (and ask questions) to understand your specific plan terms.
There are also add ons you can purchase for added financial protection and peace of mind, such as:
- For valuables that may exceed the plan limit (electronics, jewelry, etc.)
- For the type(s) of disaster most common in your area
- Home warranties or service plans for systems in your home like electrical, HVAC, etc.
Consider What Extra Home Insurance Coverage You May Need
What’s Actually Covered on Your Plan?
Homeowners insurance doesn’t cover all types of natural disasters. Many plans cover damage due to fire, smoke, theft, and severe weather like lightning or hail. But you may need additional coverage for other disasters such as earthquakes and floods.
How Much (and How) Will You Be Reimbursed
A key indicator of how much you’ll be reimbursed for a claim is “will the insurer pay "actual cash value" or "replacement cost?"
- Actual Cash Value pays you the value of the home minus depreciation. This can leave you at a disadvantage when you have to buy materials at “new” (not depreciated) prices.
- Replacement Cost Value provides payment for what it would cost to rebuild or repair today. The payout is higher, and so are the premiums.
Generally speaking, Replacement Cost Value is the best bet, if you can afford the higher premiums. It's also the default option for many plans.
Consider Where You Live
Buying supplementary coverage against natural disasters and other perils is a bit of a gamble. You hope you’ll never have to use them, but you don’t want to be caught without them. We recommend checking to see exactly what your home insurance plan covers, and then consider buying separate policies to cover the likeliest threats in your area.
Consider where you live. The cost of homeowner’s insurance in Colorado is a bit higher than the national average, due to extreme weather risks like snow damage. On the plus side, it’s an excellent setting for active retirees. Whereas, people with homes in coastal areas get to enjoy the beach but may need to purchase special coverage for “beach and windstorm” damage.
For general information about homeowners and insurance and quotes, go to Policygenius.com.
It might not be the most fun part of financial planning, but protecting your home now can save you stress and money in the long run…Learn about the 7 things you must do before you retire with this guide: 2020 Essential Retirement Guide