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Fair market value insurance may be inadequate

Buying a home is a big decision, and your home may be your single most prized possession. Even though your property is insured, you may not have the coverage you need to rebuild your home.

To make sure you’ve got enough coverage to replace your home and its contents, you’ll need to revisit your homeowners insurance policy to determine whether you’ve got replacement coverage and not just coverage for the fair market value – which is often considerably less than what you have invested in your home.

The difference between replacement cost and market value

Knowing the difference between replacement cost and market value policies is extremely important. A replacement cost policy covers the amount of money needed to rebuild a person’s property to its original state, whereas a market value policy only covers what the property is currently worth. Since home prices have fallen, so has the compensation for homeowners who have market value policies instead of replacement cost policies. Depreciation affects how much a person will get with a market value policy. Also, the value of surrounding properties affects how much compensation a person will receive. A home that once was worth $200,000 may now be worth only $150,000 due to foreclosures in the neighborhood. That $50,000 difference can be a significant amount when it comes time to make a claim.

Don’t skimp on insurance for your home

According to a 2008 survey, 64 percent of homes were undervalued by those who insure them, meaning those homeowners may not have enough insurance to cover the cost of repairs or rebuilding their home. Your policy should cover those costs, so do some research before you commit to an insurance policy.

To save money on their homeowners insurance, consumers should try to bundle policies; using the same company for auto, home and life insurance can help a person save on all the policies involved. Generally, a high-deductible policy means you’ll pay less out-of-pocket for your premiums; a low deductible policy will have higher premiums. Find out what upgrades or improvements to your property may result in lower homeowners insurance premiums.

Don’t file a claim unless you have to. Making too many small claims within a certain period of time will cause premiums to increase. Being a smoker is another factor that is responsible for higher premiums.

Before signing any homeowners insurance policy, be sure to research and gain as much knowledge about homeowners insurance as possible. You need to know exactly what constitutes a good policy, and you need to know how to keep your premiums low so that you can save money. With a great insurance policy, you can protect your investment while saving money.

This is a guest post by Lindsey Harper Mac who is a professional writer living in the Indianapolis area. She specializes in writing about business and technology. Currently, Lindsey is completing work on her master’s degree. You can follow her on Twitter @HarperMac11.