CHICAGO — An annual review of your property insurance coverage is one of the most important steps you can take to protect your financial security — yet most homeowners never review their coverage until they file a claim and discover that their protection is inadequate. Here is a comprehensive checklist to guide the review.
First, review your dwelling coverage limit. Your dwelling coverage should be sufficient to rebuild your home at current construction costs — not its market value. Construction costs have increased significantly in recent years, and many homeowners are underinsured because their coverage limits have not kept pace. An independent appraisal can help you determine the appropriate rebuild cost.
Second, review your personal property coverage. Standard homeowner's policies typically cover personal property at 50 to 70 percent of the dwelling coverage limit, which may not be sufficient for homeowners with significant collections, jewelry, or electronics. Scheduled personal property endorsements provide additional coverage for high-value items.
Third, review your liability coverage. Standard homeowner's policies include $100,000 to $300,000 in personal liability coverage. An umbrella policy provides an additional $1 million or more in liability coverage at a relatively low cost and is strongly recommended for homeowners with significant assets.
Fourth, review your flood and earthquake coverage. Standard homeowner's policies do not cover flood or earthquake damage. If you are in a flood-prone or earthquake-prone area, separate flood and earthquake policies are essential. Fifth, review your deductibles. Higher deductibles reduce premiums but increase your out-of-pocket costs after a loss. Make sure your deductibles are at a level you can comfortably afford.
