Home insurance — you should review your policy every year

Every year, the Insurance Information Institute undertakes surveys of those holding the different types of insurance policy. Think of it as taking the pulse of the patient to see how healthy he or she is. In the case of home insurance, there are two consistent findings about what people believe. The first is the amount of cover is tied to the resale value of the property. The second is that it’s always better to renew with the same insurer — people believe they will earn a loyalty bonus or discounts. In fact, both are unlikely to be true. The actual basis of the cover is the cost of rebuilding and of replacing the contents. If you take the last three years since the housing bubble burst, resale values have dropped like a stone, but rebuilding costs have gone up. It’s a problem caused by the rising cost of materials and the desire of those who work in the industry to pay their own bills. As to the contents, it’s the reverse problem. Although some collectibles have held their value despite the recession, most secondhand values have fallen. A large number of homes have been foreclosed and there’s a surplus of furniture and basic household necessities available. Hence, the prices have fallen.

So you really should check the rebuilding costs every year. Should the worst happen and you find you are underinsured, you are personally responsible for filling the gap. If you have a mortgage and you cannot cover the cost of rebuilding, you may find you lose your home in the legal sense and end up with a big personal debt. Get two estimates from reliable local builders. Ensure they actually visit and inspect. Older homes or homes where you have upgraded are often more expensive to recreate than you might imagine. As to contents, there are times when there’s some churn, i.e. you actually throw out old stuff and buy new. It’s not an Ali Baba Cave that just keeps filling up with valuables. Walk through the rooms every year and check a master list to see how much change there’s been.

Finally, think about the liability part of the policy. Keep your eye on local media reports of awards of damages. If you have a limit on the amount, think about whether to increase it if courts start getting more generous.

Home insurance — you should review your policy every year

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Home insurance — you should review your policy every year