Protecting Your Home

You want to get a home-insurance policy that will pay you enough to entirely rebuild your home were it wiped off the map. Ask a homebuilder to walk through your home and tell you what it’s worth in dollars to figure out how much “replacement coverage” you need. Be sure to point out any unique and/or expensive details that would add to the replacement cost.

Once you’ve determined the replacement cost of your home, you’ll need to know what kind of coverage you want. There are a few key terms here:

• Guaranteed Replacement Cost Coverage: This means that the insurer will pay for the rebuilding of your home no matter the cost. These policies are hard to find these days. As Marci McQueen reported back in 2006, insurance companies have been cutting back on the policies they offer.

• Extended Replacement Coverage: Many insurers offer coverage that caps the payout at around 125% of your home’s insured value.

• Inflation Guarantee: This feature makes sure that your home’s appraised value stays current with the marketplace.

You should be in pretty good shape if you get a reliable appraisal, extended replacement coverage and an inflation guarantee. The appraisal provides a realistic figure to start from, the inflation guarantee makes sure that your home’s price stays current and the 125% coverage means that, even if construction prices have outpaced inflation, they probably didn’t out pace it by 25%, so you should have enough money for whatever work you need done.

One last thing: The law requires you to have flood insurance if you live in an officially recognized high-risk area. To find out your flood risk and to find plans (which are offered by the government), go to floodsmart.gov to see where you fall on the flood-risk spectrum.

Insurance for the Stuff in Your Home

When it comes to protecting your possessions, you may want more coverage than your standard policy allows. If you have anything that’s really fancy (a family heirloom, a piece of art, jewelry, etc.) you’re going to want to insure it separately. Insurers will charge extra for this coverage (something like an extra 10 bucks on your monthly premium per $1,000 of value insured), but if you have anything really nice, it pays to have it covered.

Also keep in mind that there are two different kinds of coverage when it comes to personal articles. There’s “actual cash value” and there’s “replacement cost.” You want the latter.

• Actual Cash Value Insurance – Actual cash value is what you’d get if you sold your, say, mink pants today. Anyone buying your used mink pants would expect to pay less for them than if they were new. So you’d collect the depreciated value.

• Replacement Cost Insurance – This policy pays you the amount of money you’d need to buy a brand-spankin’ new pair of mink pants to replace your old ones.

Insuring Yourself Against Lawsuits

So someone shows up drunk at your house and slips on your floor and sprains her ankle. For the sake of discussion, let’s say that this person is a jerk and decides to sue you. Fortunately, your homeowners policy includes liability coverage in case you lose the court case. Generally speaking, you get between $100,000 and $300,000 of liability coverage.

Supplemental liability coverage can boost your protection to $1 million or more. If you don’t own a car, adding that kind of coverage can be relatively cheap—less than $100 per year—and isn’t a bad idea. If you do own a car (putting you at greater risk for causing damage to people and property), expect to pay $300 to $400 a year.