Articles for Homeowners

Recent Survey Shows Majority of Homeowners Are Underinsured

Two out of three U.S. homes are vastly underinsured according to a recent survey. Based on survey results, the average homeowner’s policy insures less than three quarters of the projected replacement cost of the home. With disastrous wildfires in California and Colorado, this point was really driven home as thousands of homeowners were left without enough coverage.

The survey, completed by insurance consultant Marshall & Swift/Boeckh in November 2003, found that 64% of U.S. homes are not insured at a high enough level to pay for a complete reconstruction. Although the study did not show results regionally, nationwide the average policy falls 27% short of the projected cost to rebuild the house. Put in other terms, the owner of a house insured for $200,000 would be $54,000 short of the funds needed to rebuild if the averages held true.

The most common reason for all this, quite simply homeowners often forget to update their policies. Home remodeling and additions often drive up the value of the property beyond the stated policy limits, but these improvements might never be reported to the insurance company. And rising construction costs and changing building codes are raising the price tag to rebuild.

To combat this effect, homeowners should review policies as they renew each year. Suspected changes in the value of their homes should be communicated to their agents.

Of course, not every homeowner wants or needs to insure the full cost to rebuild. But coverage options should still be reviewed.

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Is Your Home Properly Insured?

Do you have enough coverage to reconstruct your home in the event of a disaster?  Most homeowners do not according to a recent study. Here are some tips to consider:

• Understand what your policy covers and does not cover. And just because your bank requires your policy to cover the mortgage at a minimum does not mean your insurance should be based on this amount. Insure your home, not the mortgage.
• Consider adding an inflation guard to your policy, if available. This will cost extra money, but will help offset the rising cost of rebuilding.
• If building codes or city ordinances change, you might be required to rebuild according to these new laws. The older the home, the more it will cost to bring it up to code. In most cases, policies will not pay for these extra costs. An “Ordinance or Law Endorsement” can help pay these costs.
• Talk to builders in your area to get an idea of replacement costs. What is the going rate per square foot for new construction?  Current appraisals are also a good source for information.