Updating Your Homeowner's Insurance

August 26, 2010, By Steve Thompson 1 comment

The roof over your head is probably the largest asset in your portfolio. Not only does it cost more than your car, your boat and your motorcycle combined, but also it provides you with intangible benefits you can't find anywhere else: safety, security, comfort. This is why updating your homeowner's insurance is so important.

This subject is particularly important to me because when I was 17, my parents' house was destroyed by a volcano. It was a large home with significant upgrades—we'd added a fifth bedroom and a small apartment over the garage—and we were lucky that my dad kept up with the insurance. Otherwise, my parents probably would not have been able to rebuild their house with the same degree of quality.

The Purpose of Homeowner's Insurance

Many men see their homeowner's insurance as a necessity rather than an asset. It's something the financing company makes you purchase when you take out a mortgage, and it only comes in handy when the air conditioner dies or the foundation starts to crack.

Essentially, homeowner's insurance is a way to protect your investment. You've purchased a home, but things go wrong every day. And you don't want to pay for major problems out of pocket.

I watch The Weather Channel religiously, and when a tornado or hurricane heads our way, my blood pressure automatically soars. This is what happens when you live through a natural disaster.

Your homeowner's insurance should be updated to cover what your insurer likely calls "acts of God." These include tornadoes, hurricanes, tsunamis, earthquakes and any other disaster beyond human control. You didn't cause it, but it can destroy your home anyway.

Some acts of God are not covered by your homeowner's insurance. For example, according to Kiplinger, floods typically are not part of a homeowner's policy. If floods are common (or even possible) in your area, you should purchase additional flood coverage just in case.

Make sure you understand the terms of your homeowner's insurance, and that you know exactly what will happen should Mother Nature rear her ugly head. You don't want any surprises in the event of a catastrophe.

Remodels, Renovations & Additions

Anything that changes the value of your home is a reason to update your homeowner's insurance. The money you shell out to the insurance company every month is directly proportional to the amount of money your home is worth, and changes should likewise correspond.

For example, let's say you undertake a $20,000 remodel to your kitchen. Kitchens are big right now, so your efforts will likely increase the value of your home. As soon as the remodel is complete, hire an appraiser to estimate the value of that change so you can update your homeowner's insurance accordingly.

The same goes for situations in which you expand your living room, add a new bedroom, renovate the upstairs, finish the basement or build an attached garage. Appraise and update to keep your homeowner's insurance current.

Market Fluctuations

If the housing crisis taught us anything, it's that real estate prices are not static. The value of your home can change dramatically from one year to the next, influenced by the winds of economy or supply and demand.

Most market fluctuations are completely beyond your control. Let's say, for example, that the county builds an elementary school right behind your house. The noise and additional traffic will likely drive down the value of your home and make it more difficult to sell. If an elementary school is built down the block, however, it might increase the value of your home because it makes the house more attractive to young families with children.

Updating your homeowner's insurance on a yearly basis is a good rule of thumb. It will keep you from suffering a significant loss in the event of a disaster.