Revisit Your Home Insurance Policy

All home insurance policies have a 'stated' value to which your home is actually insured. Many policies will pay a certain percentage above and beyond the 'stated' value in the event of a total loss. This additional percentage can range anywhere from 25 to 125 percent. Even fewer policies have a 'Guaranteed Replacement Cost', in other words, if your home is a complete loss there is no limit to what the insurance company will pay above the 'stated' value, as long as your home was properly insured to begin with. However, during the big housing boom a lot of lenders required your home to be insured at or above what ever the balance of your loan was. In all acuality, the market value of your home and the insurable replacement cost are NOT the same figure. This has caused many (and I mean many) homes to be very over insured. For example, let's say that in 2005 a 1800 square foot home was purchased for $315k with a loan for the same amount. The lender more than likely required your insurance company to insure your home for $315,000. But if there were a total loss on the home and the whole thing had to be rebuilt, the insurance company isn't going to cut you a check for $315,000 and tell you to have a nice day. They hire a general contractor and pay for the job as it goes through the process. They will determine how much money will actually be needed to replace your home. And if your home is this over insured, you will probably never see that full $315,000, even though you have been paying a home insurance premium calculated for that large of a payout. A typical home built after 1995 with stucco framing and a tile roof is around $115 per square foot to be adequately insured. Now, if the home has more or less upgrades, this figure may change. Figure out what the 'Replacement Cost' is on your home and make sure you aren't over insured. This is something that your local insurance agent should be able to do. Also, make sure there is some type of 'Extended' or 'Guaranteed' replacement cost coverage included. The bottom line is that if your home is over insured you are paying your insurance company extra premium money that you could be putting back into your bank account.