How Often Should You Adjust Your Homeowners Insurance?
Most of us take out our homeowners insurance policies when we apply for the mortgage loan to finance our home. Then? We don’t give that policy another thought.
Unless something happens. Maybe our home is destroyed in a fire and we need our homeowners insurance to rebuild. Or maybe a thief breaks in and steals our valuables. We turn to our homeowners’ insurance policy to help us cover the costs of replacing our stolen valuables.
But what too few of us do is ever check in with our insurance providers to make sure we always have enough coverage.
If you make changes to your home — anything from adding a new master bathroom to investing in an inground swimming pool — you should consider adjusting your homeowners’ insurance. You might now need more coverage.
And even if you don’t make physical changes to your residence, you might need to adjust your insurance anyway. There are plenty of reasons to review and upgrade your homeowners’ insurance policy.
If you don’t? You might find yourself without proper coverage should a disaster happen.
Boosting your home’s value? Boost your insurance coverage, too
Vince Lefton, chief executive officer and co-founder of Hollywood, Florida-based insurance adjuster Bulldog Adjusters, said that homeowners should consider revamping their insurance coverage every time they make a significant improvement to their home.
A renovated kitchen? The addition of a third bathroom? A master bedroom suite? Each of these improvements can increase the value of your home. And if your home should be destroyed? Rebuilding your home will now be more expensive.
Because of that, it might be time to boost your insurance coverage, Lefton says.
"Any time that the rebuild value of your home increases, you have reason to increase your homeowners' insurance value," Lefton says. "Consider increasing the value of your insurance whenever you make renovations."
CHECK OUT: How to File a Homeowners Insurance Claim
Even improvements made to your neighborhood — the addition of new parks, new roadways, improvements to the local water utility — can increase the value of your home and, therefore, require a boost in your homeowners' insurance coverage, Lefton saysl
In short, anything that increases the market value of your home — even the addition of new public schools, restaurants or entertainment options in your neighborhood — should warrant a closer look at your existing homeowners' insurance coverage, said Mike Kagan, president of mortgage lender Elite Financial in Westlake Village, California.
Rising home values matter
This is especially important today as homes are rising in value in most markets across the country. If your home is worth more today than when you first insured it, increasing your homeowners' insurance might be a smart financial move.
"As homes continue to appreciate, homeowners should consult with their insurance professionals to make sure proper coverage is maintained," Kagan says. "As property values increase, so can the costs for reconstruction, which affects the cost to replace a home."
Kagan gives the following example: Say you bought your home for $500,000 a decade ago. Now it is worth $1 million. You might need more insurance coverage to cover the increased costs of rebuilding a home that is now significantly more valuable.
Or maybe you added amenities to your home, anything from a pool to a major second-floor addition. You might now need additional liability coverage. The liability portion of your homeowners' insurance policy covers you in case you are sued when someone suffers an injury while at your home.
Say you've built that second-floor addition. Someone visiting your home falls down the stairs and is seriously injured. That visitor to your home could sue you. Your liability coverage would cover your legal expenses while defending the lawsuit and pay out to cover damages if you lose.
Or what if you add that in-ground swimming pool? Accidents can happen in and around pools. Boosting your insurance's liability coverage might make sense once you add this potential hazard to your home.
You should also increase your homeowners' coverage if you have brought new valuables to your home, Kagan said. Say you recently purchased expensive jewelry, antiques or electronics. How much would it cost to replace these items if they are stolen or damaged?
Your homeowners insurance can help cover these costs, but only if you have enough coverage. Kagan recommends calling your insurance agent to make sure that you have enough protection to cover these valuables. If you don't, you might need to invest in a rider — an added policy to your insurance coverage — to cover these more expensive items.
Consider your home's location
Ryan Papy, president of Keyes Insurance in Miami, says that revisiting homeowners insurance is more important in certain markets.
That includes his market in South Florida. Why? Blame it on the hurricanes.
Homeowners in the South Florida area face plenty of hurricanes, Papy said. Because of that, the cost of homeowners’ insurance constantly fluctuates. At the same time, several insurance providers might elect to leave the state because they have grown tired of paying out so many damages.
In South Florida, homeowners might have to revamp their homeowners’ insurance every year, even if they don’t want to.
“The homeowners’ insurance market here is consistently fluid,” Papy says. “It is completely fluid.”
Papy said that the majority of his clients evaluate their insurance policies every year, regardless of whether they made any changes to their homes.
“Market conditions can be vastly different from year to year,” he says.