Once people get their homeowners insurance policy off the ground, they tend to coast on autopilot. Not only do they rarely refer to their policy, but they hope they won't need to. Having insurance brings peace of mind, whereas using insurance usually only happens in stressful times. Therefore many homeowners are glad not to think about their insurance once it starts.
In a time of soaring home values, however, many insurance policies could stand a rethink. In 2018, analytics firm CoreLogic estimated that three of five American homes were underinsured by an average of 20% less than home value. And that was three years ago. Now that home values across America have risen, the gap is wider.
Home value is but one reason to review your homeowners insurance policy. Here are five good reasons in brief.
Your Home Value Rose Significantly
Ideally your coverage is equal to the replacement cost of your home. Should disaster strike and you have to start over, you want the policy to pay for it. Whether you trusted your insurance company's initial estimate of your home's value, or you paid for an assessment from such companies as AccuCoverage ($7.95) or HMFacts ($7), if it has been a few years you might be pleasantly surprised by your home's higher value today. Consider having the home reappraised and upping your coverage to match the true replacement cost.
Check for Enhanced Replacement Coverage, Inflation Guard Coverage
Building materials grew more expensive in the pandemic. Lumber reached an all-time high in May 2021. The retail prices for screws, nuts, and other building hardware rose 31% between November 2019 and November 2020, per the Bureau of Labor Statistics.
These price hikes make rebuilding more expensive. You should check that your policy has coverage to keep pace with higher building costs.
As Ron Hurtibise explained in the South Florida Sun Sentinel, "Enhanced replacement coverage, also known as extended replacement or guaranteed replacement, will pay up to a specified percentage—typically 120 percent to 125 percent—of the stated coverage limit if rebuilding costs are higher than expected. … Inflation guard coverage is usually part of your standard coverage, but sometimes it’s optional. It automatically increases your coverage limit each year to account for normal price increases."
You might get a break on your premiums after installing a monitored alarm system, even if it's only a little door cam.
You Renovated Your Home
Market factors aren't the only mechanism by which home values rise, of course. You might have added a wooden deck, laid attic insulation, or upgraded standard materials in the bathroom and kitchen with premium material, like marble. Call your agent to discuss the new cost of replacing your improved home and its nicer contents.
You Installed a Swimming Pool or Hot Tub
Stay-at-home orders, teleworking, and homeschooling prompted many of us to consider enhancing our yard so we could enjoy ourselves out of the house but not away from home. Some homeowners added recreational and relaxation features to their home, such as a pool or a whirlpool spa.
"Your homeowners policy might not have enough coverage for the risk posed by a pool or spa in terms of the increased cost to replace those items if damaged, as well as the liability that someone could be seriously injured on your property," wrote Robin Jones for Westways, Spring 2021.
You Added Security Equipment
You might get a break on your premiums after installing a monitored alarm system, even if it's only a little door cam. Package theft rose in the pandemic, keeping pace with our more frequent home deliveries, and this compelled homeowners to keep an eye on their doorstep.
"Many insurance companies offer discounts on insurance for homes and apartments with professionally monitored security systems," notes doorbell camera company Ring. "Ring Alarm provides a professional monitoring certificate that you can submit to your insurance company to see if you may qualify for a discount."
Now you know five good reasons to review your homeowners insurance coverage. To avoid falling in the underinsured category, your policy should match the current value of your home and include enhanced coverage for higher-than-expected building costs and inflation. If you have installed a monitored fire or burglar alarm, you might get a discount. Some companies also offer discounts for installing new wiring, a new roof, or plumbing.