Is It Time To Update Your Home Insurance Coverage?

Article overview

• Homeowners insurance helps protect your biggest investment by offering financial relief for covered losses and damages, and it is often a requirement for a home loan. It’s crucial to have the right amount of coverage to avoid overpaying or being financially vulnerable in case of a disaster.
• You should review your insurance policy annually or whenever significant life or property changes occur, such as home renovations, acquiring valuable items, starting a home business or installing safety upgrades like security systems, as these can affect your coverage needs and potential discounts.
• Key coverage decisions include choosing between replacement cost and actual cash value, ensuring you have adequate liability insurance to help protect you in case of lawsuits from injuries on your property, and considering an umbrella policy for extra protection beyond standard limits. Consulting with an insurance agent can help you make informed decisions tailored to your specific situation.

For most people, a home is the biggest investment they’ll make. A homeowners insurance policy can be a good way to help protect that investment: It’s there to offer financial relief for covered losses and damage to your property. If you have a home loan from a bank, home insurance is probably a requirement of the mortgage. Even after you’ve paid off your home loan, insurance can help protect you if disaster strikes.

What happens when a homeowner is over- or underinsured?

When someone has more home insurance than they need, they’re probably overpaying for coverage or spending money on the wrong kind of coverage. And when they have too little coverage, they leave themself financially vulnerable to costly events like having to rebuild a structure, replace belongings or even pay for damage to others.

How can I help ensure my coverage hits the sweet spot?

Getting the right kind and amount of coverage requires two things: a review of your personal insurance needs and a clear understanding of how home insurance works. Qualified agents (such as AAA Insurance agents) can help you with both of these. They’ll ask questions about your home and property, and they can explain types of insurance and factors that affect rates to help you get the coverage that makes sense for you. 

When should I review my home insurance?

Throughout your time as a homeowner, there are likely to be changes in your personal life, your finances and even the value of the property that you own. The more significant those changes are, the more likely they will affect your insurance needs.

A yearly check-in with your agent can help verify that your insurance is keeping up with your busy life. It’s also a good idea to touch base with your agent whenever you make significant changes or upgrades to your property.

Here are a few specific things that should prompt an insurance review:

• Making an addition or renovation to your home. Any time you make changes to your home that affect its value (good examples are upgrading your bathroom or kitchen, replacing the roof or installing a swimming pool), you should check to see if the coverage limits for your home insurance need to be updated.
• Acquiring high-dollar items such as watches and jewelry, electronic equipment and any valuable collections—things like art, firearms, musical instruments, silverware or furniture. In some cases, you may want to consider adding an insurance rider (or endorsement) to your homeowners insurance, which will increase your personal property coverage limit to meet the value of those items.
• Working from home. Are you a professional with a home office? Your collection of computers, monitors, routers and other electronics can be covered by a home insurance policy. Check your policy limits, because you may need additional home office insurance; the Insurance Information Institute reports that a typical homeowners policy’s maximum reimbursement for business equipment is $2,500.
• Installing home improvements that reduce risk and make the premises safer. Let your agent know when you upgrade the plumbing or electrical systems, add a smoke detector or security system, or install smart home devices like sensors that can alert you to a water leak. Insurance companies often give discounts to policyholders when they take steps to reduce their chances of having to file a claim. 

How important is liability insurance?

Are visitors prone to injury on your property? Attractive nuisance is the term used to describe something that’s both dangerous and tempting to children. It could refer to:

• Play equipment like jungle gyms, slides, swings and trampolines
• Unattended construction equipment like lumber, sand, ladders and scaffolding
• Pools, hot tubs, ponds or fountains
• Unsecured vehicles

If somebody is hurt on your property and they sue you, liability insurance can help protect your savings, your home and your future earnings.

What’s the difference between replacement cost and actual cash value?

As you customize your coverage, you’ll need to decide whether to insure your home at market value or replacement value. Market value represents what it could sell for in the current real estate market. Replacement value covers the cost of labor, materials and cleanup needed to rebuild your home if it was a total loss. This can be significantly more than market value.

Do I need an umbrella insurance policy?

Instead of raising the liability policy limits of your home insurance, talk to your agent about getting umbrella insurance. A personal umbrella policy (PUP) covers liability claims exceeding coverage limits of your home, auto or even boat policies. $1 million of umbrella coverage could cost as little as $20 per month with AAA Insurance.*

Review your coverage annually

Meet with an experienced, knowledgeable agent to review your home insurance at least once a year. They will help calculate your needs and identify your best choice for coverage. (AAA Insurance agents offer this service with no obligation on your part, no matter which insurance company you’re currently with.) And while the agent may make a recommendation based on the specifics you share about your home, the final decision is always yours to make.