Double-check your Dwelling Limits

Double-check your Dwelling Limits

After every natural disaster, too many people discover the awful truth:  they don’t have enough insurance to rebuild their homes.  Fires, hail storms, and tornadoes cause excruciating damage to homes and individuals across the United States too often.  Those same disasters can also be painful for the pocketbook.  According to one of the largest residential building cost data companies, Marshall & Swift/Boeckh, 64% of U.S. homes are undervalued by an average of 19%.  If this figure is applied to a home with a replacement cost of $400,000, it might be insured for only $324,000, a shortfall of $76,000.

This underinsurance results in a potentially huge coverage gap, particularly if the home is not insured with a guaranteed replacement cost provision.  An IMT Homeowners policy pays for most covered losses to your dwelling on a replacement cost basis as long as your home is insured to 80% or more of the replacement cost.  A replacement cost loss settlement is preferred since there is no deduction for depreciation regardless of the age or condition of the damaged item.  In addition, most IMT homes insured to their full replacement cost are eligible for an additional 25% of the dwelling limit if necessary to replace a home destroyed by a covered cause of loss.  This additional 25% of coverage can be extremely beneficial for areas devastated by catastrophes where often the cost to rebuild a home is dramatically increased due to a limited number of construction companies in the region and an unprecedented demand for their services.

  Here are some general tips to consider, reducing the likelihood of your home being underinsured:

  • Perform a quick estimate on the amount to rebuild your home.  You can multiply the local building costs per square foot by the total square footage of your house.  Consider the following factors that will determine the cost to rebuild your home:
    • Construction Costs
    • Square footage of the structure
    • Type of exterior wall construction (frame, masonry, etc.)
    • Style of house (ranch, colonial, etc.)
    • Number of rooms and bathrooms
    • Type of roof
    • Attached garages, fireplaces, and exterior trim
  • Check the latest building codes in your community.  If your home is severely damaged, you might have to rebuild it to comply with the new standards requiring a change in design or building materials.  If you have an older home, you may want to consider increasing the ordinance or law coverage (10% of dwelling limit for many homeowners policies) to a higher percent of coverage
  • Remodel recently?  Keep your insurance agent and company informed of any remodeling you perform to your home.  According to the National Association of the Remodeling Industry, Americans spend more than $170 million annually on home improvement projects.  Remodeling your home can dramatically increase the need for higher dwelling limits, so you want to be sure you are covered accurately after making any improvements.
  • Market Value ≠ Replacement Cost.  Many consumers assume the amount of dwelling coverage will be equal to the amount they paid for their house, but this is not always the case.  Replacement Cost does not consider the price you paid for your house, rather it is the price or cost it will take you to rebuild your house in the same spot, same size, and same quality of construction, all at today’s costs.  It’s a good idea to discuss your home in detail with your insurance agent to determine the replacement cost value.
For further discussion of how to adequately insure your dwelling, contact your local independent insurance agent.

Source: Copyright 2012, International Risk Management Institute, Inc.