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Homeowners Insurance in Hard Times

Writing for, Jennie L. Phipps offers good advice to homeowners in the article, “Reassess Your Homeowners Policy in Down Market.” Her article strikes right at the heart of the most nagging point of “non-recovery” in the recession — home prices have declined by as much as half in some markets and they’re not coming back. And then Phipps asks the obvious question, “Why are you still paying the same amount for your homeowners insurance?”

What many homeowners fail to understand is that their insurance premiums are not based on the property’s market value, but rather on the cost of rebuilding. That includes not just materials, but also labor — and in the event of a real catastrophe, demolition and the removal and disposal of hazardous materials.

This does not mean, however, that there are not ways to lower the cost of your homeowners insurance while remaining fully covered. Many people are restricted by the fact that their mortgage requires them to pay for a 100% guaranteed replacement policy. If, however, your mortgage is paid off, you may be forced in these tough times to forego what Phipps calls the “holy grail of homeowners insurance” and opt for replacement cost coverage, which will paid an agreed upon amount only. No one, however, is recommending that you drop your coverage altogether.

With this and any insurance topic, education is the key. If you’ve never even given a thought to your homeowners policy — simply signed on the dotted line — now is the time to learn the ins and outs of the coverage, make sure that the contents of the house are accurately represented (in other words don’t pay for insurance on things you no longer own), and get penny wise with your policy.

(Our own article base on homeowners insurance has a wealth of information on understanding your coverage and trimming its cost.)

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