Do you know if you have an adequate amount of home insurance coverage? Your home is one of your most treasured investments, so you want to make sure that you cover it with the best insurance possible, whether you are purchasing your first policy or just haven’t updated your insurance for a while.
Let’s look at some tips for evaluating your homeowners insurance. If you need more help, reach out to your local insurance experts at TSL Insurance Group, and we’ll be happy to assist you with your home insurance.
Understand Replacement Cost Value vs. Actual Cash Value
One of the best ways to make sure you have enough coverage on your home is to find out if you have replacement cost insurance and learn how it differs from Actual Cash Value insurance.
Actual Cash Value [ACV] coverage pays for what your property is worth depending on how its value has decreased over time or on your home’s market value. Replacement Cost Value [RCV] coverage, on the other hand, pays to replace your damaged property based on current repair and replacement costs.
Let’s say your roof sustains damage in a windstorm. If you have ACV coverage, your insurance provider may only pay you an amount equal to the current value of the roof at the time of the loss.
This means that a five-year-old roof won’t get the same amount of coverage as a one-year-old roof due to age and possible wear and tear. You may not be able to use your ACV insurance to pay for the full replacement amount in this situation, because a new roof costs more than an older one.
With RCV insurance, your insurance company will provide you with the amount needed to fully replace your damaged property in today’s dollars—usually after you receive an ACV payment and provide the company with proof of the full replacement amount.
In the example above, you would be able to replace your roof with a brand-new one and have most or all of the repairs covered by your home insurance.
Keep in Mind The 80% Rule for Home Insurance
RCV insurance could be a wonderful option to help protect your home, but it really depends on your needs and preferences. There is also one rule you have to keep in mind regarding home insurance: The 80% Rule.
You must insure your home to at least 80% of its replacement cost in order to have your claims covered in full. If your home is insured for less than this amount, the insurance company will reduce your claim using a calculation based on the amount you did cover the home for. This can be a big problem for homeowners, especially when facing a total loss, as you can’t get the coverage you need to cover your losses.
How can you determine your home’s replacement value to make sure you have enough coverage? Your insurance agent can help.
Insurance companies and agents can use a replacement cost calculator to figure out the amount of dwelling coverage that is needed to rebuild your house in case of a total loss.
Make sure to tell your agent about your home’s square footage, the materials it is made of, and the year it was built to give the clearest picture possible of its value.
You will also want to report any renovations or additions to your home, as these can change the RCV. Keeping your inventory of personal property updated is also important to ensure that your belongings are covered as fully as possible.
Assess Your Home’s Risk Factors
No two homes are exactly the same, so it makes sense that homes have different risk factors. It is important to know what risks your home is most susceptible to so you can find out if they are covered on your home insurance.
Let’s use floods as an example. If you live in a high-risk flood zone, it is important to have flood coverage, which is excluded from your home insurance by default.
You will need to purchase flood insurance for your home in this case to make sure it is fully covered from this particular cause of loss that is one of the most likely in your area.
Other examples of situations where you may have a higher or lower risk of damage include living in an area or house where fire or water damage is more or less likely.
You will need to re-evaluate your insurance coverages and limits to make sure they meet your unique risk factors.
Compare Policy Limits
Once you understand your home’s replacement cost and risk factors, you can compare them to your policy limits. Make sure to also take a look at your endorsements and exclusions, which add or eliminate certain types of coverage that you may or may not need for your home.
You can look at the declarations page to find out what type of coverage you have, at what limits, and on what types of property. You may have RCV on your dwelling and ACV on your belongings, as an example.
Your insurance agent can also help you figure out what type of coverage you have if you don’t understand all of your limits.
One rule of thumb: if you purchased the minimum insurance on your home, you are probably underinsured. You are also probably underinsured if you didn’t meet the 80% Rule mentioned above.
It may feel daunting to request a revised quote for your homeowner’s insurance, but it doesn’t have to be. You can start by simply asking your insurance agent to review your coverage with you to see if there are any gaps you weren’t aware of. You can also ask for new quotes from a few different insurance agencies to make sure you are getting the best deal.
Read also: Homeowners Insurance 101 for New Home Buyers
Don’t get too stressed out about ensuring you have the best coverage because insurance companies can help you figure out what your coverage needs are and how they can be met.
If you aren’t sure where to look for the best home insurance policy options in Lafayette, LA, TSL Insurance Group is what you need. We also have four other convenient locations in Baton Rouge, Lutcher, Franklin, and Abbeville, and have been in business for more than fifty years, helping homeowners like you find the coverage that is right for their homes.
Schedule your free consultation for home insurance today by filling out the form below!