Is Your Home Adequately Insured?

By Dan Jiles

Updating homeowners insurance may save thousands in replacement costs. Recent low interest rates are allowing homeowners to remodel and upgrade their homes, causing the value of the home to increase. However, many do not think to update their homeowners policy after making home modifications, and as a result, it is possible the coverage originally selected when the policy was purchased is inadequate.

Homeowners should re-examine their coverage after doing any type of remodeling or home upgrade to ensure adequate coverage is available in the event the home incurs major damage or complete destruction from a catastrophic event, manmade or natural.

The best way to avoid an underinsurance problem is to review your homeowner’s policy regularly. When the renewal offer comes, take some time to review the policy limit.

Underinsurance can result from circumstances other than remodeling or upgrading. In some cases, the home insurance was purchased several years ago and the replacement cost hasn’t been updated for the impact of inflation. Some policies have an inflation guard endorsement, but even that isn’t absolute protection. The inflation guard endorsement typically applies a fixed increase to the homeowner’s replacement cost each year. But, if replacement costs like building materials, etc., rise faster than the allowed inflation factor of the policy, then homeowners may be underinsured by several thousand dollars.

In other cases, the initial insurance amount was calculated using a faulty premise. Some homeowners calculate the amount of needed coverage by taking the cost of their new home and subtracting the land value. Doing this ignores the fact that replacement construction tends to be more expensive than new construction because a new home builder can frequently purchase materials and labor at reduced costs.

If homeowners are unsure whether they have enough coverage, they should contact their insurance agent to ensure the proper protection is in place and if the replacement cost coverage needs to be increased.