The Home Insurance Mistake You May Be Making

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Policy Supplements

In addition, there are supplements to those policies that you can use to customize your coverage:

  • Building Code Upgrade Insurance. When older buildings require major repairs or reconstruction, whatever's out of date will need to be brought up to the latest code standards. As a supplement to your basic policy, this upgrade will help with those costs.
  • Inflation Guard Endorsements. The value of your property, as well as the costs of construction supplies and labor, will most likely continue spiraling upward. This policy provides a buffer for those costs. "The insurer automatically raises the amount of insurance according to a formula that takes into account a variety of indexes that track inflation," explains Tim Wagner, director of insurance for the state of Nebraska.

The key to getting the coverage level you need is to select the right coverage amount. Homeowners often assume that since they were able to get a mortgage on their homes, their current protection is adequate, but that's not true. Some homeowners are covered only for the amount their home cost them to buy, not the total price of reconstruction. To get a more accurate idea of what it would cost to rebuild your home with the same materials inside and out, your best bet is not necessarily an insurance assessor or a real estate agent but local home contractors and builders, who will be able to assess more accurately the cost of rebuilding (which is often not the same as market value). To get a ballpark figure, call several nearby companies in the industry and ask for the price of construction per square foot.

After you've decided on your best policy choices, shop around. Even within a city, policies, coverage and prices vary widely. Independent insurance brokers, who work with multiple agencies, may be able to handle much of your preliminary legwork, and their commissions are usually paid for by the insurance companies.

Finally, once you've gotten the coverage you want, review it regularly. The details of policies can change from year to year, so be sure to read the updates from your insurance company. "When you get your renewal notice, do a side-by-side comparison," recommends Jim Hurley, director of public information for the Texas Department of Insurance. And be sure to factor in any home improvements you have made. If that new deck or renovated bathroom hasn't been reported, it won't be rebuilt.


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