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Why You Should Review Your Homeowners Insurance

Make sure your renovation projects and building costs are covered

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Nicolas Rapp

Looked at your homeowners insurance policy lately? Very possibly, no. In a sign of how little attention this coverage gets, nearly a quarter of homeowners surveyed by in 2018 said they'd never even read their policy.

But even if you studied the fine print when you bought your policy, over time there may be home renovations, rising building costs and changing housing codes. To be sure that you're neither underinsured nor overpaying, check if any of these situations apply to you.

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1. You renovated or built an addition

The cornerstone of a homeowners policy is what's known as dwelling protection: the maximum amount of money you could receive to replace the structure of your home should it have to be completely rebuilt. But too often, people who renovate their homes — adding on a first-floor master suite, for example — don't adjust their policy to suit the higher replacement cost, says Derek Klock, a Virginia Tech professor and coauthor of The Process of Financial Planning.

Construction costs are no doubt higher than when you bought your first policy years ago, and specialized spaces, such as a bathroom or kitchen, cost more to rebuild than basic living space. Ask an insurance agent to reassess your property to make sure your coverage is adequate, Klock advises. (Also make sure that you have sufficient coverage for your personal possessions.) Note that if your home is damaged, most insurers won't fully reimburse you for repairs unless you've insured your home for at least 80 percent of its value.

2. Building codes have changed

The older your home is, the greater the chance that it doesn't satisfy upgraded building codes, such as those meeting standards for resistance to fire in California or wind in Florida. The usual replacement-cost coverage generally doesn't include the extra expense of meeting codes adopted after your home was originally built. So you should add on building code coverage (also called building law or ordinance coverage) if you might have to comply with new requirements.

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3. You inherited your mother's jewelry

Standard homeowners insurance policies usually have limited coverage, often $2,000 or less, for all your jewelry. Kevin Lynch, a faculty instructor at the American College of Financial Services, recommends that you cover your valuable items, including jewelry, with a separate personal-articles policy, which is designed to protect against not only theft but also other mishaps, like losing a ring while swimming. If the value of an insured item has little relation to the original price paid, you should get it appraised, Klock says. In other cases, original receipts along with a photo or video of the item may be sufficient.

4. You are increasingly worried about natural disasters

Floods, tornadoes, wildfires, earthquakes, you name it.

Fire — wild and otherwise — and wind damage are usually covered under a standard policy. But flood damage, including the kind that may come with a hurricane, is likely excluded. So if you live in a flood zone, consider purchasing flood insurance. The cost of coverage varies, but on average it's $700 per year for a primary residence. (Visit the government's site to learn what the flood risk in your area might be and how to buy insurance.) Earthquake coverage requires an additional premium on your homeowners policy; costs vary widely depending on location.

5. You downsized to a condo

If you're insuring a condominium unit, Klock says, the key thing to know is what type of insurance your homeowners association (HOA) has in place. At minimum, it might be a type called “bare walls,” which basically covers only the shell of the building around your unit. At most, it might also cover improvements or additions you've made to your unit. Once you know the HOA's level of coverage, you can buy a condo insurance policy that dovetails with your HOA's.

6. You downsized to a rental

A standard renters policy generally covers everything in a homeowners policy other than the structure itself — for example, possessions and the cost of living elsewhere if you're temporarily displaced by a fire or other calamity. “This is really important,” Klock says, because the landlord's policy will cover repairs, but not your belongings.

“Without a renters policy, you would need to sue the landlord for damages,” he says. “And lawsuits are typically only successful in cases of landlord negligence.” Renters insurance is relatively cheap: The average annual U.S. premium is $180, compared with $1,211 for a homeowners policy.

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