Unfortunately most homeowners are inadequately insured. In fact, many not only lack financial protection for the equity in their home, but for their personal property as well. Why?
It usually happens because the lenders only require home buyers to carry enough insurance to cover the value of the mortgage. Then, in the event of damage or destruction to the property such as fire, flood or earthquake - only the lender's investment is covered. Unfortunately, this required insurance is only for the lender's money. It does not cover the homeowner's personal property or their equity.
When deciding on insurance, homeowners should carry enough to cover the replacement value of the home, and all of its contents. The key word is "replacement." As the home appreciates, so will its replacement cost. Thus, the policy should be reviewed every year or two, adjusting the amount of coverage if appropriate.
A word of caution, however, is in order. Do not insure for more than the value of your real and personal property, because an insurance company will not reimburse more than the replacement value of the property. Consult with a reliable insurance agent to ensure you have the correct amount of insurance.
The most common homeowner policies cover the home and contents without requiring an itemization of all furniture and personal effects. Items over a specified value, such as jewelry and artwork, are generally listed separately and usually require an additional premium.
Remember, only a few homeowners think about the value of their home or the replacement cost - until a disaster such as fire, flood, storm or earthquake hits. The key is to be proactive. Get the coverage you need - before you need it.