How to Determine if your Home is Adequately Insured

As a licensed insurance sales producer/agent, it is my responsibility to make sure my customer’s homes are adequately insured. One way we do this is by running a Replacement Cost Estimator. This program compiles the information on a home (square footage, type of interior & exterior, additional structures, etc) and gives us the estimated cost of REPLACING the home AS IS in today’s market.

Most insurance companies require a home to be insured for NO LESS THAN 80% of replacement cost value to be considered adequately insured. For istance, the replacement cost is $100,000 the home MUST be covered for a MINIMUM of $80,000 or a claim can be surcharged for the percentage the home is underinsured. In other words, if your home is 20% underinsured, a claim can be paid @ 80% of the total instead of 100% LESS your deductible.

How can you know if your home is adequately insured but are afraid your agent will insist it isn’t in order to increase premium and therefore increase his or her commission?

One way is to call local contractors and see what they are charging per square foot to build a home. If the going rate is $100 a square foot and your home is 1200 sq. ft of living area then you should be covered for $96 -to – $120,000 to be adequately insured.

Most home owner policies automatically figure contents (personal property) at 50% of the dwelling coverage and up to 70% if you have replacement cost. However, many companies will allow the insured to increase their coverage up to 125% of dwelling cost.

Here’s the catch though….most home owner policies have LIMITED coverage on items such as jewelry, furs, collectibles, firearms, electronics and their maximum policy amount is NOT enough! For instance, firearms and/or jewelry are normally covered for a MAXIMUM of $2000 – regardless of the number of items owned by the insured. This basic coverage can be increased to $2000 PER ITEM with a $10,000 MAXIMUM (or something similar). If that is still not enough, Schedule your valuable items!

Property liability is the portion of your home insurance that protects your assets in the instance you are sued. Most policies come with $100,000 but this can be increased to $3 or $500,000 and an “umbrella” policy of $1,000,000 can be purchased separately.

The most common area of underinsured homes is FLOOD coverage. If a person is in a “preferred” zone (one that has not flooded in 500yrs) then the coverage is not required by the lender and most feel they do not need it. What most homeowners don’t understand is that flooding can happen at any time and is not only due to a natural disaster. In fact, according to FEMA 30% of ALL flood claims are in “preferred” zones!

Flood insurance is cheap for those in preferred zones, $317 a YEAR for $250,000 – that’s not a lot to pay for peace of mind.