Do you have the right amount of insurance on your home? To begin with, your Homeowners policy should have coverage for at least 80% of “replacement cost” — the amount needed to repair or replace damage to the building and furnishings with items of like kind and quality. Some insurance companies require coverage of 90% or more under a “guaranteed replacement cost option,” which will pay for replacing your home without depreciation and often without a maximum reconstruction payment.
Unfortunately, all too many homes are underinsured. Dwellings insured for long periods with the same company might have nowhere enough coverage, due to increased building costs, remodeling, or improvements. If your home is underinsured, not only will you lack full protection for total losses, but you might also lack full protection for smaller losses (under the “coinsurance clause”).
On the other hand, many homes are over-insured. Home mortgage companies often require homeowners to buy insurance at least equal to the balance of the mortgage — which is often far higher than the replacement cost of the dwelling. If that’s the case, meeting this requirement would mean buying more coverage than needed.
Don’t make the mistake of insuring your home for its market value — which, in most cases, does not mean replacement cost. For example, market value also reflects both the cost of the building’s foundation and the underlying value of the land, which usually remain unchanged if your house needs to be rebuilt.
Our insurance professionals would be happy to offer advice on determining the proper replacement cost value and coverage amount on your home. Just call or e-mail us.
