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When’s the last time you looked at your home insurance policy?

You may need to upgrade your policy if your home has increased in value, if you’ve renovated, or to add flood and fire coverage.

Reach out to your insurance company any time you remodel or renovate your home, one expert says, particularly if you add square footage.
Reach out to your insurance company any time you remodel or renovate your home, one expert says, particularly if you add square footage.Read moreDreamstime / MCT

A rise in your home’s value is cause for celebration, but it should also give you pause. Odds are you might need to upgrade your homeowners insurance to cover your now more expensive home.

“Lots of people fall into the trap of getting their mortgage and home insurance and then it’s out of sight, out of mind,” says Chris Schafer, the Minneapolis-based senior editor for home insurance at Insurify, an insurance marketplace.

If a similar home in your neighborhood sells for more than you expected, or you receive a tax assessment with a big boost in property value, it’s a good time to check in with your insurance agent to avoid getting burned by a big out-of-pocket cost in an emergency. We spoke with experts on how to make sure you have enough coverage — and what to do if you don’t. Here’s what they had to say.

Why and when to check your coverage

“We’ve all seen a run-up in home values in recent years, along with inflation that has increased the cost of materials and labor,” says Jon Godfread, the insurance commissioner for the North Dakota Insurance Department and president of the National Association of Insurance Commissioners. “That means the cost to repair or replace your house is likely to be more expensive than when you first purchased your homeowner’s insurance.”

Unfortunately, many people don’t think about their insurance until a hurricane, a fire, a flood, or an intense hailstorm happens. But that’s a mistake, because you could be caught up short in an emergency.

“People put a lot of trust in their insurance agent and assume they can get homeowner’s insurance and forget it,” says Sean Kent, senior vice president of property and casualty insurance at FirstService Financial in Fort Washington.

“If you haven’t looked at your policy in five years, you’re probably woefully underinsured,” he adds.

Kent recommends reviewing your insurance coverage at least every two or three years; Godfread suggests checking it annually, when your insurance policy renews, to look for potential gaps.

Start by comparing your coverage amount with an estimate of your home’s value but remember that you don’t need to include the land value — your lot will still be there even if your house is destroyed. Read the list of perils you’re insured for, along with optional available coverage for things such as floods, earthquakes, or wildfires that aren’t typically included in a policy. Ask your agent to help you estimate the replacement cost of your home and what additional coverage you might need.

And don’t let fear of increased premiums keep you from checking, he adds. “Not having the right insurance or enough coverage could be financially devastating,” Godfread says. “And policy upgrades don’t always raise your premiums as much as people think.”

When to update your insurance company

Reach out to your insurance company any time you remodel or renovate your home, Schafer says, particularly if you add square footage.

“If the insurance company doesn’t know you have a new sunroom or an extra bedroom, you don’t have any insurance coverage for that space,” Schafer says. “Same if you upgrade your kitchen. If you don’t let them know, you might find that your insurance claim will pay $300,000 but it will cost you $450,000 to replace your home. In that case, you’d have to pay the $150,000 out of pocket.”

You also need to consider updates after making large purchases. If you haven’t done it already, record a narrated inventory of everything in your home on your cell phone. You can share the video with your insurance agent to help determine how much coverage you need for possessions, Godfread says.

Adding safety features could also affect your rate. “You should always let your insurance company know if you’ve taken steps to protect your property, such as getting a doorbell camera, adding dead bolts, or trimming trees around your house,” Kent says. “They may give you a discount because it lowers the risk of a claim.”

Understand your coverage

Most insurance companies offer standard coverage for “perils” such as fire, theft, and storm damage, but all policies are not the same. “It’s important to think about the perils that are most common where you live and discuss them with your insurance agent to see if you have the protection you need,” Godfread says.

To figure out what special coverage you may need, Kent suggests talking to neighbors about problems they’ve had. “Some of my neighbors have had problems with underground pipes leaking, so I asked my insurance agent to make sure I have coverage for that,” he says.

Two big coverages many homeowners lack are flood insurance and earthquake insurance, Schafer says. Your lender will tell you if your property is in a designated flood zone, but you don’t have to live in one to get flood insurance from FEMA or a private insurance company, he says. “As we’ve seen in the last few years, floods can occur far from coastlines or other places that typically flood,” Schafer adds.

Flood insurance premiums vary by your location and risk factors and are typically lower if your area is less prone to flooding. Many real estate listings now include information about floods and other risks, or you can ask your insurance agent about potential issues in your area. Earthquake coverage typically requires a separate policy and often includes “earth movement” incidents, including landslides and sinkholes, Schafer says. Also check your fire coverage. “Some policies cover wildfire, and some don’t, so you need to check your policy and add optional coverage if you live in an area where wildfires may occur,” he says.

Common misconceptions

Many people have mistaken ideas about how their coverage works. Here are some of the biggest myths:

  1. Insurance will pay for almost any damage to your home. Insurance doesn’t cover damage from negligence, which includes damage from termites or rodents, a roof leak if you haven’t maintained your roof, or the lack of a sump pump in a basement that has flooded before, Schafer says.

  2. Changing coverage raises your premiums. Updating your coverage may raise or lower your premiums, depending on your individual circumstances. The important thing is to get the protection you need to avoid a financial disaster.

  3. Insurance coverage automatically increases over time. You need to talk to your agent and share information to get a current estimate of the replacement cost of your home and determine if you need to change your coverage.

  4. Your personal property is covered even if you don’t update your policy. Insurance policies typically include a set amount of protection for your personal property, sometimes estimated as a percentage of your home’s value. But big-ticket items such as jewelry, art, musical instruments, and electronics often need a special addendum, Godfread says.

  5. Your insurance company will pay if you must relocate while your home gets fixed. Most policies do include a “loss of use” component, but they typically have limits. Kent recommends checking the limit and, if necessary, asking about optional additional coverage.

  6. You need a lawyer to fight your insurance company. If you have questions or complaints about your policy, Godfread recommends contacting your state insurance commission. “You don’t have to pay a lawyer to help you with a complaint about a claim,” he says. “The state insurance commission is there to help resolve problems and help consumers understand their policies.”

Shop around

Insurance companies have raised premiums, declined to renew policies for customers, and raised deductibles for specific issues such as hail or hurricane damage in the wake of more frequent and severe natural disasters, Kent says. If your rate has gone up, consider getting estimates from other companies.

“Even if you decide to stick with your company, you may learn about coverage options that you need or that you should increase the amount of your insurance,” Kent says.

Yes, you might end up spending more money: The cost to upgrade your coverage from $300,000 to $400,000 averages $400 annually, Schafer says. But, he adds, it is well worth the money to have financial protection — and peace of mind — in a disaster.