Armchair Millionaire Community Bulletin: Do You Have Enough Homeowner's Insurance?

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When it comes to protecting your home, you actually can buy peace of mind. But it's up to you to monitor your homeowner's coverage and make sure it will come through for you when the chips are down.

A survey conducted by Marshall & Swift/Boeckh found that a whooping 64 percent of U.S. homes are underinsured, each by an average of 27 percent. So it's important to find out if your own coverage is adequate. We asked the Armchair Millionaire community about their experience with making claims on their homeowners' policies, and heard from several people who found that their coverage was not everything they'd assumed it to be. Here is one story:

"We had our roof damaged in a wind storm to the point it needed replaced. Our insurance company would only cover the percentage that was actually damaged. (It's anyone's guess as to how we were supposed to replace only 25 percent of a roof …) We now carry insurance in case of a total loss but plan on having enough cash reserve to cover mid-size emergencies. We now no longer feel that we can completely rely on our homeowners insurance." --TAP

The absolute worst time to discover that your home is underinsured is when you need that insurance to help you recover from a disaster. My guide will help you get the coverage you need.

The Armchair Millionaire's Guide to Homeowners Insurance:

Get enough to cover your house. Homeowners insurance is meant to cover the cost of rebuilding your home should it be destroyed. That's simple enough, but the problem is that many homeowners fail to correctly estimate what it would actually cost to rebuild. If you have $200,000 of coverage, but it actually costs $250,000 to rebuild your house, you'll have to come up with that extra 50 grand yourself. To make sure you're fully covered, work with an agent who is familiar with building costs in your area and will take into account any special features your home has. Also, consider buying guaranteed replacement cost coverage, which will pay whatever it costs to rebuild your home. (Of course, you can expect to pay more for this coverage.)

Get enough to cover your possessions. Policies insure your belongings either for actual cash value or replacement cost. There's a huge difference here, so pay attention. Actual cash value is the current value of the item lost, while replacement value is what it would cost to replace the item with a new one. So unless you want to replace your stuff by shopping at garage sales, get a replacement cost policy. And if you have any expensive items such as jewelry or furs, check to make sure they're all covered. If not, you may need to obtain additional coverage for Grandma's 19th century silver tea service.

Get enough to cover your liability. Homeowner's policies also typically provide coverage to defend you against lawsuits brought by others if you, your family or your pets are accused of causing injury or property damage. Many policies provide liability coverage in the range of $100,000 to $300,000, but higher amounts are available—and it today's litigious society, you probably need more.

Get regular reviews. Don't think you can get enough homeowner's insurance once and then forget about it. Review your policy on a regular basis to determine if you should increase to account for inflation or increased building costs. And if you add on to your house or do any remodeling, you'll absolutely need to increase your coverage.

THE BOTTOM LINE: When it comes to protecting your most important asset, you actually can buy peace of mind. But it's up to you to monitor your homeowner's coverage and make sure it will come through for you when the chips are down.

THE ARMCHAIR MILLIONAIRE WEEKLY SURVEY: When it comes to money, how much is really enough? Log on to http://www.armchairmillionaire.com and let us know.

Lewis Schiff is a contributor to CNNfnMoney.com, the Web sites for CNN and Money Magazine. His newest report, "How to Know When You Are Rich," is now available at http://www.armchairmillionaire.com.

CONTACT INFORMATION:

Lewis Schiff

Armchair Millionaire

877-833-2823

http://www.armchairmillionaire.com

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