Jonathan Carter

Cover Yourself!

Most homeowners don't carry enough insurance.
Do you?

According to a survey by Marshall & Swift / Boeckh, an amazing three out of every four homes in the U.S. are underinsured. Specialists in construction costs estimating, this Princeton, N.J. company conducts an annual review of 3 million insurance policies. The review consistently shows that homeowners do not have adequate coverage.

The most recent survey showed that the typical homeowner was underinsured by 35%.

The insurance industry has known for years that most of their customers weren't buying enough insurance coverage. This year's Colorado wildfires which cost insurers $79.3 million hammered that point home. According to the Insurance Information Institute, most of those homes covered were underinsured.

Tightfisted policies & remodeling

Insurance policies don't cover as much as in the past.
A majority of insurers have either discarded or radically modified their guaranteed replacement policies over the past five years. Gone are the days when your company would rebuild your home regardless of cost. Now most insurers cap the amount they pay at 120% of your policy's stated amount.

Increased construction costs.
According to the National Association of Home Builders, the cost to rebuild a home has risen an average of about 3% a year for the past decade. Many homeowners have neglect to update their coverage to keep up with those costs.

Remodeling push.
Last year Americans spent $180 million updating their homes, often increasing the value in the process. Marshall & Swift estimates that 75% of remodelers neglect to update their insurance coverage to reflect the improvements.

Keep tabs on your own coverage

The insurance industry isn't taking the lead to repair this problem. Knowing that consumers are already sensitive about rising homeowners' premiums, few agents want to risk losing a customer by suggesting they pay more.

Since so many insurers have capped their replacement coverage, homeowners have more at stake now. It's vital that you monitor your situation and your own coverage.

So how do you know if your coverage is enough?

Read your policy.
You should be able to determine what's covered and what's not. Call your insurer with questions.

Insure your house. Not the land or the mortgage.
The bottom line: what will it cost to rebuild your house? That could be more or less than what you paid for your home, the amount it's worth now, or the mortgage you're carrying. About 24% of the average home price is the value of the land, according to the National Association of Home Builders.

Averages as a place to start.
Nationally, the average cost for building a home ranges from $65 to $150 per square foot. High end custom-built homes can cost $200 to $400 per square foot. The NAHB suggest the average homeowner should start with rebuilding costs of $75 to $85 per square foot, with adjustments from there.

Talk to local builders.
Contractors working in your area should have a fairly accurate estimate of the cost to rebuild your home, if your insurer can't help you determine the cost. Another alternative is hiring an appraiser, which can cost you $375 to $475, but could save you much in the long run.

Upgrade coverage.
If you have an older home it will cost more to bring it up to current codes. Those costs aren't usually covered in standard replacement policies sold today. Upgrade coverage is relatively inexpensive, but worth it if you're ever faced with disaster.

It's crucial. Make sure you're covered!

The possibility of disaster is the reason for insurance in the first place. The key is to make sure you have enough so that, if necessary, rebuilding is a reality.