Do You Have Enough Homeowners Insurance Coverage?

California wild fires are raging more these days. That will probably mean mudslides, if rain ever falls on the drought-stricken state again. Meanwhile the Midwest can reel from devastating tornados. And the Gulf states and eastern seaboard are hurricane magnets June through November. If you’re a homeowner, it’s a good time to ask two questions regarding homeowners insurance coverage:

  1. If your home were destroyed, does your homeowners insurance coverage cover damages caused by flood, mud or storms?
  2. If your home was burned down, blown down or washed away, would your coverage be enough to replace it in today’s market?

A study done by Marshall & Swift/Boeckh, a leading provider of building replacement cost data, claimed that two out of every three U.S. homes is under-insured. There are plenty of reasons why:

  • Many home insurance companies have altered or eliminated guaranteed replacement policies. Many now cap payment at 120% of the amount coverage stated on your home owner policy.
  • Construction material and labor costs keep going up. No matter what you paid for your home a year ago, if it were destroyed today it would cost more to rebuild it.
  • If you’ve remodeled your home, you added to its value and the cost to replace it if it were destroyed or damaged. But, if you’re like the average American homeowner, you didn’t bother to let your homeowner insurance agent know about the upgrade.

The bottomline? If you’re like most folks, you probably have only enough homeowners insurance coverage to pay 80% of the cost of replacing or rebuilding. For a home valued at $300,000, you’ll come up $60,000 short. What’s your best strategy to insure that you have adequate homeowner insurance to cover any eventuality? Take proactive responsibility. Don’t just sign your homeowner insurance policy and assume you’re covered. Scrutinize every clause, ask lots of questions and make a habit of reviewing and, when necessary, updating your homeowner coverage annually.

When determining how much homeowners insurance coverage you need, don’t rely on cost per square footage estimates. Instead, look for a company that uses total component estimating, which will factor in the real cost to repair or replace damages to your actual home. If your home has lots of special materials, upgrades or custom features, ask about a restoration-cost homeowner policy or add-on riders so you don’t get stuck with standard-issue building materials. While they’re getting harder to find, you might also want to shop around for a full guaranteed-replacement homeowners policy.


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