Is your HOME under-insured?
The price per square foot of a new build has increased dramatically over the past couple of years & often our insurance policies are not keeping up!
Regardless of where you are in the real estate space, this is an important topic to understand & take action on if needed.
First-Time Home Buyers – as you are arranging insurance coverage for your new purchase, ensure that you understand & ask how “replacement cost” is determined, “adequate limits” & “co-insurance penalties”
Homeowners Who Have Renovated – if you have “forced” appreciation on your home due to renovations then your replacement costs may have changed, depending on how your policy is written
Homeowners Who Have Re-financed to Pull Equity Out – make sure you don’t owe more than you are insured for
Homeowners/Investors Who Have Owned Their Home for a Long Time – has your “replacement cost” kept in step with market appreciation of your home
Your insurance broker/agent should be reviewing the replacement cost on your dwelling with you at every renewal. It can be a bit of a lengthy process but SO worth it! And yes it will most likely mean your premiums will go up. BUT if you have a loss & the insurance company deems you under-insured then you will have to come up with part of the rebuild funds.
An example I’ve recently heard is that if rebuild costs $400k and you’re insured for $300k & you have a fire with repair costs of $100k, the insurance company will say you are 25% under-insured and you need to contribute 25% of the repairs…so insurance would only pay $75k of the $100k in repairs.
Policies that are “100%” replacement value are usually UP TO a certain amount of money so it’s important to ensure that that amount of money will rebuild your home or address your loss to the same condition it was in when you suffered the loss – for example if you renovated your kitchen you want it rebuilt to the same quality & finishes – not builder grade basic.
Insurance companies often use automated software to determine replacement costs/premiums, if you find that the numbers they are giving you are not adequate, then escalate things until you do get something that makes sense – advocate for yourself because no one else is looking out for you!
Remember… “replacement cost”, “adequate limits” & “co-insurance penalties”
Until next time,
Check out other posts I've written related to insurance matters:
Are Insurance Conditions Making A Come-Back?
The True Costs Of Home Ownership Series - Insurance
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