Paying for your homeowners insurance is a routine that, over the years, becomes habit. The experts at AARP warn that allowing this routine to continue mindlessly can be a costly mistake. Not all home insurance policies are the same. Not all companies charge the same premium, and retirees need to be especially mindful that the coverage they purchased years ago may not fit their current needs.
While the concept of homeowners insurance is simple – coverage for your home in case of damage – policies may be exasperatingly complex. Home insurance policies frequently vary as to what type of damage is covered: flood, fire and earthquake, for instance. Then, there is the choice of a policy that insures the home for its actual cash value, minus depreciation, or one that offers replacement cost coverage without a depreciation deduction. Finally, one must consider the value of the home’s contents, which may change as you acquire or divest yourself of assets.
As we reach retirement, our needs change. You may find yourself scaling back on many things, including your home. This is a time to reflect on your homeowners coverage to ensure that your current policy protects the assets you’ve worked so hard to accumulate. Many retirees place their sole focus on their health insurance needs while the homeowners policy falls through the cracks.
Do You Know What Your Homeowners Insurance Covers?
Many homeowners don’t have a clue as to what is and isn’t covered by their insurance policy. Ask yourself some basic questions: Are you absolutely sure of what is both covered and excluded in your policy? Does your policy cover you for burglary and acts of God? How much will the insurance company give you in cash and how long will it take them to pay? If you don’t know the answers to these basic questions, it’s a good idea to take the time to dig out your policy and do a little detective work and some number crunching.
Determine how much the home is worth today. You can arrive at a ballpark figure by determining the value of homes in your neighborhood that have sold in the past six months and then adding and deducting value on your home according to how it compares to the sold homes. To be safe and arrive at an accurate figure, though, it’s best to ask your insurance agent to run an official analysis on what it would cost to rebuild your home.
Retirees Accumulate Lots of “Stuff”
Next, take an inventory of the contents of the home. This is a time-consuming process, so don’t feel as if you need to tackle it all at once. Do one room at a time and be thorough. Use a video camera, if you have one, and narrate the scene as you film. A regular camera will suffice if you don’t have a video camera. Take close-up photos of anything of significant value and write a description of the item on the back of the photo. Be specific on your inventory, making note of each item’s current condition, how much you paid to acquire the item, and where and when you purchased it. If any item has a brand name or model number, make note of that as well. Be especially mindful of any expensive items, such as art, jewelry and antiques. Finally, make a copy of your inventory and place it off-site, such as in a safe deposit box, or with one of your children. You should now have a good idea as to the value of your home’s contents.
Keep in mind that most homeowners insurance policies cover the contents of the home only up to a certain amount. You may need a separate insurance schedule for any items of significant value.
Deciding on a Deductible
Determine how much of a deductible you can afford to pay now that you’re on a fixed income. If disaster strikes, will you be able to come out of pocket to cover the current deductible? This is an especially important consideration for retirees who need to weigh their cash assets against the savings that may be realized with a higher deductible.
Finally, consider the liability coverage on your home and ensure that it is enough to protect your assets.
Notify your insurance agent upon retirement. She can help you to determine any discounts you may be eligible for and how to become eligible for even more. For instance, did you know that installing burglar alarms, sprinkler systems, smoke detectors and dead bolt locks might result in a lower insurance premium? Insuring your car with the company that provides your homeowner’s insurance may result in a reduction in premium as well.
Experts recommend that retirees revisit their home insurance policy annually, especially if you downsize your home or acquire or sell any of its contents.