Approximately 6 percent of homeowners file claims with their insurance companies annually; the average payout on each of those claims was roughly $10,600. It is unclear whether the average payout represents complete coverage for the costs, or whether the homeowners were required to pay some of the expenses out of pocket; it is clear though that obtaining the right coverage is critical. Thus, many homeowners are face with the question “How much coverage do I need?” Naturally, you don’t want more coverage than you need; you’d essentially be wasting money. Similarly, you don’t want too little coverage; you’d essentially be wasting money in that situation as well. This article will briefly discuss the nuances of finding the correct insurance policy for your home.
What is the Optimal Amount of Insurance?
In case it isn’t obvious, insurance is designed to protect you against loss – specifically a “total” loss (e.g., if your home is destroyed, the policy would cover the entire cost to rebuild an exact replica of your home). If you have obtained a mortgage, which most buyers have, the lender will mandate that you carry sufficient coverage for “total” loss. In the event that you are one of the lucky few who has paid their house off entirely, coverage against “total” loss is still a very good idea.
What is “Total” Loss Coverage?
As noted above, “total” loss coverage is an insurance policy that will cover the entire cost of rebuilding your home if it were destroyed. Naturally, the total value of a “total” loss insurance policy varies based on the area and the size of the house; put simply, “total” loss coverage will be tied to the value of the home (e.g., homes in Studio City, Encino, and Sherman Oaks will likely require more coverage than similar homes in Reseda).
Why Is the “Total” Loss Coverage Higher Than the Value of My Property?
In most instances, your policy will cover more than your house is worth; this is because most insurance also covers what’s inside your house as well. In other words, the complete recreation of your house includes the items that were inside your house when everything was destroyed. Thus, “total” loss coverage also covers furniture, electronics, and various appliances; in many instances personal belongings are also covered.
There is a type of policy known as a “named perils policy”, which only covers items specifically listed in that policy. If you have a “named perils policy” that doesn’t cover items of significant value to you, it is prudent to obtain insurance on those individual items if possible; otherwise, there are many lockboxes designed to withstand fire – and fires are the most likely cause of a “total” loss).
At the Chernov Team we understand that knowledge is power, particularly when it comes to protecting your investments; houses are likely the most significant investment a family will make during their lifetime. At the Chernov Team we know that whoever shows up to the table most prepared leaves with the most, and the Chernov Team always leaves the table with the most.