Institute in New York City. If you have an “actual cash value” policy, if your house is damaged, you will receive the property’s value minus depreciation. That amount typically will be far less than the cost to replace or rebuild what is damaged.
MAINTAINING AND PROTECTING YOUR HOME
“However, we’ve seen some fires, such as those in Oakland, California, that melted homes’ foundations,” says Salvatore. Older homes, she says, should have enough coverage to rebuild in compliance with modern building codes, which may require greater outlays.
Jerald Tillman, who heads an insurance agency in Cincinnati, agrees that replacement cost coverage is vital; he advises homeowners to buy “special, all-risk” policies, which are usually not much more expensive than other types of replacement cost coverage. “Options you might consider,” he says, “depending on where you live, include earthquake, flooding, and water backup protection. These types of coverage are not automatic with a standard homeowners policy.”
Cut insurance costs. As you might expect, a replacement cost policy can be pricey, especially if you add extra coverage. Nevertheless, there are ways to pare your premiums and still buy adequate protection for your home.
Raise the deductible. One way to cut your premium is to raise your deductible — the amount you have to pay out o
f your own pocket before the insurance kicks in. “Most homeowners insurance policies have deductibles of $250 or $500,” says Tillman, “but I suggest a $1,000 deductible. The higher the deductible, the lower your premiums will be.” A higher deductible may mean you’ll have to cover more incidents yourself, but you still will have protection against catastrophes.
File fewer claims. “To an insurance company’s claims department, ‘frequency’ is a key word,” says Tillman. “You’re more apt to have a policy canceled after filing three claims for a few hundred dollars a piece than for filing one claim for $200,000.”
Tillman advised one client, Dwight Parks, a CPA who runs an accounting firm in Cincinnati, not to file claims for $600 or $700, even though his policy has a $500 deductible. “He told me not to keep filing minor insurance claims because that makes me seem like a high risk,” says Parks. “We live in an area that residents call tornado alley. When storms come through, they rarely miss this part of town. I filed a claim after shingles came off my roof and when my home computer suffered a power spike and my motherboard was fried. However, Jerald advised me to do without filing claims for a few years, unless it was for something really serious.”
Install a home security system. Install a system that is monitored at a central station, says Pittman, “because if there’s a problem at your home, seconds make a difference. Your insurance agent can help you select a system that will qualify for a discount on your homeowners policy.” Salvatore says installing a system can save you as much as 20% on your annual premiums.
High-tech security systems have their place, says Salvatore, but you should not neglect low-tech protection either. “Your