Having the basics of financial literacy down can quite literally save you thousands of dollars. I see most financial categories covered, but I’ve noticed that insurance (specifically, homeowners insurance) is not as talked about. Insurance is one of the most important pieces of your financial well-being. It doesn’t matter how many assets you have if they aren’t secure.
Here is what you need to know about homeowners insurance:
The main item we review in financial planning and find issues with on standard homeowner’s insurance is coverage limits.
Homeowners are highly encouraged to insure their homes at 80% of its value.
When you insure your home at 80% of its value, the insurance company will grant you a larger settlement in the case of an insurable event.
Remember that the value of your home will rise (inflation, increasing lumber prices, renovations, and more).
Make sure you are insuring your home for its CURRENT value – not the value your home was 10 years ago.
Example:
You bought a house for $100,000, 15 years ago. You insured your house at 80% of the value ($80,000). Your home is now worth $200,000 today.
That is $80,000 of risk you are not insured for. If you were to have hail damage to your roof, then you would not get a settlement high enough to help with the cost.
Insurance companies often automatically increase the value of your home so the opposite issue of coverage can also be true- you could be insuring your home for more than it’s worth.
This is wasted premium dollars because the insurance company will only replace the worth, not the inflated value of your home.
I am also including a chart I made on the different types of homeowners coverage, so that you can become more familiar with the terminology:
Section 1 of Homeowners Coverage:
A | Dwelling | Your home |
B | Other Structures | Detached garage, workshop |
C | Personal Property | Moveable property (furniture) |
D | Loss-of-Use | You can’t use your house due to fire damage |
E | Personal Liability | If someone is injured on your property Ex: Your neighbor slips on a piece of ice in your backyard and breaks her arm |
F | Medical Expense To Others | Something someone does to hurt themselves on your property Ex: Your neighbor comes to your house and accidentally cuts his hand while chopping food |
[RELATED POST: HOW TO BECOME A MILLIONAIRE: 5 PERSONALITY TRAITS OF MILLIONAIRES TO ADOPT NOW]
These were my quick tips on homeowners insurance. I hope you learned something new!
Be sure to review your homeowner’s insurance, and please feel free to contact me at professionallypeony@yahoo if you have any questions!
Xo,
Layton