Every year take the time to ask yourself this basic question: How much homeowners insurance do I need?

The answer is that you need enough insurance to cover the following:

1. The structure of your home.
2. Your personal possessions.
3. The cost of additional living expenses if your home is damaged and you have to live elsewhere during repairs. 
4. Your liability to others.

The structure You need enough insurance to cover the cost of rebuilding your home at current construction costs. Do not include the cost of the land. And do not base your rebuilding costs on the price you paid for your home. The cost of rebuilding could be more or less than the price you paid or could sell it for today.

Some banks require you to buy homeowners insurance to cover the amount of your mortgage. If the limit of your insurance policy is based on your mortgage, make sure it is enough to cover the cost of rebuilding. (If your mortgage is paid off, do not cancel your homeowners policy—it is the best way to protects your investment in your home.)

For a quick estimate of the amount of insurance you need, multiply the total square footage of your home by local building costs per square foot. To find out construction costs in your community, call your local real estate agent, builders association or insurance agent.

Factors that will determine the cost of rebuilding your home:

• Local construction costs
• The square footage of the structure
• The type of exterior wall construction–frame, masonry (brick or stone) or veneer
• The style of the house (ranch, colonial)
• The number of bathrooms and other rooms
• The type of roof and materials used
• Other structures on the premises such as garages, sheds
• Fireplaces, exterior trim and other special features like arched windows
• Whether the house, or parts of it like the kitchen, was custom built
• Improvements to your home, such as adding a second bathroom, enlarging the kitchen or other additions that have added value to your home

Standard homeowners policies provide coverage for disasters such as damage due to fire, lightning, hail, explosions and theft. They do not cover floods, earthquakes or damage caused by lack of routine maintenance.

Flood insurance is available from the National Flood Insurance Program (NFIP) and from some private insurers. Earthquake coverage is available from private insurance companies or, in California, also through the California Earthquake Authority.

Replacement cost policies Most policies cover replacement cost for damage to the structure. A replacement cost policy pays for the repair or replacement of damaged property with materials of similar kind and quality. There is no deduction for depreciation—the decrease in value due to age, wear and tear, and other factors.

If you purchase a flood insurance policy, coverage for the structure is available on a replacement cost basis.

Guaranteed or extended replacement cost coverage After a major hurricane or a tornado, building materials and construction workers are often in great demand. This can push rebuilding costs above homeowners policy limits, leaving you without enough money to cover the bill. To protect against such a situation, you can buy a policy that pays more than the policy limits.

An extended replacement cost policy will pay an extra 20 percent or more above the limits, depending on the insurance company. A guaranteed replacement cost policy will pay whatever it costs to rebuild your home as it was before the fire or other disaster.

Building codes Building codes are updated periodically and may have changed significantly since your home was built. If your home is badly damaged, you may be required to rebuild your home to meet new building codes. Generally, homeowners insurance policies (even a guaranteed replacement cost policy) will not pay for the extra expense of rebuilding to code. Many insurance companies offer an Ordinance or Law endorsement that pays a specified amount toward these costs. (An endorsement is a form attached to an insurance policy that changes what the policy covers.)

Inflation guard Consider adding an inflation guard clause to your policy. This automatically adjusts the dwelling limit when you renew your policy to reflect current construction costs in your area.

Older homes If you own an older home, you may have to buy a modified replacement cost policy rather than a standard replacement cost policy. This means that instead of repairing or replacing features typical of older homes, like plaster walls and wooden floors, with similar materials, the policy will pay for repairs using the standard building materials and construction techniques in use today.

Insurance companies differ greatly in how they insure older homes. Some will not insure older homes for the replacement cost because of the expense of recreating special features like wall and ceiling moldings and carvings. Other companies will insure older homes for the replacement cost as long as the dwelling is in good condition.

If you cannot insure your home for the replacement cost or choose not to do so—in some cases, the cost of replacing a large old home is so high that you might not want to replace it with a house of the same size—make sure the limits of the policy are high enough to provide you with a house of acceptable size and quality.

Your personal possessions Most homeowners insurance policies provide coverage for your personal possessions for approximately 50 percent to 70 percent of the amount of insurance you have on the structure or “dwelling” of your home. The limits of the policy typically appear on the Declarations Page under Section I, Coverages, A. Dwelling.

To determine if this is enough coverage, you need to conduct a home inventory. This is a detailed list of everything you own and information related to the cost to replace these items if they were stolen or destroyed by a disaster such as a fire (for more information see How do I take a home inventory and why? and free, web-based home inventory software is available at www.KnowYourStuff.org). Be sure to review you inventory with your agent and if you need more coverage, consider higher limits for your personal possessions.

Replacement Cost or Actual Cash Value You can either insure your belongings for their actual cash value, which pays to replace your home or possessions minus a deduction for depreciation up to the limit of your policy. Or you can opt for replacement cost, which pays the actual cost of replacing your home or possessions (no deduction for depreciation) up to the limit of your policy.

Suppose, for example, a fire destroys a 10-year-old TV set in your living room. If you have a replacement cost policy for the contents of your home, the insurance company will pay to replace the TV set with a new one. If you have an actual cash value policy, it will pay only a percentage of the cost of a new TV set because the TV has been used for 10 years and is worth a lot less than its original cost. Some replacement cost policies actually replace the item and deliver it to you.

Generally, the price of replacement cost coverage is about 10 percent more than that of actual cash value. If you need a flood insurance policy for your belongings, it is only available on an actual cash value basis.

Insuring expensive items with floaters/endorsements There may be limits on how much coverage you get for expensive items such as jewelry, silverware and furs. Generally, there is a limit on jewelry for $1,000 to $2,000. You should ask your agent or look it up in your policy. This information is in Section I, Personal Property, Special Limits of Liability. Insurance companies may also place a limit on what they will pay for computers.

If the limits are too low, consider buying a special personal property floater or an endorsement. These allow you to insure these items individually or as a collection. With floaters and endorsements, there is no deductible. You are charged a premium based on what the item (or collection) is, its dollar value and where you live.

You can determine the value by providing your agent with a recent receipt or getting the item or collection appraised.

Additional living expenses after a disaster Additional living expenses (ALE) is a very important feature of a standard homeowners insurance policy. It pays the additional costs of temporarily living away from your home if you cannot stay in it due to a fire, severe storm or other insured disaster. ALE covers hotel bills, restaurant meals and other living expenses incurred while your home is being rebuilt.

Coverage for additional living expenses differs from company to company. Many policies provide coverage for about 20 percent of the insurance on your house. Some companies will even sell you a policy that provides you with an unlimited amount of loss of use coverage, for a limited amount of time.

If you rent out part of your house, this coverage also reimburses you for the rent that you would have collected from your tenant if your home had not been destroyed.

You should talk to your agent or company to make sure you know exactly how much ALE coverage you have and how long the coverage will be in effect. In most cases, you can increase this coverage for an additional premium.

Liability to others This part of your policy covers you against lawsuits for bodily injury or property damage that you or family members cause to other people. It also pays for damage caused by pets. It pays for both the cost of defending you in court and for any damages a court rules you must pay.

Generally, most homeowners insurance policies provide a minimum of $100,000 worth of liability insurance, but higher amounts are available. Increasingly, it is recommended that homeowners consider purchasing at least $300,000 to $500,000 worth of coverage of liability protection.

Umbrella or Excess Liability Make sure you have enough liability insurance to protect your assets. If you own property and or have investments and savings that are worth more than the liability limits in your policy, you may consider purchasing an excess liability or umbrella policy.

Umbrella or excess liability policies provide extra coverage. They start to pay after you have used up the liability insurance in your underlying homeowners (or auto) policy. An umbrella policy is not part of your homeowners policy. You have to purchase it separately. In addition to providing a higher dollar amount, these policies offer broader coverage. You are covered for libel, slander, and invasion of privacy, which are not covered under standard homeowners or auto policies.

The cost of an umbrella policy depends on how much underlying insurance you have and the kind of risk you represent. The greater the underlying liability coverage, the cheaper the policy. This is because you would be the less likely to need the additional insurance. Most companies will require a minimum of $300,000 in existing liability insurance on your home and your car, if you own one.

“Homeowners policies provide a wide variety of coverages; far more than five or 10 years ago,” said Worters. “That’s why it’s important to review your policy with your insurer annually to make sure you take advantage of all the coverages available to you.”

Insurance services

There are many different types of insurance that people should have. Renters/home-owner’s insurance, auto insurance, health insurance and the list goes on. Carrying insurance isn’t on everyone’s top ten list of things to pay for this month. There are good reasons why you should carry the insurance that is particular to your needs. Insurance is important because the cost of not having it can be much more than you can afford.

Here is a look at the different insurance types and the reasons they are so important:

Auto Insurance Auto insurance is important to carry because, first, it is mandated in most states to have insurance coverage when you are driving a vehicle. You will get into major trouble if you get caught driving without it. The most important reason that you should carry auto insurance is that if you are in an accident and it is your fault, you will have to pay an astronomical amount of money for any damages, including medical costs, out of pocket. Most people can’t afford to do that. It is much easier to carry insurance whether you live in a state that mandates it or not. If you are in a state that mandates it and you get into an accident, the accident will be your fault no matter whose fault it really is. That is because you weren’t supposed to be on the roads at all because you have no insurance. If you hadn’t been on the road, the accident couldn’t have happened.

There is no point in dropping your auto insurance coverage because as per state laws, you are required to keep a minimum amount of insurance coverage. However, if you have a good driving record and have less number of speeding tickets to your credit, you may be in a position to reduce your premium to some extent. Talk to your insurance carrier and make sure you are clear enough to convey the reason for your inability to make auto insurance premium.

Raising your deductibles may have a marked effect on your auto insurance premium. However, don’t raise it too high. Alternatively, you can shop around for a better rate before your insurance policy is due for renewal.

Recession has also given rise to the increase in the number of “intentional accidents”. Barbecuing a Beamer is a very common insurance fraud. Reports suggest that auto insurance policy holders are pushing their cars off cliff. Cars are being intentionally torched. In addition to that the number of claims involving slip-and-fall injuries increased by 60% during the first 3 months of the year. The incidence of intentional torching of vehicles was recorded as 34% and incidence of damage to commercial property was at 76%.Incidents of insurance fraud are on the rise as the number of vehicles set on fire increased to 757 in the first 3 months of 2009. This is in sharp contrast to the number of vehicles set on fire which was 596 a year back during the same period. 

Health Insurance Anyone who has gone to the doctor or hospital and had to pay the bill realizes how important health insurance is. Health insurance can be expensive, but the cost of not having it when you get one small illness is far greater. You can end up with very high hospital bills that you can’t pay off because you didn’t have health insurance. That is why so many people who are uninsured will not go to the doctor when they are sick. Health insurance should be of main interest to everyone because the chances of getting sick are extremely high. One illness can send you into bankruptcy and your credit could be ruined for life.

Homeowners/Renters Insurance If you do not have homeowner’s or renter’s insurance and something happens, such as fire, you will lose all of your belongings along with your home. You will not have enough money to replace the things that you lost. If you are the person whose name is on the lease or mortgage, it is utterly imperative that you carry insurance on your home. This covers the things inside your home as well as outside. In fact, it covers any accidents that happen on your property if you are a homeowner. It will generally even cover your property when it isn’t in the home. For instance, if you go away on vacation and take your laptop computer and someone steals it, you can make a claim with the insurance company to pay for the loss and replace the laptop. Without the insurance, you just lose the property. Renters insurance is fairly cheap and you should seriously consider getting it to cover your property.

There are far too many insurance types to list here. You get the general idea though. It is important to have insurance to cover you needs. Everyone has different needs. For instance, if you are a boat owner, you should have boat insurance. If you don’t have a boat, there wouldn’t be much point in having boat insurance. If you want to make sure that you will have enough money to cover incidents that could happen in your life, you will have to realize the importance of carrying insurance on those basic needs and follow through. 

Consumers are ready to compromise with their safety to save some cash. This holds true not just in case of the auto insurance industry but other areas too. More and more people are shedding their insurance coverage so that it can bring down the cost of insurance premium. And this is undoubtedly helpful but may land you in serious trouble if you don’t have adequate coverage and you are in real need of it. Financial experts are of the opinion that during recession, having adequate coverage is even more important.

Protect What is Important

Insurance is one of those things that you only regret not having AFTER it’s too late. By then, your business or income or even health could be in jeopardy. It can be avoided proactively with policies for your business.

In these tough financial times everyone is looking to cut costs to save money, homeowners to business owners all want to reduce their bills.

Here are some of the insurances you’ll need in your business:

Medical insurance Medical insurance insures your health and pays the hospital if you need medical help. It is helpful for you to have so that you don’t have to borrow against the assets of your business should you find that you or your loved ones have to pay for medical expenses. Determine all the people you’d have to pay for (including immediate and extended family as well as business partners or key employees) and take out medical insurance on them. 

Life insurance. Life insurance insures your life and pays your survivors. Whole life and term are two types and you may consider a combination of both for permanent and temporary expenses. (A permanent expense is your funeral cost; so whole life is appropriate for that while a temporary expense would be your mortgage, which gets paid off eventually, so a term policy would be appropriate for that). 

Key person insurance. Key person insurance insures the life of the major influencers of the business and pays the company if that person passes away. It ensures the survival of the business should anything happen to you. If you plan on passing the business on to your children, for example, this insurance will help to pay for a replacement if you die or become unable to work

Criss-cross insurance. Also called Buy/Sell insurance, it insures the life or work-ability of each partner and pays the other partner if the life or work-ability ceases. This is similar to key person insurance but it is a policy taken out by a partner on the life of the other partner. If one partner dies, the surviving partner may not want to have the deceased partner’s family taking part in the business. Criss-cross insurance allows the surviving partner to buy out the family’s share of the business. 

Disability insurance. This insures the health and work-ability of someone in your business. This is valuable insurance because it pays someone an income if they lose the ability work. 

Liability insurance. Liability insurance insures your business against lawsuits and expenses associated with injury or damage and pay the injured party should those things arise. It is important to have because someone who slips and falls on your freshly mopped floor could conceivably destroy your business with a single lawsuit. 

Asset insurance. Asset insurance is an umbrella term for insurance on your business assets against fire, theft, flood, or other types of disasters. It is important to have to keep your business going even if you lose assets from one of those events.

Increase Your Deductible – The premium cost of your policy is lower with a deductible than without. Check your home owner insurance rate to see if they offer a higher-than-minimum deductible on your coverage. We recommend a deductible of at least $500. If you can afford to raise your deductible to $1,000, you may save as much as 25%. But remember, when filing a claim, you must pay that amount first and your insurance covers the remainder.

Improve Your Home Security – You can usually get discounts of at least 5% for a smoke detector, burglar alarm or dead bolt locks. Most of our companies offer to cut your premium by as much as 15% or 20% if you install a sophisticated sprinkler system and a fire and burglar alarm that rings at the police, fire or other monitoring stations. Please notify us if you add one of these systems to get your discount. 

Updates On Your Home Can Save You $$$ On Insurance – If you own an older home, consider modernizing your heating, plumbing and electrical systems to reduce the risk of fire and water damage. The age of your roof can also affect your premium. 

Don’t Confuse What You Paid For Your House With Rebuilding Costs - The land under your house isn’t at risk from theft, windstorm, fire and the other perils covered in your homeowner’s policy, so we don’t include its value in deciding how much homeowner’s insurance to buy. Notify us if you make upgrades or increase the size of your home so that we can increase your coverage for the improvements.

If you currently have multiple insurance policies with different companies, you should be eligible for a multi-line discount when you consolidate your policies with one company. This is something to also consider if you’ve recently gotten married and your spouse has separate policies for auto insurance, home insurance or life insurance. 

Evaluate Actual Cash Value vs. Replacement Cost - Someone breaks into your home, stealing your stereo, television, camera and some of your other electronic toys. When you submit your claim, you find that your policy pays on the cash value of the property less depreciation. So, now when you go to the store and replace your old stereo system and TV with new ones you’ll be out some cash. This is a perfect example of when paying a bit more for replacement coverage versus the lesser cost cash value coverage may be worth it, especially if you’ve taken inventory of your belongings and realize how much it would take to replace everything you own. 

Talk to your agent- Talking to your insurance agent may result in getting discounts on your insurance without sacrificing your level of coverage.  Help Us Shop Your Insurance – A month before your renewal, you will receive a questionnaire from us. It is important you fill it out and return it to us as soon as possible. We call our renewals on a regular basis and review the questionnaire with you so that we can shop your homeowners to get you the best possible rate. It’s the smart way to ensure that the price you’re paying for your coverage is competitive and meets your current needs.