By Kathy Sweedler/University of Illinois Extension
We go along living in our homes, tidying up, raking leaves, and we don't often think about losing our homes to a disaster like a tornado or fire. Then something hits close to home, and it makes us think.
One thing it makes me think about is whether or not my home insurance policy meets my needs.
While we can't protect ourselves from all losses, home insurance can help replace personal property as well as the building itself.
If you have a mortgage on your home, you likely were required to purchase home insurance. If you rent, you might want to consider purchasing insurance, too; renter's insurance protects you from the loss of your personal belongings if they're stolen or destroyed by a disaster.
Before you buy an insurance policy, be sure to shop around and compare costs as well as the policies' terms. All policies are not the same.
The amount you pay for the insurance is called the premium. The premium cost is based on several factors, including: 1) which risks you choose to insure against, 2) how much insurance you purchase, 3) where your home is, 4) the value of your home and 5) from which company you buy the insurance.
Additional factors, such as security devices in your home and how it was built, can affect your premium.
The deductible you choose also affects the premium cost. Deductibles are the amount of money you have to pay toward a loss before your insurance company starts to pay a claim. The higher the deductible, the more money you can save on your premiums. Usually, it's advisable to take the highest deductible you can afford.
When comparing policies, be sure to ask whether the policy covers "replacement cost" or "actual cash value" for household and personal belongings.
Replacement cost is what you would pay for the item at today's cost. Actual cash value is what you would pay for a similar item at today's cost minus depreciation (replacement cost minus depreciation, the decrease in value because of wear and tear or age).
The premium cost for a policy that covers actual cash value for your personal belongings will be cheaper than a policy for replacement costs. But think about this carefully. Weigh the lower premium cost with the risk of losing a significant amount of belongings. It can be difficult and distressing to try to replace property if you don't receive replacement value. If you're not sure what your insurance policy covers, now is a good time to check.
It's a good idea to review your insurance policy every year to be sure that the policy still reflects your needs. Have you completed a home improvement project that's raised the value of your home?
Do you have an insurance floater that provides additional coverage above what is normally provided by a policy (for anything from jewelry to art collections to expensive musical instruments)? If so, do you still need it?
Check for discounts to lower your premium costs. For example, allowing automatic deductions from your checking account to pay the premium or installing safety devices such as smoke detectors may save you money.
Another important aspect of protecting your home and belongings is to have a record of what you own. Document your stuff.
Your household inventory can be done on paper, with an app or through photos and videos. Store your household inventory away from your home so that it's not lost if a disaster hits your home. A good place to keep your valuable papers is in a safe deposit box.
If you are struck by a disaster, beware of people trying to take advantage of you. It is important to know that:
— federal or state workers never solicit or accept money for disaster assistance, for inspections or to fill out applications;
— there are no authorized persons who can speed up the insurance, disaster assistance or building-permit process; and
— you only need to provide your Social Security number and banking information when registering for disaster assistance. Afterward, you should use your assigned case number.
Home insurance is one of those things that you hope you'll never need to use. Carefully choose your policy to protect your home and belongings.
Kathy Sweedler is a consumer economics educator at the University of Illinois Extension. Contact her at 333-7672 or email firstname.lastname@example.org.