How do i know i have the right Amount of Homeowners Insurance

How do you know you have the right amount of homeowner’s insurance?

Unfortunately, you won’t know until you need to make a claim. The three main areas you need to look at are:

(1) The type of policy.
There are different types of coverage (see here on pages 4-5). Your lender will often specify what cover is required, usually HO-03. Ho-01 and HO-02 cover is cheaper as they cover fewer risks. HO-15 is the top of the line cover and offers the greatest peace of mind. Think about the additional risks covered under the more comprehensive policies (HO-03 and HO-15) and what you would do (or if you have the resources available to cover them) in the event of the unthinkable;

(2) The amount of insurance
If you paid $300,000 for your home, you don’t necessarily need to have that amount of insurance cover. For most of us, land values are a sizeable chunk of a home’s value. In the event of a total loss, say by fire, the land will be fine. You just need to rebuild your home.

Most insurance providers have on-line calculators to work out how much it costs to build a home in your area and using the same materials. Make sure you allow for demolition and debris removal costs, as well as any professional fees (things like a surveyor, architect and legal costs). If you are unsure, talk to a builder or do some research of your own. You generally need to make sure that you are insured for at least 80 percent of your home’s replacement cost to be considered fully insured. Less than this and you are considered under-insured and you won’t receive the full replacement cost from your insurer; and

(3) The type of insurance
This is deciding between replacement and indemnity (or cash value) cover. Replacement cover is the common basis for homeowner’s insurance nowadays, but it pays to check. Personal property is a different story and the difference is essentially the value of second hand goods (cash value) as opposed to new goods (replacement). Cash value offers cheaper premiums.

To save money, the best advice is to shop around. Mark a date on your calendar and shop around each year to ensure you are getting the best value. When you ask for a homeowner’s insurance quote, apart from making decisions on and checking the three areas above, you need to:

* Read the fine print. The devil is often in the detail, so you want to make sure you are getting what you think you are paying for;

* The amount of the deductible should you need to make a claim. You can save money by having a higher deductible;

* Who is the insurer. Consider their reputation and claim payment history. Should you need to make a claim, you want to feel confident that they are going to pay up; and

* Haggle. Shop around and then give your current insurer a call. All insurers have some wiggle room and they may be willing to do a little extra to keep your business.

These are some of the things that you need to think about when you are trying to work out whether you have the right amount of homeowner’s insurance. By following these few simple steps, you will also have the best chance of getting good value for your money.