Is Your Home Insured for the Right Amount?
If you’re in the process of building a home, you know very well the sticker shock that comes with it. In fact, building a home in the U.S. has never been more expensive.
So, knowing you’re putting so much into your house, we have some advice — don’t skimp on the insurance as you never know when a tragedy will strike
Case in point, we saw homes that were a total loss from tornados and fires caused by fireworks this past July.
Now let me ask you — would you have enough in your current insurance policy to rebuild your home if there was a total loss? Would you be stuck paying part of the bill to build a similar home to what you are in now?
What’s a Typical Homeowners’ Policy Contain?
A typical homeowners’ policy will have an inflation guard included in the policy. This means that the insured value of a home will increase each year at the renewal between 4-8 percent.
Certain insurance companies will require appraisals after coverage is bound to determine the accurate replacement cost. Other insurance companies will allow an online replacement cost estimator. If you’re wondering if you have sufficient limits, be sure to contact your current insurance agent.
Should the Policy Change Due to an Upcoming Renovation?
If you are in the process of completing a renovation or addition to your home, you should reach out to your insurance agent to confirm you still have sufficient limits that accounts for the higher-end finishes or additional square footage.
Common Homeowners’ Policy Misconceptions
“I bought my house for $250,000. Why is the insurance company wanting to insure it for $300,000?”
Ever thought that? If so, you’re not alone. A typical misconception is that you should insure your home for the price you bought it. But, here’s the thing…the accurate way to insure your home is to insure it to the rebuild/replacement cost. And guess what? Replacement costs for homes that are older tend to be higher than new build construction. So, you’ll want to factor that in.
Other Homeowners’ Policy Options
There are options for extended replacement cost or guaranteed replacement cost on homeowners’ policies.
Extended replacement cost will give you an extra percentage of the home value to assist with rebuilding if there was a total loss.
For example: If your home is insured for $500,000 and you have an extended 25 percent replacement cost, then you would have a total of $500,000 + 25 percent ($125,000) to rebuild.
If you have guaranteed replacement cost, then the policy will not set a monetary limit on the potential payout for a total loss. Insurance carriers will give guaranteed replacement cost under the understanding that the homeowner is insuring their home to the correct replacement cost.
I realize that’s all a lot to take in. The simplest way to ensure you have what you need to cover your home is to talk with an expert. At Holmes Murphy, we have a team on hand to answer questions and help you get what you need! Just reach out to us!
Published on: 08.02.21