The Reasoning behind Homeowners Insurance

by Matt Myers

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Having homeowners insurance is requisite to owning a home. Just like insurance on your car or your health, there is that sad, expensive truth that most of the time you will not use this insurance, although you will have to pay for it every month. What's great is that for a home this cost is usually rolled up in your escrow account, so you don't have to cut several different checks each month. While homeowners insurance is required, it is important to know what you are getting, why it's important, and when to bump up your coverage after significant home improvements.

Learn All You Can
Not all homeowners insurance policies are created equal. Some insurance companies provide better coverage, some offer better rates, and some homes are just worth more than others. For example, a typical homeowner's insurance policy will insure up to $2500 in electronic and computer-related possessions. While this is more than most grandparents will ever need, some homes are equipped with big screen TVs, surround sound, several computers, intercom systems, cell phones, pagers, palm pilots, etc and this $2500 won't even make a dent in the total dollar amount of the home electronics.

So the most important thing to do is to understand your possessions and insure them accordingly. If you have rare coins, stamps, antiques or other items that are valuable and difficult to replace, craft your policy to fit your needs.

When to Upgrade Your Policy
When homeowners take on a home improvement policy of any size, from electrical work to a home addition, about the last thing they are thinking about is how this affects their homeowner's insurance policy. People are too busy with building codes, orchestrating contractors, making design decisions, and trying to pay for the whole thing to even think about their policy.

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In some cases, the insurance company doesn't need to be contacted, but if you are spending a nice chunk of money on a remodel or some other type of renovation, you need to insure that enhancement.

Imagine this. You bought your home for $200,000 three years ago, and for the sake of discussion let's say that the market reports that it is still worth exactly what you paid for it. Your home owner's insurance will cover up to $180,000 if your house happens to get swept clean by a tornado or flood or the Wicked Witch of the East. You then invest $12,000 in new windows because the old ones leaked air like a colander. Now if your home gets destroyed, you won't get any restitution for the money you spent on windows since it was outside of your insurance policy.

Quick Rules

  • Any home improvement that seriously alters the value of your home should be covered by insurance. Do this as soon as possible. Each day that you wait is one day that you will not be covered.
  • Anytime there is damage to your roof, make a claim immediately. This includes hail and fallen items that may have punctured the roof. Insurance companies want to fix these problems soon as they can cause severe damage (and big costs to the insurance company) if allowed to persist.
  • Make certain that you know exactly how much your total home is covered for and for what events (you might be carrying flood insure when you live on top of a hill). If you have a great dea; invested in electronics or antiques make sure that you have adequate coverage if the unthinkable happens.

    Beyond that, remember that you are paying so that you don't have to worry. Insurance companies allege to offer peace of mind (at rather high premiums), but it can be a small price to pay when you think of what life would be like if you weren't insured.

    Matt Myers is a freelance writer for the home maintenance and remodeling industry. Formerly a contractor specializing in deck building and casework, Matt has written over 500 articles for both homeowners and contractors.