5 figures important to your homeowners insurance

An Independent Agent Explains:
This post is part of a series of insurance blogs on Safeco.com showcasing the expertise of independent insurance agents and aimed at helping you understand insurance coverage and other important issues.

You invest a lot in your home, and you spend a lot maintaining and protecting it. If you show your home insurance the same consideration, you can rest easy knowing you have a well thought-out policy in place.

There are several figures that play a role in the insurance you choose for your home and how much you'll pay for it. Here are five:

1. Replacement cost value
   This is the amount for which you insure your home. It's based on what it would take to rebuild your home today. The figure incorporates modern day costs for materials, labor, and even bringing your home up to current code.
   
   Replacement cost value is independent from market value, which is the price your home would fetch on the current real estate market. It does not follow the ups and downs of the market. Thus this figure could be more or less than the market value of your home.
   
   You want to get this figure right. It represents the maximum your carrier will pay toward construction costs if your home is completely destroyed. If the figure is low, you may have to chip in, out of your own pocket, to fully rebuild your home to what it was.


2. Home insurance deductible
   Your deductible is what you'll pay out of your own pocket before any assistance from your carrier kicks in. When you choose a higher deductible, you take on more responsibility for the cost of repairs. Thus your homeowners premium may be lower than if you were to choose a lower-cost deductible.
   
   What you might not realize is that you may have a standard deductible for most incidents, such as fire, theft, and lightning, and another deductible for incidents involving, say, high winds, such as hurricanes. While the standard deductible is typically represented as a dollar figure, such as $1,000, the other is oftentimes represented by a percentage. So, if you experience hurricane damage, as we just did here in Florida with Hurricane Matthew, the deductible you owe could be equal to 2 percent of your replacement cost value.
   
   Knowing your deductible – or deductibles, in some cases – helps you know how much of your own money to set aside for any potential claims. Keep in mind you'll need even more saved up for those incidents that your insurance doesn't cover at all.


3. Value of your personal belongings
   Look around your home. The stuff in your cabinets, on your walls, inside your closets – your home insurance covers much of it under Personal Property Coverage.
   
   The standard homeowners policy sets this coverage at 50 percent of the replacement cost value. So, if your replacement cost value is $300,000, you have $150,000 worth of coverage for your things.
   
   For this to be effective for you, you may want to create an inventory of your belongings and their value. Compare the grand total to your homeowners policy. If your things are worth more than what your policy provides, you may want to increase your coverage. You can also allocate coverage for specific items, such as expensive jewelry or fine art, which may otherwise be subject to policy limits. You'll need a current appraisal of the item.
   
   Also check whether your belongings are covered for replacement cost or actual cost. The former ignores depreciation, so you can most likely replace a destroyed or stolen item with a similar one that's brand new. The latter factors in depreciation, so the replacement item will most likely be used unless you want to cover the cost to upgrade to a brand new model yourself.


4. Homeowners premium
   Your home insurance premium is the sum total you'll pay for your policy after any discounts have been applied. You may receive discounts for owning a newer home, having a security system and insuring your car with the same carrier. Keep in mind you may incur fees on your premium if you choose to make monthly payments as opposed to paying in full at the time you purchase or renew your policy.
   
   Many other things impact your home insurance premium, as well. This includes your deductible, along with the coverage levels you choose and your home's location and unique features.
   
   Knowing your total homeowners premium helps you effectively incorporate your policy into your household budget.


5. Cost of supplemental policies
   It's important to remember that every insurance policy you'll ever buy has exclusions, which are things the policy won't cover. Most homeowners policies do not cover damage resulting from flooding and earthquakes, for example. However, you may be able to purchase a separate policy to cover such incidents. Doing so will obviously increase your overall insurance costs. But, it will also increase your protection.
   
   Knowing which supplemental policies may benefit you, and how much they cost, will help you budget for them more effectively.

The more you know about your home and about how homeowners insurance works, the better you can feel about choosing the right coverage. And, you don't have to do it alone. Your local independent agent is a great resource for helping you determine your replacement cost value and for building a homeowners policy just for you.