Take action-Protect your assets!
INSURANCE. We frequently deal with this for our health and auto policies, but with homeowners insurance it’s so easy to “set it and forget it” for years at a time. It is typically lumped in with our mortgage payment instead of paid separately, so extra easy to overlook the nuances of our policies.
For many reasons, this is a dangerous oversight. Home and construction prices have increased 20%+ just over the past three years alone. This means that your home values and respective coverages may be severely outdated if you have not made any changes to your policy since you purchased your home.
This blog post is especially important to me now as our family recently endured the unthinkable—our home burned down from a freak accident in May and we are facing the worst case scenario in insurance terms. Thankfully all people are okay but we lost our lifetime of possessions-many of which held extreme sentimental value from our children-along with three of our precious pets. There are so many unfamiliar decisions that need to be made in the aftermath of such a tragedy, and these are especially stressful when coupled with the emotional turmoil and overwhelm. I will have much more to say on the subject as time passes, but for today I want to share three important action items I would love for you all to take TODAY.
Action Item One: Log into your insurance records and do an audit of your coverage. Policies typically have options for “Replacement Cost” or “Actual Cash Value”. Make sure you secure Replacement Cost coverage!
Insurance.com defines these terms here:
Actual cash value (ACV):
An actual cash value policy takes deprecation into account when calculating your payout. Depreciation can make a huge difference on a large claim.
While every insurance company has a different formula for calculating depreciation, a standard method is to determine a product’s expected lifespan and subtract a certain percentage for each year since it was purchased.
As an example, if your roof was 15 years old at the time of the claim and it had a 20-year lifespan, you will be covering most of a new roof’s cost.
The same goes for your possessions, although this falls under the personal property coverage and not the dwelling coverage.
Replacement cost coverage:
A policy with replacement cost coverage will cover rebuilding costs, regardless of depreciation, up to the policy's limits.
For example, if a fire destroyed your home and possessions, your homeowners insurance policy would pay to rebuild your house at current market prices, even though rebuilding costs have probably risen over the years.
The same goes for your possessions. If you had upgraded your homeowners insurance policy to replacement value on your personal possessions, you would be getting a TV of similar size and quality, regardless of the cost.
While most standard homeowners policies cover your home’s physical structure at replacement value, many assign actual cash value coverage to your personal property. You need to add replacement cost endorsement on personal property to make sure it’s covered that way.
In our situation, we have replacement cost coverage, but specified the fair market value of our home to determine the coverage limits-we now know we didn’t dig into that decision like we should have. In hindsight this number is fairly accurate for what our home would have sold for, but NOT what it will actually cost to rebuild the same square footage at TODAY’s prices. From consultations we’ve had with builders, this will be $250/sf at the very low end. So using a 3000 square foot as an example, this would mean needing coverage maximums of at least $750,000!
If you’re not sure if your suggested coverage is accurate, please make sure you as extensive questions of your agent, or hire an independent appraiser—the peace of mind is likely worth their fee!
Action Item Two: Home inventory
Take the time today to walk around each room of your house and take videos of the overall space and photos of the contents of drawers/cupboards/closets/etc. Create a folder in your phone so these photos are easily accessible and organized, and also easy to update whenever you make new purchases or changes to your home. In order to be compensated, you will need to document EVERY SINGLE item in your home and without tools to jog your memory, this adds to the extremely daunting process.
It is also useful to request email receipts whenever you go shopping because these will be easy to search and retrieve if you ever need documentation in the future.
Action Item Three: Additional Living Expenses
During your policy audit, you need to make sure you have a clause that stipulates coverage for Additional Living Expenses that are incurred due to a catastrophic loss. This will ensure that you have coverage for hotels/apartments/rental homes for long periods of time that you may be displaced from your primary residence. Read this article for what is often included in this, and also calculate the typical rent in your area for a home similar in size/age/quality to yours to make sure you are covered for this amount for up to 24 months.
I know I will have so much more to say on this whole topic as we go through the process and I am committed to being extremely transparent about our experience so we can help others however possible. Be on the lookout for more updates soon! No questions are off limits and I am never too busy to chat, so please feel free to call or message me anytime. Stay safe out there and call your insurance provider today!! I have some great local agents you can call if you’d like to speak with a trusted, local, real-life person :)
