Coverage on Your Property: Too Much or Too Little?

Coverage on Your PropertyBeing safer rather than sorry holds true when it comes to your homeowner’s insurance policy. The annual premium price difference between a standard policy and a specialized policy may only be in the hundreds of dollars, says the president of Encompass Insurance, Tom Ealy. But the real question is how worth it are these specialized policies? Are they worth the extra hundreds of dollars?

Homeowners insurance is not just a luxury, but can be a necessity at times. Before closing a deal, mortgage lenders require that all borrowers get homeowners insurance. The mandated coverage is usually the lesser of two things: the loan amount or the insurer’s appraisal of the home value, says a mortgage broker. However, regardless of the appraisal, some homes in high-price markets face a great chance of inadequate coverage in a case of a total loss. In these situations, it is more important to insure for the replacement value of the home instead of the value of the mortgage.

Standard homeowners insurance policies lock their replacement coverage at a set dollar amount based on industry estimates to rebuild, repair or replace the insured item. Meanwhile, some specialized policies may allow for costs that run above the estimated expense to reconstruct the exact same house inside and out. Rebuilding the same exact home can run up two, three or even 10 times the market value of the home. An example of this would be to rebuild a vintage or historic home that has handcrafted features, custom molding, and may require new electric or plumbing systems to meet current building codes. Another example is a newer home that has custom features such as a $35,000 biometric home-theater system or NanaWalls which are folding glass walls that create indoor/outdoor living spaces. In order to reconstruct the exact same vintage home or repair the NanaWalls and high-end home-theater system, a lot more money would have to put in as opposed to the fair market value of the homes before any sort of destruction. These are times where a specialized policy is worth one’s while.

Buying a rider with extra coverage for expensive items can also be an option when a standard policy seems to suffice. This extra coverage involves taking an inventory of possessions and home improvements along with providing photos, estimated values and comments.

Regardless of your policy type, it is extremely important to have sufficient liability coverage for your home and your possessions inside. Time is of the essence because premiums, like any expense, affect the debt-to-income ratio needed to qualify for a loan. High-end home buyers especially should select an insurer as soon as possible after applying for a loan, ideally a month before closing. An example of this is a premium that includes flood coverage that runs as much as $25,000 for a $3 million beachfront home in Florida. If you have any questions about policy coverage and what is right for you, contact the attorneys at the Mineo Salcedo Law Firm. Our team has experience with homeowners insurance policies and will make sure you are well informed when choosing a coverage plan and can assist you with an insurance claim.

Call us for a free consultation, (954) 463-8100.