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How to Properly Insure Your Home

2012 November 26

Undoubtedly, for many people, one of the most expensive things we own is our homes. Whether we are rich or poor you can’t argue that if you lost your home you would be devastated both emotionally and financially. That’s why making sure your family’s home is properly insured is so critical.

In 2005, my family and I, bought the current house we are living at now. We went through our local rep who we’d gone through for our life and car insurance. By adding our new home into our insurance portfolio through one provider, we were able to capture a “multi-line insurance deduction.” What that mean’t is that because we had more than two types of insurance through them we were able to capture bigger savings. In modern terms, we were bundling our insurance policies through one provider that we trusted. In the end we’ve been able to save BIG BUCKS (about 5-10% monthly) on insurance we already needed. 



As you approach the time to buy a new house and need to purchase home insurance here are a few things to consider:

Deductible

Every year there are about 371,000 (average over the last 5 years) home fires in the US, which is a small fraction of the total number of US home owners. However, that goes without saying that having the proper deductible is important. The question I like to ask myself, when setting my deductible is, “how much can I afford if I lose my home?” Can I afford to pay $1000, 1% of the estimated value out of pocket? What is that amount for you? If you have a large amount in savings you may be able to raise your deductible to weather this storm. Consider what your risk tolerance is for your family, and look at how much each deductible level will cost you.

Guaranteed Replacement Cost Coverage

This policy is designed to cover you 100% if you lose your home. In my mind I think of these policies as if the insurance company would level the ground where my house was before, and wheel in a exact home of what I had before. Plus the replacement of all your internal possessions and your kitchen table would look exactly like it did before the fire. These policies are a rare to find today, but might be an option with your insurer. Ask your insurance agent today if they offer this coverage.

Extended Replacement Coverage

Some insurance companies offer extended coverage, which will cover your home up to 125% of the value. This is a great option as your family home increases in square footage (as you finish out a basement or extra room) or as you increase the number of possessions you’ve accumulated in your home. With this coverage you won’t have to continually list out items that cost greater than $500 replacement costs, and will ensure you can replace these valuable items.

Inflation Guarantee Coverage – Are you fearful that inflation is going to be rampant in the future? Then rest easy with an inflation guaranteed policy that will cover your family if your fears come true. One consideration in this policy though is how the insurance company is measuring inflation. Is is based on Consumer Price Index (CPI), Personal Consumption Expenditures index (PCE), or Producers Price Index (PPI). Regardless of which inflation measurement policy your company chooses make sure you agree with the index they use to measure it, and go with one that most aligns with your measurement of inflation.

As you can see there are a lot of options to consider when chosing how to insure your home. Make sure you’ve properly ensured your most valuable possession. What other things do you consider when choosing your home insurance policy?

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Charlie

An IT professional, Charlie also buys and sells liens, lives on the cheap, runs marathons and helps to run his family farm. In his spare moments, he raises 3 children, does the dishes and writes one post a week. His former blog, Frugal Retirement Plan, has been cited by US News and World Report.

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