California home and business insurance providers stopped selling new policies this week. Inflation was one explanation. Is my home insured?
Homeownership brings pride and obligations, whether you own a townhome, condo, or single-family house. Home insurance is bought because nobody wants to buy their home twice.
Home insurance plans are developed by each insurance firm and approved by the state, unlike automobile insurance, which the state mandates. Thus, house insurance comparisons are difficult.
Home insurance plans use HO-1, HO-2, HO-3, and HO-5 types. The insurance industry knows that all HO-5 plans cover more than HO-1 policies. Ask an insurance agent about their form policies to compare plans.
Form HO-5 offers industry-leading coverage. Endorsements complicate policy comparisons. Insurance company endorsements can expand or limit coverage.
Some insurance firms add endorsements to their HO-5 policy because the market wants extra coverage. Other firms add endorsements to reduce coverage because the HO-5 insurance gives too much.
Jewelry theft endorsements restrict coverage
Since dwelling coverage covers your most valuable asset, choosing the right amount is the first step to home insurance. Most individuals mistake “market value” and “replacement cost.”
A buyer would pay market value for your home today. Replacement cost is the cost to rebuild your home in its current location. These terms assist establish housing coverage.
Insuring your home for replacement cost will help you go back to normal. Most plans have coinsurance clauses that punish underinsured homeowners at claim time, resulting in higher replacement costs.
Most insurance companies provide house replacement cost calculators. Your insurance company and you must agree on your home’s coverage beforehand.
Keep your replacement cost current. Ask whether your home insurance covers inflation. Ask how. Companies utilize construction indexes or basic interest rates. If your insurance does not keep up with inflation after 20 years without a claim, you may be unhappy with your payout.
Older properties may have greater replacement costs than market values due to age or location. Because the first contractor dropped the price to sell, even recently built homes might cost more to rebuild. Some contractors don’t discount when they know you’re rebuilding.
Finally, your mortgage may dictate housing coverage. Your lender will want housing coverage equal to your loan. However, your loan may include your home’s land or location, which may conflict with your lender’s replacement cost requirements. Talk to your lender and insurance agent if you’re worried about overinsuring your home.
Home insurance is second only to insuring your income. I’ll keep discussing all house insurance coverages.
