The secret problem with homeowner insurance
What if there is a fire, or a flood, or a tornado? Will your homeowner policy cover the entire cost to repair or rebuild your home? Are your possessions totally covered if a disaster should strike? If you’re like most people, you probably think you have enough coverage. If you’re like most people, you probably don’t. That means your home is underinsured.
According to the 2019 Insurance Adequacy Report by property risk-management company Core Logic, nearly three out of every five American homes are underinsured by an average of 20 percent. Why is this? One reason is that many people believe that the insured value of their home is the same thing as its market value. Making this assumption can be a costly mistake in the event of a disaster.
The insured value of your home represents how much it would actually cost to reconstruct your home, based on real numbers. This includes the cost of labor and materials to rebuild the home and all the steps that entails. Keep in mind that this number will most likely be different than the market value of your home.
The market value of your home is how much you might expect to get for your home if you were to sell it. Market value takes into consideration specific real estate factors including the value of the land your house sits on, comparable sales in your neighborhood and the desirable features in your home, neighborhood, town or state.
Plan for the worst, come out on top
What can you do to ensure your home and possessions are sufficiently covered if a disaster should strike? Here are a few steps to get you started:
Consider reaching out to a local contractor or builders association to help calculate realistic estimated costs to rebuild. Also, is your home up to code? Rebuilding to code could add additional expense.
Remember to account for home improvements you have made during your time living there. Have you remodeled your basement, added a bathroom or made other improvements? How much would it cost to rebuild these enhancements, given today’s higher costs of building materials? Do you need more coverage?
Conduct a home inventory. Research replacement costs for important items. You might be surprised how much it costs to replace things. Do you need more coverage? Additionally, how many valuables do you keep around the house, such as jewelry or expensive collectibles? Make a list. There may be a limit to how much is covered.
Talk to your agent for help
For help with all these steps and more, contact your insurance agent. Working with your agent, you can make sure your home is not underinsured. The goal is to have the true value of your home realistically represented in your homeowner policy. You’ll want to provide accurate information about your home’s age, size (square footage) and features such as number of stories, rooms, bathrooms and kitchens, as well as types of materials used (what kind of roof, types of interior decorating materials), and other specific details. Talk about whether an extended coverage endorsement might help.
Maybe you haven’t thought about your homeowner insurance or personal property coverage for a while. A catastrophe can happen at any time, whether caused by mother nature or human mistake or misfortune. Now is your chance to make sure your home and other possessions will be protected.
by Kris A. Mainellis