Whether you are purchasing home insurance for the first time or you are reviewing your current coverage, it is vital you know and understand the value of your property.
If you do not understand the value of your property, you do not know what level of coverage is appropriate.
Limitations are placed on a homeowners’ insurance policy for the amount of coverage you can receive. For higher coverage amounts, you have to pay a higher premium. This is often worth doing in the long run.
To understand the coverage limits contained in your home insurance policy, you must first determine the value of your property. In addition, you must know how coverage and premium amounts are worked out by your insurance company.
Furthermore, select a level of coverage for your home to cover the replacement cost of your property rather than its cash value. This allows you to know you have the finances to replace your home if it is destroyed in a qualifying incident.
It is advisable to hire a professional appraiser. He or she evaluates the value of your property. This is particularly useful if you do not agree with the quote given by your insurer for your home’s worth.
It is expensive to hire an appraiser, but it is worth the expense to make sure you receive the full compensation for any claim you make. To learn more about the level of coverage you need for your home and to find out how insurers determine your premium, check out the following informative guide.
How to Choose Your Level of Coverage
When you buy homeowners’ insurance, your insurance company usually abets you in determining how much coverage you need for your property. It is advisable to buy coverage that is either equal to the full replacement cost of your property or greater than the full replacement cost.
Be aware though: the replacement value of your dwelling is not the same as your home’s market value. This is because a market value includes the price of the land as well as the property.
Your dwelling coverage limits affect the other elements of your coverage, such as personal liability, loss of use, personal possessions, medical payments and other structures. Typically, the other structures on your land like detached garages and tool sheds are limited to 10 percent of your total property coverage limit.
That limit is raised further to 20 percent for a loss of use policy and 50 percent for personal property coverage. Regardless of the coverage amount, you have the opportunity to choose the amount of medical payment and personal liability coverage. These affect your monthly premium rates.
How to Find the Replacement Cost and Value of Your Home
Most insurance companies calculate the replacement value of a property by using a cost estimator formula. Along with factors like the types of coverage options you select, this determines the cost of your homeowners’ insurance policy.
If you do not agree with the value of your home that has been calculated by your insurer, hire a professional appraiser. He or she comes up with an independent valuation. This estimate is then passed on to your insurance company.
Lots of factors are considered during the process of determining your home’s valuation. They include:
- The material and age of your property’s roof.
- The type of flooring in your property.
- The types of exterior features your property has, such as patios, siding and high-end windows.
- Whether fixtures, cabinets and appliances have recently been updated.
- The value of your personal belongings.
If you decide to hire a professional appraiser, he or she inspects your home thoroughly. The appraiser usually takes photographs and video footage to document each aspect. Items and features an appraiser typically inspects include:
- The structural framing and materials used for your property.
- Your property’s foundation and footing.
- The condition of your property’s roof and the materials it is made of.
- Your property’s exterior and interior walls.
- Your property’s plumbing, pipe system, electrical wiring and electrical fixtures.
- The ceiling of your home.
- The interior finishing of your home.
- The cooling and heating equipment inside your home.
Once the appraiser has gathered all the information he or she needs, the appraiser’s next step is to research local market rates. This is the cost for reconstruction and labor. After the appraiser has performed calculations, he or she provides you with an estimate.
How Insurers Determine Your Homeowners Insurance Premium
It is best to shop around to find the best level of coverage you require for the best price. Regardless of the insurer you select, limitations exist as to what kinds of emergencies and incidents a company’s homeowners’ insurance policy cover.
The insurance company you select affects how much you pay for your monthly premium, but many other factors determine this as well.
- The materials your property is constructed from.
- The condition and age of your property.
- The distance from your property to a water source that can be used in case of emergency by the fire department.
- The history of claims for your property and other properties in the immediate local area.
- The perils you select.
- The coverage and deductible you select.
- Your credit history.
Other characteristics of your home make a difference to your premium cost as well. If you have security and safety devices like burglar alarms and smoke detectors, this lowers your monthly premium payments.
If you have a pool, a trampoline or a wood furnace, it typically causes your premium amount to go up.
How to Review Your Homeowner’s Insurance Policy Periodically
Make sure you periodically review your homeowners’ insurance policy. You must ensure your coverage limit does not fall below the cost of replacing your home. If your coverage drops to under 80 percent, your insurance company reduces the amount it pays out on a claim.
This applies if you expand or renovate your property. Furthermore, if you acquire more personal possessions and the value is more than the amount allotted, your policy is amended. Be aware of these things are you review your policy.