Making Sure Your Home Is Properly Covered for a Disaster

For many people, their home is their greatest asset, so it is crucial to avoid being underinsured. To protect their investment from disasters, homeowners should update their insurance regularly to include improvements, major purchases and increased rebuilding costs.

Since the end of the Great Recession in June 2009, despite the major drop off in construction activity, construction prices have actually risen significantly. Furthermore, after a disaster, materials and labor may become scare, driving repair and rebuilding costs up even further.

To properly insure your home, it is important to ask your insurance agent or company representative four key questions.

1. Do I have enough insurance to rebuild my home?

Your policy needs to cover the cost of rebuilding your home at current construction costs. Unfortunately, some homeowners simply purchase enough insurance protection to satisfy their mortgage lender. Others confuse the real estate value of their home with what it would cost to rebuild it. Quite simply, you should have enough insurance to rebuild your home in the event that it is completely destroyed. Be sure to consider the following: 

• Replacement Cost  
  Most policies cover replacement cost for damage to the structure. A replacement cost policy pays for the repair or replacement of damaged property with materials of similar kind and quality.
• Extended Replacement Cost  
  This type of policy provides additional insurance coverage of 20 percent or more over the limits in your policy, which can be critical if there is a widespread disaster that pushes up the cost of building materials and labor.
• Inflation Guard  
  This coverage automatically adjusts the rebuilding costs of your home to reflect changes in construction costs. Find out if your policy includes this coverage or if you have to purchase it separately.
• Ordinance or Law coverage  
  If your home is badly damaged, you may be required to rebuild it to meet new (and often stricter) building codes. Ordinance or law coverage pays a specific amount toward these costs.
• Water Back-Up   
  This coverage insures your property for damage from sewer or drain back-up. Most insurers offer it as an add-on to a standard policy.
•  Flood Insurance  
  Standard home insurance policies provide coverage for disasters such as fire, lightning and hurricanes. They do not include coverage for flood (including flooding from a hurricane). Flood insurance is available through the federal government’s National Flood Insurance Program (www.floodsmart.gov), but can be purchased from the same agent or company representative who provides you with your home or renters insurance. Make sure to purchase flood insurance for the structure of your house, as well as for the contents. Excess Flood Protection, which provides higher limits of coverage than the NFIP in the event of catastrophic loss by flooding, is available from some insurers. Keep in mind that there is a 30-day waiting period before the insurance is valid.