Is it time for a Homeowners’ Insurance Checkup?

When’s the last time you checked out your Homeowners’ Insurance policy?  I’m betting for most of you it hasn’t been recently.  Maybe it’s time to dig through the box you dump your important papers into, drag it out and make sure that what you are paying for is getting you the most bang for your buck.

Understand “value.” One of the most difficult concepts for homeowners is the difference between market value, appraisal value and replacement value.  Let’s define all three.

  • Market value can be defined several ways.  The most common definition is the highest price a buyer is willing to pay and the lowest price at which a seller is willing to sell.  It an also be defined as the price at which a property will sell in a given period of time.
  • Appraisal value is defined as the opinion of a qualified appraiser which is based on the knowledge, experience and analysis of the property being sold. A thorough property appraisal generally scrutinizes many factors that may include the current market value of comparable properties.
  • Replacement value is the based on what it would cost to rebuild your home in the event of a catastrophic event.  It is important to recognize that although market value can fluctuate widely, replacement cost will remain relatively the same.  A 50% loss in market value does not mean that there is a corresponding reduction in replacement cost.

Replacement cost coverage. This is the most popular and effective type of coverage as it will pay, up to the policy limits, what it would cost today to rebuild your home and replace all your belongings.  Wondering what a rough estimate of that amount is?  Surf on over to and check out the Replacement Cost Calculator.

“Actual Cash Value” (ACV) Coverage. If your policy specifies ACV instead of Replacement cost, it is important to understand that your coverage is based on the depreciated value of whatever is at risk.  ACV policies adjust the value of an item based on depreciation which takes into account  age and wear.

When is enough, enough? Make sure your policy covers everything you are concerned about replacing.  Usually, there will be a separate coverage for contents (personal possessions) and other structures (outbuildings, detached garages, etc.).  Usually, a policy will have some coverage for jewelry, firearms, collections or furs; but it may not be enough to cover what you own.  In that case you may need a separate rider to provide additional coverage.

The bottom line is that unless you own your home free and clear, the lender requires hazard insurance to protect their investment.  You might as well protect yourself effectively.

Choosing the right kind of homeowners insurance is an integral part of purchasing a home.  I stand ready to help you with your home sale or purchase in the Tehachapi or Kern County area.

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