You can also save by avoiding out-of-pocket costs arising from coverage that's inadequate to begin with. Almost one in 10 of our subscribers who filed claims found themselves underinsured. That problem is much bigger when a hurricane, tornado, wildfire, or earthquake makes a home a total loss.
Don't make the mistake of assuming that because home prices have collapsed in recent years, you can cut your coverage. Fact is, replacement value, or the cost of labor and materials required to rebuild, is what you need to consider. That's often significantly higher than the market price your home can fetch, and it rises annually, 5 percent last year alone. Consequently, 61 percent of homes in the U.S.--80 million-- are underinsured, according to Marshall & Swift/Boeckh, a Los Angeles company that tracks rebuilding costs for insurers. The average shortfall: 18 percent.
Ask your insurer for a customized estimate of your home's replacement cost, which should take into account its unique features, construction details, age, and any costs of meeting new local building-code requirements. Or run a check on your own, for about $8, at accucoverage.com. You should review your coverage needs every few years.
Even if your coverage level is correct, a standard homeowner's policy still leaves you insufficiently protected. If you want to protect against the surge in material and labor prices that often follows a natural disaster, you'll have to buy an "extended coverage" rider, which adds up to another 30 percent to your replacement-value limit. Most insurers no longer offer the "guaranteed unlimited replacement cost" coverage that we have recommended in the past.
You'll also pay extra for an ordinance or law endorsement rider to pay any extra cost of rebuilding your house in compliance with local building codes. Coverage for a sewer backup is also not included in a standard policy, but you can pay extra for it. You'll need hurricane/wind, hail, flood, and earthquake insurance if you're exposed to those risks.
Coverage for your furniture, electronics, clothing, and other belongings is standard, but if you have expensive furs, jewelry, silverware, or artwork, they're subject to coverage limits. You'll need to purchase a special endorsement or floater to cover their full value.
Liability protection for visitors injured in your home or for damage that you, your children, or your pets cause to others is also standard. Coverage usually starts low, at $100,000; increase it to at least $300,000. The more assets you own, the more advisable it is for you to buy an umbrella or excess-liability policy with coverage of $1 million or more.
Of course, all those add-ons increase your total premium, but you can offset part of the cost by raising your deductible to $500 or $1,000, which reduces the premium. You should have sufficient savings to cover the deductible if your luck runs out--and that includes the higher deductibles for hail, wind, and hurricanes.