DOES YOUR HOMEOWNERS POLICY NEED ITS ANNUAL CHECKUP? Next to your ability to earn an income, your home is the largest asset you have. When was the last time you reviewed your homeowners policy, and what should your biggest concerns be? We sat down with Tim Murphy, a local State Farm broker and agent to chat about policies, property and how to protect your assets. How has the homeowners insurance industry changed in an era defined by technology and instant answers and gratification? Online insurance has really commoditized the insurance business, where folks are just shopping price – not actual benefits, coverage and service. It’s not as simple as cheapest is best; all policies are not created equal. What is the first question a home owner should ask when looking for an insurance carrier? Is the carrier rated an “A” by AM Best? And if it’s not, ask why not. The answer(s) will give you the information you need to either continue down that path with that carrier, or give you reason to look elsewhere. Remember, your home is your largest physical asset, and as such, it should be properly protected. I found the carrier and broker I’d like to work with. How do I know what to insure the home for? This is a great question – and one that often trips folks up because, SURPRISE: It needs to be insured for MORE than its purchase value. One of the best ways to protect yourself is through an increased dwelling coverage endorsement. For example, you pay $250,000 for your home today. It burns down tomorrow. You won’t be able to rebuild your home for that cost because chances are, the builder, all vendors, etc. built the home on a different scale, meaning their costs were lower due to the scale of the jobs they did in the community (they bought multiple lots, awarded bids based on multiple
bids, etc. to get their costs down). Now you’re talking about a one-off build which rarely can be done for the same price.
“Review your homeowners policy every 18 months to 2 years.” Let’s keep going down that road. My home is gone or significantly damaged, and I have to find a long-term, but temporary, solution to my family’s living arrangements. Does every policy cover the full costs of a rental home or temporary lodging? Your policy should contain an adequate amount for Additional Living Expenses (ALE). How will you pay for the additional expenses like home rental, utilities, etc. and you still have to maintain your original mortgage? It’s recommended that at least 30% of your dwelling coverage amount should be ALE. In our example, that’s $75,000 available to you to cover your living expenses while you’re temporarily out of your home. I see that my policy includes Actual Cash Value (ACV) for certain things. The word “cash” is good, right? In this instance, no. ACV is basically the depreciated value of the item(s). So, if you purchased a dining room table for your home 3 years ago at a cost of $1,500, the ACV is FAR less because depreciation is taken into account. Your policy should also be for 100% REPLACEMENT COST for things such as roof and pool cage. We’ve talked about the home itself; now what about my personal property? What exactly constitutes personal property and is it fully covered?