8 Tips to Avoid a Homeowners Insurance Coverage Surprise

Assess the 'Coverage A' limit on your house. Homeowners insurance policies typically require dwellings to be insured on a replacement cost basis. Replacement cost means how much it costs to rebuild (not counting land price) with materials of like kind and quality, without subtracting for age or wear and tear. This differs from market value, a real estate figure referring to the value of your home if you were to sell it. It is best to insure your home for its full replacement cost. Check the policy's co-insurance requirement before selecting a limit below your home's replacement cost. The co-insurance requirement (often 80%) is the minimum amount of dwelling coverage needed to avoid a claim penalty. Insuring your home for less than its replacement cost could result in a claim settlement below the cost to repair or rebuild.

Check the 'Coverage C' contents limit. Compare this figure to your personal property insurance needs. A personal property inventory can help. Make a room-by-room list of belongings that includes brand names, model information, serial numbers and receipts. The insurance policy's Coverage C limit is a percentage (often 50%) of the dwelling limit. Talk to your homeowners insurance agent if you require more coverage than the policy provides.

Review policy exclusions and limitations. Homeowners insurance does not cover every possible loss. Exclusions identify uninsured situations. Damage caused by flooding and earthquake are two common exclusions, but there are others. Limitations restrict claim payouts on personal property. Most homeowners insurance policies cap the amount you can recover on property damage or destroyed away from home, jewelry theft and more Review policy exclusions and limitations to identify gaps in coverage.

Explore optional coverages. Insurers offer a variety of buy-back endorsements that tailor insurance protection for unique needs. Some options to consider include dwelling guaranteed replacement cost, earthquake, flood, mine subsidence, inflation guard, contents replacement cost, back-up sewer and drain, personal property scheduled articles floater, home business protection and increased coverage for personal liability protection. A local homeowners insurance agent can provide more information on optional endorsements.

Be familiar with loss settlement provisions. Dwelling losses are settled on a replacement cost basis, which means depreciation is not a factor. Personal property losses are settled on an actual cash value basis. This means the payout is reduced for age or wear and tear.

Note the policy deductible. The deductible is how much you owe when a property insurance claim occurs. A high deductible lowers the insurance premium, but you pay more out-of-pocket if there is a loss.

Review and update your homeowners insurance policy annually. Insurance needs change from year to year. Structural changes like a building addition, deck or room remodel may affect the replacement cost of your home. A contents coverage adjustment may be necessary if you upgrade a computer, install a theater system or acquire an engagement ring. Liability insurance may be affected by a swimming pool or trampoline, a new pet or an improved financial picture.

Avoid selecting an insurer on price alone. Hundreds of companies sell property insurance in Illinois. Rates, eligibility criteria and coverage packages vary by insurer. Compare options with at least three insurance companies when it is time to explore the alternatives. Confirm each quote provides the coverages and limits you require. Ask about discounts to reduce the final premium. Verify each insurer's financial strength rating, complaint record and licensing status in Illinois. Do not cancel an existing policy until the replacement arrives and you can confirm it meets your needs.