Home insurance offers peace of mind in case the worst happens. Not only that, lenders require home insurance if you have a mortgage on your home. However, not all home insurance policies are created equal. For instance, if your home experiences a flood, wouldn’t it be awful to realize you don’t have enough homeowner’s insurance to cover the repair costs? Unfortunately, according to Core Logic, around 60% of all U.S. homes are underinsured by an average of 20%!
If you’re thinking about home insurance, we have some tips to ensure that you’re not paying for inadequate coverage!
What Should Home Insurance Cover?
In the case of an emergency, your homeowner’s insurance should cover the rebuilding of your house, replace your belongings, any liability you may face on your property, and reimburse any living expenses you incur after the loss of your home.
How Much Home Insurance Do You Need?
Put simply; you need enough home insurance coverage to take care of the replacement cost of your home and belongings. Calculating the replacement cost of your property can be tricky. To get a general estimation, you should multiply the square footage of your home by local construction costs. Alternatively, you can ask an experienced independent insurance agent to estimate these costs for you.
When calculating the value of your belongings, you should make an inventory of everything you own. Personal property applies to anything in your home, such as furniture, clothes, appliances, electronics, sports equipment, and even the food and toiletries you own. Be sure to take photos of each belonging, especially if it is expensive or rare. Although this sounds like a lot of work, it can be extremely useful should the unthinkable happen.
Liability insurance is another consideration for homeowners. In case someone gets hurt, from falling downstairs to a dog bite from your pooch, liability insurance gives you peace of mind. Homeowner’s liability insurance covers incidents that occur on your property — so you won’t be saddled with expensive medical bills or lawsuits. Generally, homeowner’s insurance policies include a minimum of $100,000 in liability coverage; however, it’s much safer to have more. Aim for between $300,000 to $500,000 if your budget allows.
What Is Additional Living Expenses (ALE) Coverage?
Additional Living Expenses Coverage acts as an emergency fund if you and your family are left with nothing after an accident, for example, a fire or flood. With nowhere to live and no belongings to use, you may quickly find the expenses piling up. From hotel rooms to replacing lost items, ALE can provide a much-needed cash injection. ALE reimburses you for the added costs you incur while living without a home.
Of course, added costs are very different from total charges. For example, if your monthly groceries are around $400 a month because you cook at home, but your home is destroyed, and you’re forced to eat out, your food bill will increase significantly. If your monthly food increases by an additional $400, ALE would cover the increase in your food budget.
Your insurer calculates your ALE by using a percentage (typically between 20-30%) of your extended dwelling coverage. For instance, if your extended dwelling coverage equals $100,000, your ALE will likely be between $20,000 and $30,000. However, it’s important to note that your ALE expenses will likely be higher if you have a large family or a special need. In this case, it’s essential to speak to your insurance agent and discuss your options.
Although getting affordable insurance can seem like a headache, it’s essential to do your research and secure coverage that adequately protects you and your property.
