March 29, 2022

Is Your Home Underinsured?

We’ve all been affected by massive price hikes from groceries, to gas, and everything in between. These price hikes also affect how much it would cost to repair, or god forbid, rebuild your home if you have a very large claim. 

In January of 2022, a Colorado couple suffered a fire loss on their home. The insurance policy provided dwelling coverage of $240,000, however they have learned that they will be short between $300,000 and $380,000 as the cost to rebuild may be between $540,000 and $580,000. Sadly, their story is one of many.

Nationwide estimates that approximately two out of every three homes are currently underinsured throughout the country (Nationwide.com). If your insurance coverage does not meet the current cost to rebuild your home and your house is destroyed by fire, or another covered loss, the difference will have to come from your pocket. Even if you suffer a partial loss on your home, if you’re underinsured your claim can be reduced by the percentage you have been underinsured. 

It’s been difficult for insurance carriers to keep up with these price increases since they came on rather quickly. Many carriers will adjust your homeowners policy for inflation every year, but that adjustment has proven to be insufficient today. Some insurers have made the decision to apply 10% or higher coverage increases at the renewal of each policy, but you don’t have to wait for your insurance carrier to increase your coverage. 

If you’re worried that your home may be underinsured, call your insurance agent to discuss. We have tools that can help determine if your home’s dwelling coverage needs to be increased. 

Other factors to consider:

Have you improved your property since it was first insured? Home improvement projects not only affect the market value of your home, but the replacement value of your home. Remember, the market value is what your home can sell for, while the replacement value is what it costs to rebuild. These values can sometimes be tens of thousands of dollars apart. 

Have you installed solar panels on your home? When you attach something to your home, it becomes part of your “dwelling”. Solar panels should be included in your cost of reconstruction. 

If you’re looking to save money on your homeowners insurance, it is unwise, especially today, to reduce your limits. Many carriers offer bundling discounts if you insure your autos, or recreational vehicles with them. Additionally, many offer discounts for home security systems, or even smart home devices. 

If you have a low deductible, you may also be able to shave off some premium by increasing your deductible. The deductible is the portion of a claim you agree to pay. Most deductibles are between $500 and $2500, but some carriers may offer higher deductibles. Check with your agent to find out if the potential savings is worth the increase. 

Your home may be one of your most valuable assets. Many won’t realize their home is underinsured until they are facing a devastating claim. Make sure you’re properly insured before a tragedy.