New Years Resolution- Review Your Homeowner’s Insurance

Updated August 2026

If you own a home, you need to have homeowner’s insurance in place. The bank or mortgage lender requires it, and in some cases, the cost is added to your monthly payment, held in an escrow account, and paid on your behalf by the lender. Even if you have no mortgage, you still need homeowner’s insurance to protect your investment, and your financial stability, from unexpected disasters.

Yet while every homeowner must buy insurance, many do so once and never revisit the policy. This is a costly mistake. Your home’s value, your personal assets, and local risk factors all change over time. A policy written in 2010 may not reflect your 2013 situation. The Federal Reserve’s 2012 report on household debt noted that rising home values and increased personal liability exposure make periodic policy reviews essential.

Why You Should Review Your Homeowner’s Insurance Every Year

Insurance isn’t a “set it and forget it” product. The average annual premium in the United States was $1,034 in 2012, according to the Insurance Information Institute. But that number masks significant variation by state, insurer, and individual risk profile. SoFi, Chase, and Experian all track how credit scores and claims history affect rates. A poor FICO Score, for example, can increase premiums by up to 30% compared to those with excellent credit.

More than that, your home’s replacement cost may have risen due to inflation, construction cost increases, or renovations. The Harvard Business School study from 2011 found that only 70% of mortgaged homes had coverage equal to their estimated rebuild cost. That means 30% of homeowners could face a shortfall if their home is destroyed. For a homeowner in a high-cost area like San Francisco or New York, that gap could be tens of thousands of dollars.

Even without a mortgage, you’re still financially exposed. If someone is injured on your property and sues, your personal assets, your savings, retirement accounts, or even your car, could be at risk. The U.S. Securities and Exchange Commission (SEC) notes that investment clubs don’t have to register with them, but individual liability is no different: your home insurance is your first line of defense.

Of course, if you’ve recently reviewed your policy and your home’s value and personal assets haven’t changed, a full annual review might not uncover major issues. But even a quick check for new discounts or rate increases is worthwhile, insurers adjust premiums annually, and you might be leaving money on the table.

What to Review in Your Homeowner’s Insurance Policy

Liability Coverage: Protect Your Assets

Liability coverage is often overlooked, but it’s critical. It pays for legal defense and damages if someone is injured on your property or if you cause property damage. A standard policy might offer $100,000 to $300,000 in coverage. But if you have significant assets, say, a home worth $500,000 and investments worth $1M, $300,000 isn’t enough.

Consider adding an umbrella policy, which can provide $1 million or more in additional liability protection. The Federal Reserve and the Consumer Financial Protection Bureau (CFPB) both recommend umbrella coverage for high-net-worth individuals. It’s relatively inexpensive, often just $150–$300 per year, and can prevent total financial ruin from a single lawsuit.

Replacement Cost vs. Market Value Coverage

Many policies are written with “market value” coverage, which pays based on what your home was worth in the real estate market at the time of loss. That’s not enough. If your home is destroyed, you won’t be able to rebuild it with that amount.

Instead, you need a **replacement cost policy**. This type of coverage pays to rebuild your home at current construction costs, not depreciated market value. According to the Insurance Information Institute, replacement cost is the standard for new policies, but many older policies still use market value as a default.

For example, if your home was built in 2005 for $300,000, and you haven’t updated it, your market value might be $400,000 in 2013. But if the same home needs to be rebuilt, current construction costs could be $600,000. Without replacement cost coverage, you’d be left to cover a $200,000 gap, with your own money.

To put a number on the risk, consider a home with a rebuild cost of $250,000. At the 70% coverage ratio found in the Harvard study, the policy would pay only $175,000, leaving a $75,000 gap that the homeowner would have to cover out of pocket. The average annual premium of $1,034 in 2012 typically covers this type of underinsured policy; increasing coverage to full replacement cost may raise the premium somewhat, but it’s far less than the potential loss.

Update Your Coverage Limits Annually

If you’ve added a deck, renovated your kitchen, or installed a new HVAC system, your home’s value has increased. So has your insurance need. The average homeowner in 2012 paid $1,034 annually, but that’s just a baseline. Your premium should reflect your actual rebuild cost.

Use tools from companies like SoFi, Chase, or Experian to estimate your home’s replacement cost. The Internal Revenue Service (IRS) requires accurate valuations for tax purposes, and insurers use similar data to set coverage. If your policy is based on outdated figures, you’re underinsured, and you won’t get full compensation in a total loss.

Assess Your Risk Profile and Add Special Coverage

Not all risks are covered by a standard homeowner’s policy. For example:

• Floods are not covered. The National Flood Insurance Program (NFIP), administered by FEMA, offers separate flood insurance. If you live in a flood zone, this is mandatory.
• Earthquakes are excluded in most policies. In California, where seismic risk is high, insurers like State Farm or Allstate offer separate earthquake riders.
• Identity theft protection is often missing. Some insurers, including Chubb and Nationwide, include it as part of a comprehensive package.
• High-value personal property, like jewelry or collectibles, may be subject to sub-limits. A $15,000 engagement ring might only be covered up to $1,000 under a standard policy. You need a separate rider.

Even minor changes can affect coverage. If you adopted a pit bull or a large dog, some insurers may increase premiums or deny coverage. The American Society for the Prevention of Cruelty to Animals (ASPCA) doesn’t regulate insurance, but insurers do. Be truthful with your carrier, misrepresentation can void your policy.

Do You Need to Shop Around?

Yes. The average home insurance premium in the U.S. was $1,034 in 2012, but rates vary widely. A homeowner in Florida might pay $2,000 annually due to hurricane risk. Another in Nebraska might pay $700.

Compare quotes from multiple insurers. Use platforms like Bankrate, NerdWallet, or Progressive. The CFPB reports that consumers who shop around can save up to 20% on premiums. Use your FICO Score, Experian, Equifax, and TransUnion all report credit-based pricing models, to your advantage. A score above 750 can qualify you for the best rates.

How to Conduct a Policy Review

Follow these steps to ensure your policy is up to date:

1. Obtain a copy of your current policy from your insurer. If you don’t have one, request it via your insurer’s website or customer service line.
2. Review the dwelling coverage amount and compare it to your home’s estimated rebuild cost. Use tools from the Insurance Information Institute or FEMA’s cost estimator.
3. Check your liability limit. If you earn over $100,000 annually or have savings in the six figures, consider increasing it to $500,000 or $1M.
4. Review your personal property coverage. Are your electronics, clothing, and jewelry worth more than your policy’s limit? Add a scheduled personal property endorsement.
5. Ask about endorsements for flood, earthquake, or identity theft. These can be added for a small fee.
6. Compare your current rate with quotes from at least three insurers. Use a side-by-side comparison.

Comparison: Standard vs. Comprehensive Homeowner’s Insurance

Frequently Asked Questions

What happens if I’m underinsured?

If your policy doesn’t cover the full replacement cost, you’ll be responsible for the difference. The Harvard Business School study found that 30% of homeowners with mortgages were underinsured in 2011, meaning they’d face a shortfall after a total loss.

Does my homeowner’s insurance cover my neighbor’s injury?

Yes, subject to your liability coverage limit. If someone slips on your icy sidewalk and sues, your policy pays legal fees and damages up to the policy limit. This applies even if you’re not at fault.

Can I lower my premium without reducing coverage?

Yes. Increasing your deductible (e.g., from $500 to $1,000) can reduce premiums by 10%–20%. Improving home security (deadbolts, alarms) may qualify for discounts. Maintaining a high FICO Score (750+) can also lower rates.

Is flood insurance required?

Only if you’re in a designated flood zone. The Federal Emergency Management Agency (FEMA) maps flood zones. If your home is in Zone A or V, lenders require flood insurance. Even if not required, it’s wise, over 20% of flood claims come from low-to-moderate risk areas.

What’s the difference between replacement cost and actual cash value?

Replacement cost covers the cost to rebuild your home at current prices. Actual cash value (ACV) deducts for depreciation. For example, a 10-year-old roof might be worth only 40% of its original cost. ACV would pay that amount; replacement cost would pay full rebuild cost.

How often should I review my policy?

At least once a year. Major life events, buying a home, renovating, adopting a pet, or increasing assets, trigger the need for a review. The Internal Revenue Service (IRS) requires accurate valuations for tax reporting, and insurers use similar data.

Can I switch insurers mid-year?

Yes. You can cancel your current policy and switch to a new one at any time. However, ensure there’s no coverage gap. Most insurers allow cancellation with 30 days’ notice. Check your policy terms and notify your new insurer of the transition.

Do all insurers offer umbrella coverage?

No. Companies like State Farm, Nationwide, and Allstate offer umbrella policies. Others may not. Always ask. A $1 million umbrella policy typically costs $150–$300 per year and protects against lawsuits exceeding your primary liability limit.

Why is my premium so high?

High premiums can result from location (e.g., hurricane-prone areas), poor credit history (FICO Score), claims history, or lack of safety features. The CFPB reports that credit scores can impact premiums by up to 30%. Improving your FICO Score or adding smoke detectors can reduce rates.

Is homeowner’s insurance mandatory?

Yes, if you have a mortgage. Lenders require it to protect their collateral. Even if you own your home outright, it’s strongly recommended. A fire, storm, or theft could cost tens of thousands without coverage.

Additional Considerations for Homeowners

Home insurance isn’t just about the structure. It protects your personal assets, your family’s well-being, and your financial future. The Federal Reserve’s 2012 report on household debt highlighted that homeowners with high net worth are more likely to be underinsured because they assume their assets are protected.

But assets aren’t protected by assumption. They’re protected by proper coverage. If you own a business from home, say, a graphic design studio, you may need a separate business insurance rider. The IRS requires accurate reporting of income and expenses, and insurers consider business use as a risk.

Also consider the impact of climate change. Floods, wildfires, and storms are becoming more frequent. The National Oceanic and Atmospheric Administration (NOAA) reported a 50% increase in billion-dollar weather disasters from 2000 to 2012. That trend suggests rising premiums and higher risk in vulnerable areas.

Finally, be aware of policy exclusions. Most policies don’t cover:

• Wear and tear
• Intentional damage
• Earthquakes (unless added)
• Floods (unless added)
• Power outages (unless specifically covered)

These exclusions exist for good reason. They keep premiums affordable. But they also mean you must actively manage your coverage.