Schaub Team Blog

Is your home underinsured?

Posted by Jamie Jewell on Jun 26 , 2024 - 11:29 am

Insurance provides peace of mind. But, oftentimes, policyholders do not regularly review the details and terms of their coverage to be sure they are not underinsured.  Being underinsured means you don’t have proper dwelling coverage to replace your home if it is destroyed. 

House FireIt may be happening more than you think.  Nationwide insurance estimates about two out of every three homes in America is underinsured by an average of 22%-60% or more. 

Rising construction costs and inflation are one reason why homeowners may find themselves underinsured.  Most insurance companies require a minimum amount of coverage.  For example, if the minimum coverage required is 80% replacement cost and your home is destroyed, you will have to make up the difference to rebuild. 

Chris Branson, of Bonek Insurance Agency shared that they have been proactive with their existing clients to be sure clients are increasing their building replacement value appropriately, especially on commercial buildings.  “We also recommend clients get an opinion from a builder, or lumber yard to understand current costs of construction in our region,” shared Branson.  Carriers often have some inflation protection imposed by rate increases estimated between 4-8% year over year.  But, he warns, that does not take into account the extreme cost increases of materials and labor that have occurred in the last several years – particularly since COVID.

Rebuild HouseIf your home is financed, a lender will require a minimum amount of coverage too.  Some may only require the unpaid balance of your mortgage.  It’s important to know that neither the loan balance nor the current market value of your home represents the replacement cost of your home.  The insurance coverage you have should always be equal to the true replacement cost.

Have you made significant improvements to your home?  Those additions or changes may increase the cost to replace if destroyed.  Your insurance should be updated to reflect those changes when made.

Todd Hart, another local agent with State Farm Insurance, also stated that they make every effort to reach out to their clients to review coverage and make updates. He reiterated that this should be done annually.  “It’s a good idea to check the terms of coverage and get an  understanding of the policy – if the stated limit is truly a top-line amount or if there are extra assurances built into the policy that may extend an extra 20%, 50% or unlimited amount for guaranteed replacement, or not.”

Hart shared, “Property owners may or may not be aware, but for the cost of coverage and the peace of mind it brings, it makes sense to update [insurance coverage limits].”