When it comes to financial planning, drab subjects such as home insurance are at an innate disadvantage. It's so much more fun to read about mutual funds and IRAs, while dreaming of early retirement and Caribbean beaches. Unfortunately, putting money toward those dreams has to wait until the rest of your financial house is in order. That means tending to the unglamorous business of drawing up a budget, setting aside emergency funds and attending to your insurance needs. With homeowner's coverage, for example, there are five important elements to consider.
The worst-case scenario for a homeowner's policy is the outright replacement of your house. Buy coverage that specifies replacement cost, not the current market value of your home at the time of the claim. Market values bear little relationship to local contractors' rates, and replacing your house is painful enough without surprises. After a major disaster the cost of labor and materials can skyrocket, so ask for guaranteed replacement cost coverage. That makes allowance for cost increases, so you won't be on the hook for any difference.
Building a shiny new replacement house and having nothing to fill it with is no fun, either. Most companies offer standard coverage amounting to 50 to 75 percent of the value of your belongings. It's possible to upgrade this in most cases to provide replacement cost, rather than the depreciated value, of your possessions. It increases your premiums, but you can counter that by choosing a higher deductible. If you own high-value items such as jewelry, antiques, collectibles, furs or firearms, consider purchasing a rider to cover them specifically.
Liability coverage is a fundamental part of homeowner's coverage. It protects you in the event someone is injured on your property and brings suit against you in search of damages. It also covers situations such as your dog biting someone, or your tree blowing over and wrecking a neighbor's house. There's no hard and fast rule about how much liability coverage you need, but a good indicator is recent lawsuits in your area. If judges are routinely awarding $1 million in damages, you need that much or more.
There's a reason "one size fits all" is often joked about as one of the world's great lies. It's certainly true with insurance. No two families or houses are completely alike, so the policies should be different as well. Add on the options that make sense for you. For example, if your parents have a guest cottage on their property and lots of storage space, "displacement coverage" -- temporary living costs -- won't be your priority. If you live in an area where floods, hurricanes or earthquakes are common, you might need to add that coverage separately.
One important element of your homeowner's coverage often gets overlooked as you sift through the bewildering range of prices, options and features. The company itself is as important as any of the policy's provisions. Research the companies you get quotes from, before you make a purchasing decision. Look for financially sound companies, with strong marks from ratings agencies. Check your state's insurance or consumer affairs department to investigate the claims history of various companies, and the frequency of complaints against them. Saving $5 a month on your premium is nice, but not if it means your claim gets slow or shoddy handling.
Fred Decker is a trained chef and certified food-safety trainer. Decker wrote for the Saint John, New Brunswick Telegraph-Journal, and has been published in Canada's Hospitality and Foodservice magazine. He's held positions selling computers, insurance and mutual funds, and was educated at Memorial University of Newfoundland and the Northern Alberta Institute of Technology.