The typical homeowners policy is designed to put you back the way you were, to replace what you had prior to a loss. Pretty simple, right? Not quite.
A recent article published on 11.19.18 by Insurance Business America provides some startling statistics when it comes to the actual replacement cost of a home vs. what the home was insured for on the policy. “California’s massive wildfires over the past year have highlighted that many residents were underinsured – and an insurance expert believes several factors are to blame. According to the latest figures, nearly 80% of the homes affected by the wildfires were underinsured – of which 60% were severely underinsured.”
There are several factors that may contribute to this potentially serious gap in coverage. All too often an insured may equate the insurance limit to the market value of their home, which has little to do with what it may cost to build. Or, people do not realize the sharp increase of “30% to 35% or more in building and material costs after a major disaster occurs”. There is also a possibility that “building code changes may increase the replacement costs by as much as 35% to 50%”.
When considering the value of the dwelling coverage on your home or building, think about the above. No one wants to pay more for home insurance than they have to. Additionally, most people think a claim is never going to happen to them. Don’t shortchange yourself on the replacement cost of your home.
Your insurance agent’s job is to help you properly insure your home, not over insure it and certainly not underinsure it. If you receive a proposal that has a significantly reduced dwelling value when compared to others, think carefully about going with it. The savings may not be worth it.