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Make Sure You’re Not Under-Insured!

With spring right around the corner, you may be about to embark on a remodeling project; so now is a good time to review your home insurance policy. You’ll want to have adequate replacement coverage for any improvements you’re adding – both during and after the period of construction. Even if spring doesn’t bring a new addition to your dwelling, an annual review of your home’s coverage is in order.

Most homeowner’s policies are based on replacement cost coverage. As you make improvements or additions to your home to fit your tastes and lifestyle, these enhancements may significantly increase the replacement cost of your home. Replacement cost is the amount it would be to rebuild your home at current market prices. Bring your insurance agent into the loop early on in the planning process in order to best understand the changes to your policy that a project will necessitate, and notify them as soon as your project is completed. According to one recent study, 60% of homeowners who completed major changes to their homes did not update their homeowners’ insurance policies.

Each year, your home’s insurance policy should be reviewed with your agent. If your house were totally destroyed, it could mean being unable to pay for complete reconstruction if you were under-insured. Understand that reconstruction cost is not the same as market value or what you paid for your home. And reconstruction cost changes over time, typically increasing year by year.

An annual assessment of your policy comparing the value of your policy against rising building costs should include checking the latest building codes in your community. If your home were severely damaged, you may have to rebuild it to comply with the new standards requiring a change in design or building materials.

As an example, rebuilding a home after a devastating fire (or flood) will cost you considerably more than planning on building a brand new home. There will be “destruction” costs which will include tearing down what is left of the structure and hauling away all of the debris. In addition, the excellent contractor that you would want to hire to rebuild your home is most likely busy and in order not to have to wait for his availability, you will pay full retail rather than having the time to “shop” for the best value in materials and features.

Your home is probably the single largest investment you’ll ever make. By adequately insuring your home, you are protecting your investment and your equity. You will also be sure that your family is protected in the event of a disaster.