Advice on Homeowner's Insurance and the Amount of Coverage

In an episode of Extreme Makeover: Home Edition, the crew helped a homeowner in a particularly bad situation. Having lost her home to fire, she found out that the insurance she had did not even cover the cost of tearing down the damaged structure, let alone rebuilding.

Consider it a wake-up call if you own a home - even if you recently bought your home.

As real estate values rise by 20 per cent or more each year in some areas, homeowners may find that the policy they purchased five years ago may not cover their home today. That isn't even taking into account possible upgrades to the home.

That is one reason why Rommel Fernandez, an agent with Farmers Insurance, says that a homeowner's insurance agent should be in touch regularly. "Your agent should be speaking with you at least twice a year," he notes. While Fernandez says one point of contact may be to wish you a happy holiday, one of those contacts should be more in-depth, taking the time to find out whether you have made any changes to your home or family makeup.

The reason? Fernandez says homeowners need to reassess their homeowners insurance regularly - "at least every two years," he suggests. An agent who stays in regular touch can remind a homeowner of the need to reassess their home's value and resulting insurance coverage.

In addition to rising home prices, even relatively minor additions to a home can cause the cost of replacement (which determines the amount of coverage a homeowner should have) to increase significantly.

"Even if you've just changed flooring, say from carpeting to bamboo wood flooring," Fernandez notes, a review of your homeowners insurance is in order. "Your carpeting might have cost about $20 per square foot to replace, whereas the flooring might cost $200 per square foot." That can make a large difference should your home need to be rebuilt.

Other upgrades to your home, such as a new roof, room addition, or extensive remodeling, can also mean that you need to consider increasing the amount of homeowners insurance you carry.