Is Your House Underinsured?

Is Your House Underinsured?

July 31, 2012

If your homeowners insurance is based upon the resale value of your house, you may be underinsured. There are situations where the cost to rebuild may exceed the limits in your policy, forcing you to pay any difference out of pocket.
Floods and earthquakes are both situations where the cost to rebuild may be more than expected. If many homes are destroyed at once, then shortages of labor and materials would drive up costs.

Most policies only cover “replacement cost.” Replacement cost coverage pays the cost of repairing or rebuilding the home subject to a maximum dollar limit. The maximum dollar limit is usually based upon the estimated resale value of the home, not the estimated cost to rebuild. It does not automatically pay for required upgrades or increased building costs.

To avoid these issues, purchase homeowners insurance that pays the full amount needed to rebuild without any limit, often called “guaranteed unlimited replacement cost.” If that isn't available from your insurer, ask for “extended replacement cost." That will increase coverage limits but is not as good as guaranteed unlimited replacement cost policies.

Speak to your insurance agent about this. Also, discuss deductibles, umbrella liability and coverage for contents, floods, earthquakes, mold, sewage backup, etc.

Don’t ignore earthquake coverage. Most homeowners in the Washington, DC area do not have earthquake coverage, thinking that earthquakes don’t happen there. Well, they do. There was an earthquake in July 2010 and another one in August 2011. The 2011 earthquake was 200 times bigger and 2800 times more powerful than the 2010 quake. Not a good trend.

Note: Any information provided in this presentation has been prepared from sources believed to be reliable but is not guaranteed and is not a complete summary or statement of all available data necessary for making a decision. Information provided is for information purposes only and does not constitute a recommendation. Arthur Stein Financial, LLC is not licensed to sell homeowners insurance and we are not experts in property and casualty insurance. Read your policy and then consult your agent and/or someone who specializes in this insurance to make sure you are fully insured.