Insuring your home against disaster

(Money Magazine) — If last fall’s devastating California wildfires weren’t enough of a wake-up call, consider this: Nearly 60% of homes nationwide don’t carry enough insurance coverage to be fully rebuilt. On average those homes are underinsured by 21%. To give yourself a chance of being made whole, follow these steps before and after disaster strikes.

Beef up your policy
Remember you’re insuring for future rebuilding costs. That means avoiding an actual-cash-value policy, which reduces your payout by how much your possessions have depreciated.

A guaranteed replacement-cost policy, which reimburses you for the full cost of rebuilding, is the gold standard but is almost impossible to find. Go for an extended replacement-cost policy, which pays you a set amount (the “dwelling limit”), plus a 20% to 25% margin. Add a building-code endorsement to cover the cost of complying with future rule changes.

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