Nobody likes unpleasant surprises. That’s why it’s a good idea to update your home insurance policy at least every two years, or whenever you make a change such as remodeling the kitchen or replacing the furnace or hot water tank in the basement.
“Remodeling projects not only tend to increase the resale value of your home, they increase the cost of rebuilding your home,” says Pam Thornton, an agent and owner at State Farm Insurance.
Even if you haven’t launched any major home improvement projects, you should at least review your policy on a regular basis. “Most people just assume, for example, that their regular homeowner’s policy automatically includes flood damage,” Thornton says. “But as a lot of St. Louisans found out the hard way after the floods last fall, it doesn’t.” Flood damage is covered through the Federal Emergency Management Association. “You have to buy flood insurance directly from FEMA, or get a separate FEMA policy through your insurance agent,” she explains.
Fine jewelry, antiques, art or other costly personal property must be listed to get complete coverage, Thornton adds. “But be sure your policy reflects the current value of your purchase,” she cautions. “If you insured your engagement ring for $1,000 many years ago, that’s what you’ll get if it’s lost or stolen tomorrow, even if it’s worth much more now.”
On the other hand, if your ring cost $6,000 but was appraised and insured at $10,000, “your insurance company will pay you only as much as it costs to replace the ring today,” Thornton explains.
Also, realize that the amount you receive for items that are lost or damaged depends on the type of coverage you buy. “Some policies cover replacement cost, others cover depreciated cost or actual cash value,” she notes. “Clients are often surprised when they expect to get full replacement cost, even though they didn’t choose that type of coverage because it costs more.”
Say, for example, that your 10-year-old roof is destroyed by a hailstorm. “If your policy specifies replacement coverage, you’ll be able to pay for a new roof,” Thornton says. “But a cash value arrangement pays only for the life of the roof, meaning that if your 10-year-old roof is judged to have a 20-year useful life, you’ll be reimbursed for only half its original value.”
Don’t get mad at your insurance agent. “Instead, know what kind of coverage you have,” Thornton urges. “Keep up on what your policy pays for. Amend your policy with riders and endorse your policy with additional coverage, if need be. After the earthquake last April, we got hundreds of calls from people who wanted to know if they had earthquake coverage. The time to ask that question is before there’s an earthquake!”