One of the worst experiences for a homeowner is filing a home insurance claim only to be told it’s not covered. After years of paying premiums, the insurance company doesn’t deliver when it’s needed most. What a disappointment.
This disconnect happens because we rarely take the time to review our home insurance policies each year. With confusing terms like Actual Cash Value (ACV) and Replacement Cost Value (RCV), it’s easy to feel overwhelmed and ignore the details.
But as a Financial Samurai, it’s crucial to always be prepared for the worst. Whether it’s knowing how to protect your family from a home invasion, spotting a staged car collision scam, or anticipating the policies your next mayor might push, being prepared empowers you to keep moving forward, no matter the challenge.
A Review Of Your Home Insurance Policy
Let’s review some home insurance basics. If you have a mortgage, your bank requires you to carry insurance, which you pay for. However, if you own your home outright, you’re not legally obligated to maintain coverage.
Below is an example snapshot of a home insurance policy costing $3,900 a year, and I’ll walk through each item.
Dwelling Coverage (Coverage A, $1,771,000)
Dwelling coverage is the amount needed to repair or rebuild your home. In this example, the dwelling coverage is $1,771,000 for a 4,800 square foot home, which translates to $369 per square foot. It’s important to do this calculation and compare it to the current cost of construction in your area.
In San Francisco, $369 per square foot is low, but it’s likely more than sufficient in places like Little Rock, Arkansas. According to Farmer’s Insurance, the industry standard is closer to $602 per square foot in San Francisco. Ask your home insurance agent what your city’s standard is.
If you live
