A recent study revealed that more than two-thirds of homeowners in the U.S. are underinsured. In the event of a total loss, this could mean not having enough insurance to rebuild your home. As homebuilding costs rise and inflation continues, it’s critical to ensure your policy reflects current realities. Check out our guide below!
Questions? Reach out to one of our knowledgeable insurance agents. We’re eager to set you up with the right coverage and rate!
How Homes Become Underinsured
Several common scenarios can lead to underinsurance:
- Appreciation in Home Value: Your home reconstruction costs increase, but your policy doesn’t.
- Unreported Renovations: Updates like a kitchen remodel can significantly increase replacement costs.
- Rising Construction Prices: The cost of labor and materials continues to climb.
- Policy Gaps: Missing endorsements like flood, earthquake, or sewer backup coverage.
- The 80% Rule: Insurers may reduce payouts if your coverage isn’t at least 80% of your home’s replacement cost.
Why Mortgage-Required Coverage May Not Be Enough
Your lender may only require coverage equal to the outstanding mortgage balance. This is often far less than the amount needed to rebuild your home after a disaster. For example, if your mortgage is $100,000, but your rebuild cost is $250,000, your $100,000 policy creates a $150,000 coverage gap.
3 Steps to Ensure You’re Properly Insured
1. Base Coverage on Rebuild Costs: Use your home’s reconstruction cost, not market value. Consult a professional estimator or your insurer for a detailed analysis. Deduct land value to avoid overpaying.
2. Add Flood Insurance: Flooding isn’t covered by standard homeowners’ policies. Flood insurance is essential, even for homes outside designated flood zones.
3. Review Policies Annually: Speak with your insurance agent at each renewal. Discuss recent upgrades, purchases, or changes to your household. Review your deductible, ask for discounts, and confirm whether you need additional endorsements.
Protecting your assets means making sure your insurance policy is as current as your home.
This article is for informational purposes only. You should not act based on this information without first consulting with your insurance agent; if you would like a quote from a Cornerstone Insurance Agency licensed agent, contact us. We disclaim all liability for actions taken or not taken by you based on the contents of this article which is provided “as is.” Cornerstone makes no representation that this content is error-free.