From House To Home

If you're like most American homeowners, you bought an insurance policy when you first moved in, started paying premiums, and never thought about it again. But that approach might be costing you money.

According to the Insurance Information Institute (I.I.I.), two-thirds of all U.S. homes are underinsured by an average of 27 percent. If it's been years since you've reviewed your homeowners' policy, take the time to ensure your coverage still meets your needs and that you are adequately protected.

Here are five of the most common mistakes consumers make when it comes to insuring their home and its contents.

1. Wasting premiums Cheryl Parsel, an Atlanta-based agent for State Farm, the largest home insurer in the United States, says consumers often don't understand the difference between the cost to rebuild their home in case of total destruction versus the current market value of their property. For insurance purposes, the replacement cost should only cover the "sticks and bricks" and not include the cost of the land or any outstanding mortgage amount. "If a homeowner is paying to insure their lot or land, they are wasting money," says Parsel. "For example, if they paid $200,000 for their home, and the land is valued at $50,000, then they should insure the home for the cost to rebuild it new and not include the $50,000 land value."
2. Not updating a policy to reflect major remodeling or improvements If a home has been recently renovated or upgraded, its estimated replacement cost will most likely have gone up. Since rebuilding costs, labor, and materials have increased substantially over the past few years, it is important to contact your agent to adjust your policy accordingly. Know what it would actually cost to rebuild your home from scratch--including high-end molding, custom features, cabinets, lighting, etc.--so you don't end up footing the bill. Get an appraisal if necessary.
3. Paying too low a deductible Remember that the true purpose of insurance is to protect you in the event of the unexpected, not for routine repairs or maintenance. The higher the deductible, the more money you can save on premiums. In the unlikely event of a claim, opt for the highest deductible you can comfortably afford in case of catastrophic loss, theft, accident, or damage.
4. Not understanding what's covered and what's not Many homeowners' insurance policies limit coverage for theft of valuables to $1,000 or less. Be sure you have added specific riders to your insurance policy for any valuables such as expensive art, jewelry, antiques, etc. The New Year is also a good time to take stock of your personal possessions and document everything you own to protect your belongings. Agent Parsel recommends taking photos and storing them at a second location, so in the event of a fire or natural disaster they won't be destroyed.
5. Not maximizing multiple discounts from a single insurer Purchasing multiple insurance policies--such as both home and auto--will usually qualify you for multiple premium discounts of 5 to 15 percent. Some insurers offer further loyalty discounts if you've been a customer for several years or if you have features such as a monitored security system. When combined, all these discounts can add to your savings. Lastly, when shopping rates and policies, be sure you're comparing "apples to apples" and that you go with a trusted, reputable agent. Not all companies or providers are created equally in terms of service quality, financial strength, and responsiveness to claims.

Melissa Hoberg Coffey is a freelance writer who just moved residences in Atlanta, Georgia. She and her new husband are happy with their new home AND their new insurance policy.

(Sources: www.smartmoney.com/insurance; www.statefarm.com/insurance/homeowners; www.pueblo.gsa.gov/)