In the last two years, America’s housing industry has just been booming. New home sales, existing home sales, all of the statistics were on the up tick. The only thing the real estate community had to worry about was how long the ride might last. Part of the reason that the housing market boomed so much was because of all of the new creative financing options which would allow people who normally would not be able to afford a home be able to afford to. These people are often strapped for cash, and as a result these homeowners don’t buy nearly enough insurance, which will get them in trouble.
recent study which is going to be released by Marshall & Swift/Boeckh LLC, states that 58% of houses are actually undervalued for insurance purposes, and that the average homeowner has enough insurance to rebuild 80% of their home. This means that the values on insurance policies for homes are less than what the actual home would take to rebuild, so if a disaster were to happen, the family would be in quite a bit of trouble.
How is this happening? Part of it is because insurance companies are cutting the types of disasters that they cover. Farmers Insurance is reducing the wind damage cover they have in costal regions and Allstate is cutting earthquake damage in many states. Perhaps the biggest part of the trend comes from the virtual elimination of “replacement cost insurance”, which essentially meant that even if the policy was for less than the amount of money it would take to replace the home, the insurance company would still pay the full sum of money that it cost rebuild the home. Since these policies proved to be too costly with booming home prices, companies eliminated them largely and instead pay the face value.
So what can you do to make sure you have enough insurance? Look for a policy which has an option to have “Extra value insurance” which will usually pay a fixed percentage higher than the value of your home on the insurance agreement if it is worth that. This might cost you a few extra dollars but will save you tens of thousands of dollars if something should ever happen to your home. Read your policy each and every year to see if something has changed significantly that you need to know about. Finally, make sure you have enough insurance to rebuild your home as it is and replace your personal possessions. You can have a simple appraisal done on your home to get its value, and then add up the amount of your assets to calculate this number.