It’s Time to Check Your Homeowner’s Insurance Coverage!
Due to the rapid increase in home values and construction costs, your homeowner’s insurance may not be adequate. Some really bad things may happen if you do not have proper coverage.
Here’s a fictitious story: Imagine that you are out of town and your house is struck by lightning. The lightning causes a fire. Thank goodness everyone was safe, yet your home sustained significant damage. In fact, it is likely they will need to replace your home. What a terrible crisis and significant inconvenience! You call your insurance company and they are happy to come out and meet with you. The insurance adjuster explains that in your case you have 5 major coverages for your insurance.
Main Dwelling – Covers the home
Other Structures – May cover items like a gazebo, fence, unattached garage etc.
Personal Property – Covers all your stuff (limits on jewelry and other high price items are likely)
Liability – Coverage for limited liability if you or your property causes damages to others.
Living Expenses – Hotel/rental etc. if you can’t stay at your home
The adjuster reviews your main dwelling coverage and shares, “You bought this coverage over 25 years ago and have made several improvements to your home. It looks like the structure was insured for $150,000. Some policies have an automatic increase and luckily yours did. The good news is that the coverage is now at $200,000. The bad news is that your home replacement looks like it will be around $300,000.”
The adjuster explains that most insurance companies use a rule called the “80% rule”. This rule means that if you insure your home at 80% or better, the insurance company will replace the home or fully repair the damages. Since 80% of $300,000 is $240,000 your current policy did not meet the requirement! You should really try to be close to the 100% replacement coverage.
The adjuster started writing a calculation on their paper to see what they will pay:
You should have had at least 80% of the $300,000 replacement cost (or $240,000), but did not. You only had $200,000.
$200,000/$240,000 = 83.3%. Basically you had 83% as much of insurance as you needed to be fully covered.
The company will therefore only pay 83.3% of the $300,000 in damages or $250,000. You will have to pay the $50,000 plus any deductibles for the damages.
Interestingly enough, if the damage was less significant, something like $100,000, they would still likely only pay the 83.3%. They would only provide $83,300 even though your overall coverage was $200,000!
Understand also, that some insurance coverage will not pay for upgrades and/or exotic features. If you have a historic home and have plaster and complex moldings, normal coverage will likely not pay for that. There are additional lines that may be available if you have specific geographic issues or have special features in your home.
It is significantly easier to add things to your coverage before you need them than to try and argue for them after there is an event. It is a much better practice to manage your coverage before you actually need it.
Please contact your insurance agent to review your policy. If you need assistance, please do not hesitate to call our office and I will do all I can help you and point you in the right direction.