By Denise Koslowsky
When I talk about insurance, which is quite often, sooner or later the conversation will come back to what I currently consider a crisis – the many homeowners who are underinsured.
It is an easy topic to understand when you are speaking in regards to the homes devastated by wildfires in California or the homes torn apart by windstorms in Florida. Tragically for many of those people, being underinsured is making it nearly impossible for them to rebuild their lives. But from where I sit this is a crisis that doesn’t only affect those who live in California, Florida or own homes in coastal areas. Being underinsured can happen to anyone – and does more often than you might think.
The problem begins with the approach people take when it comes to purchasing insurance. Most people purchase insurance based on the cost of the insurance premiums rather than the type of coverage it offers.
When you add to that the fact that very few people take the time to really understand the details of their coverage, it leads to at best confusion and at worst, a home that has suffered a total loss without enough insurance for the home to be rebuilt.
Key Points You Can’t Afford To Ignore
The key is for you to understand as much as you can about your insurance so that when it comes time to purchase or update a policy, you can make an informed decision. There are several factors that people in the process of purchasing insurance need to understand. Below are a few of my favorites:
- Your dwelling insurance limit is not the same thing as the market value of your home. If you were to put your home on the market today, the sales price you would likely get for your home WOULD BE LESS THAN THE COST TO REBUILD YOUR HOME.
This is key because in the event of a total loss, you will need to rebuild the home. It is important to prepare for the worst and hope for the best.
- One of the reasons building a home is so much more expensive is that building codes frequently change and the cost of upgrading to meet the new codes can add as much as 50% to the replacement cost.
On top of that, when a home is severely damaged or destroyed you need to factor in the costs of new plans, demolition and the removal of debris.
- Construction costs increase when demand is high. If your home is devastated by a disaster (like the ones in California, or Florida or Houston), the cost to rebuild increases.
This also means it is difficult to find a quality General Contractor and the time it takes to re-build the home increases. What may normally take 12 months could take up to 36 months. You will want to be sure your insurance policy includes adequate Loss of Use so that you and your family can live comfortably while your home is being rebuilt.
- The programs mass market insurance companies use to estimate replacement costs are often grossly inaccurate and not all agents do their due diligence to add in all the features of the home that drive up the cost, such as moldings, built-ins, fixtures, wall and floor coverings, permanently installed electronics, porches, decks, patios and fireplaces, which could mean that the dwelling limit is undervalued.
Most homeowners policies have limited replacement cost protection that caps coverage at the face value on the policy or has a small override of 125%, so the burden of properly insuring the home is on the customer.
Unfortunately many agents put the sale above the best interests of the client, and many clients put the cost above the quality of the insurance they are buying. Agents will often reduce the dwelling limit to gain a lower premium in an effort to be more competitive. If the buyer is more interested in price rather than coverage, the downward spiral continues.
The good news is that customers who work with qualified agents and take pro-active steps can see a discount in their rates. There are credits available for those who have temperature monitor alarms, water flow alarms, central station fire and burglar alarms, and whole house generators. If you have been a long-term client with one carrier and package your insurance with that company, you will always be looked at positively and have likely achieved “tenured” status.
Advocate Brokerage takes insuring homes to their proper value very seriously. For our clients who have a Guaranteed Replacement Cost policy, our elite carriers have already inspected your home to determine its proper value. For our clients with Limited Replacement Coverage, we have striven to utilize realistic construction costs and provide a generous cap in order to determine your dwelling limit. We strive to ensure that our clients have the most comprehensive coverage possible. If your home has undergone a renovation or upgrade that you have not yet made us aware of, your dwelling limit could perhaps be too low. We would be happy to discuss your project. We are here for you and never want to see you in a situation where your home is underinsured.