A big part of life is figuring out how to prepare for the unexpected and oftentimes catastrophic things that happen to us.
We’re talking about tragic events, like a house fire or home flooded due to a storm, that are heartbreaking, life-changing and can impact our finances for the rest of our lives.
Not having an emergency fund or the right kind or amount of insurance to help avoid financial catastrophe can make hard situations even worse.
Take, for example, Notre Dame in Paris, France, a medieval Catholic cathedral built in 1160 and famous for its iconic history and innovative French Gothic architecture. Back on April 15, when news broke that the cathedral was on fire, many asked what kind of insurance policy the centuries old monument had in place. The sad answer: it was uninsured.
Thankfully, wealthy individuals and companies around the world have pledged millions to rebuild the world landmark, but newsworthy events like the Notre Dame blaze get us thinking about whether we’re properly insured for unthinkable events in our own lives.
Do you have insurance? If so, is it up-to-date and what exactly does it cover?
According to Mike Gulla, the senior director of underwriting at Hippo Insurance, 64 percent of homes are underinsured, which means there may not be enough money to fully repair them if damaged.
The unfortunate events present a learning opportunity for consumers to make sure they’re protected in case of an unexpected event.
How to keep property insurance coverage up to date
Even if you have property insurance, it might be a policy that you took out years ago. Since a lot can change, from the contents of your internal property to the value of your home, making sure your coverage is revised and relevant to 2019 is crucial.
Stefan Tirschler, the underwriting manager for Square One Insurance Services, says homeowners should update their insurance coverage following major life events anytime they purchase a new item that requires an addition to their personal property coverage or when other changes might affect the coverage they need.
“Major life events such as getting married would be a great time to update the policy, as newlyweds may have gifts from friends and family, new valuable items to insure and other property that needs to be covered under their homeowners insurance policy,” Tirschler says.
Additionally, Tirschler says that another crucial time to update your homeowner’s insurance policy is before the use of a home changes, such as renovations, moving out or renting the home to someone else.
“Most home insurance providers will require that you declare when you’re beginning and finishing renovations,” Tirschler says. “This way, the value of your renovations can be insured along the way, and the correct premium can be charged. If you don’t notify your home insurance provider before beginning the work, your policy may be void – meaning you would have no coverage at all if a loss were to occur.”
Tirschler says the same is true if your home will become vacant, or if you will rent it to other people. Failing to notify your home insurance provider in advance can result in your policy being void, leaving you with no coverage in the event of a loss.
How often should homeowners update their coverage?
A common property insurance mistake is thinking that once you have it, you’re set. But the truth is, once you have an existing policy you still need to make sure that it’s covering what it needs to cover.
“Homeowners should review their insurance coverage at least once per year,” Tirschler says. “A great time to conduct these reviews is when you make big purchases. For example, if you’re a big Black Friday shopper, the day after Black Friday may be a good time to review your policy to make sure you have the appropriate level of coverage to insure all your newly purchased items.”
The other time that Tirschler recommends you update your coverage is when you’re moving from one home to another, because during a move you’ll touch and see everything that you own. This is a great opportunity to put together a household inventory and tally up the total value of your belongings, which he says is helpful when you file a claim. It’s a good time to compare and review your home insurance policy and see if you have enough coverage.
How to keep property insurance up to date if property has increased in value
Over time, as your property value rises, the amount you’re covered for should go up as well.
Sharon Headlee, the southeast director of operations at CBIZ Insurance Services, says that it’s important to contact your personal insurance adviser to request that they complete a replacement cost estimate with you on the phone. Make sure that they ask you for all of the specific details of your home with regard to finishes, upgrades, etc. This can be used as a general tool in assessing the cost to rebuild your home in the unlikely event that your home suffers a total loss due to a covered cause.
How to know what your policy does and doesn’t cover
Insurance exclusions can get confusing very quickly.
Tirschler says that there are three general categories that home insurance exclusions can fall into.
“The first is losses that simply can’t be insured,” he says. “The second is losses that home insurance doesn’t need to cover, because coverage is already available under a different kind of policy. The third is losses that home insurance companies choose not to cover when designing a product for their customers.”
It’s also important to read and understand the list of losses that can’t be insured under your policy. This list, Tirschler says, will include items like war, nuclear contamination, intentional or illegal acts by the homeowner and more.
Finally, when designing home insurance policies, each insurer will determine what kind of losses should be excluded, based upon the needs of their target customer.
“Home insurers will exclude wear and tear, because it wouldn’t make sense for home insurance to cover the normal wearing-out of things like your carpet and roof,” says Tirschler. “Remember that claims are paid out using premiums that customers have paid in. So, if home insurance covered the cost of replacing roofs when they age and wear out, then everyone’s home insurance premium would need to be higher in order to cover that cost.”
Tirschler’s final words of advice: “Every home insurance policy is unique. When buying home insurance, pay close attention to what is and isn’t covered before you buy the policy. After you buy the policy, read it and ask your home insurance provider questions if anything is unclear to you.”