Homeowner's Insurance: Too much, too little?

As a homeowner, homeowner's insurance is essential. Have you spent any time recently reviewing your policy? If not, maybe it's time, especially if it is around your renewal period.

Call your insurance agent and ask what type of policy you have if you are not certain. The most common and effective type is a "replacement cost" policy. This policy essentially covers the costs required to rebuild your home and replace your belongings. However, be aware that this does not cover additional things such as swimming pools and anything detached from the home itself. This also does not cover luxury items that require additional policies such as diamonds, furs and fine art.

Another type is an "extended" policy, which protects up to your policy limit plus an additional 20% for unexpected replacement costs.

A third type is "actual cash value", which does not necessarily means it covers what you spent. It takes depreciation into account and pays on what something is worth at the time of damage. A television that you spent $1,500 on two years ago is probably only worth about $750 now, so that would be your coverage.

Once you know what type of insurance you have and the meanings of each, think about what YOU need. The most important thing to keep in mind is, how much would it cost to rebuild your home today, which is the amount you should aim to be insured for. If your home is assessed at $175,000, you should get coverage for around $200,000, taking into account your belongings and construction costs. Upping your level of coverage may cost you less than you think. For example, a policy could cost $250 for the first million dollars in coverage, but adding a second million could only increase the premium by up to $15.

The higher you deductible is, the lower your premium. Most experts agree that deductibles should be around $500 or more to lower your yearly costs and to be used only for major damages. It is not wise to have a low deductible and use it towards getting a window fixed, which should come out of pocket.

Make sure to ask your provider about group discounts such as being a member of AARP or being a state employee. You can also obtain discounts for safety precautions such as an alarm system or deadbolt.