Tool | August 2014
Is Your Home Fully Protected?
Nearly two-thirds of homeowners are underinsured. To make sure you're not one of them, mouse over each of the items in the animated illustration below to learn how to enhance your coverage.
Update Your Liability Coverage
Policies often include a limit of $300,000, but you'd be better off with coverage equal to one or two times your net worth. Purchase an umbrella policy for extra protection of your assets.
Check Your Coverage
Insurance for replacement value of your home's structure is listed under "dwelling limit," or Coverage A, on your policy. Structures not physically attached (such as garages, decks and fences) are listed under Coverage B and are usually insured for about 10% of the dwelling limit.
Account for Living Expenses
Make sure you have enough for rent and other expenses after a total loss (Coverage D, also known as additional expense or loss-of-use coverage). Insurers usually include coverage equal to 20% of your dwelling limit, which expires within 12 to 24 months, even if you haven't hit the max. You need two years' worth of coverage.
Estimate the Cost to Rebuild
You need coverage for full replacement cost, not actual value, of your home and possessions. A building contractor can estimate the cost to rebuild per square foot (often more costly than the cost to build new). Multiply the total square footage of your home (not just living space) by the estimated construction cost. Add at least 15% to 20% to account for future price increases. Or use the calculator at AccuCoverage.com ($7.95 per report).
Do a Home Inventory
Personal property coverage (Coverage C) is usually set at 50% to 75% of the dwelling limit. Use the Insurance Information Institute's free online tool and app at knowyourstuff.org to take an inventory and store it (along with photos) online. You should also print the report and store it in a fireproof safe or bank safe-deposit box.
Insure Your Valuables
Policies usually set limits of $1,000 to $2,500 per category, such as jewelry, silverware, guns, fine art, musical instruments and wine. You can buy riders to increase coverage. Even if your policy's limit is higher--say, $5,000--it may have a lower limit (perhaps $2,000) for any individual item.
Prepare for Disaster
Standard policies typically cover wind damage from hurricanes and windstorms, but not damage from sewer backups, floods or earthquakes.