You have a home insurance policy with Replacement Cost coverage. Does that mean you have enough coverage to replace your home as it was? After the California wildfires, many homeowners are finding out that not all Replacement Cost definitions are the same. They do not have enough coverage to rebuild their home, some by several hundred thousand or more. But this issue is not only a California problem.
The cost of rebuilding a home has risen significantly over the last five years and continues to increase. Catastrophic events like wildfires, floods, tornados and big hurricanes creates devastation in a localized area. These events immediately increase rebuilding costs due to needing to bring in labor and materials from outside areas on a rush basis. These are not calculated into normal rebuilding costs.
Even when it is not a major event and you are only talking about a claim for one home, underinsured homes are a problem. Homeowners whose inflation factor has not kept up with building costs, were underinsured from the start or have done renovations without telling the insurance company to update the coverage can find out that that their Replacement Cost coverage will not provide the funds to replace their home.
Most Replacement Cost coverage will provide an additional 20% or 25% on top of the limit of the policy. If your home is underinsured, you may need to come up with those additional funds to finish rebuilding your home before the insurance company will reimburse you. If your home is underinsured by more than their additional coverage, they will not reimburse you totally.
Increasing your coverage to the correct level will increase your premiums. Asking your broker if there are any credits, discounts or shopping your policy around could limit that increase. Remember, your home may be one of your largest assets. Spending a few more dollars to make sure it is properly protected can save you a lot of money and grief at claim time.
BOAKS Advisors provides Fee-Only Property and Casualty Insurance Advisory Services.
Contact: Brian Boak Email: BBoak@BOAKS.com Phone: 973-570-6381