Insurance agents throughout the state often talk to our clients at the very worst times of their lives. Massive flooding from a storm, an electrical fire, or vandalism occurs, leaving them with a home that’s in pieces. When an event like this happens, your home insurance should be there to provide financial protection to you. The problem is, it doesn’t always work that way if your agent hasn’t put some time and effort into properly updating and managing your policy.
Specifically, consider the value of your coverage. Here’s an example of what a client may experience. An older home, though beautifully cared for by the homeowners, wasn’t properly maintained from an electrical standpoint. Without warning, it caught on fire and burned nearly to the ground. The home insurance policy hadn’t been updated in some time, and the property owner didn’t have enough to rebuild the property.
How You Can Avoid This Risk
The biggest factor in avoiding this type of risk is to ensure your home’s replacement insurance coverage is enough. Coverage A, which covers the structure of your home, needs to have a high enough value to minimize any financial loss to you if the home is considered unable to be repaired. How do you ensure this? Here’s where to start.
Base Your Insurance Value on the Cost of Construction
Instead of insuring your home for its market value, make sure you choose the construction cost, or replacement cost value. There’s a difference. Market value is what you could get if you listed your home for sale. The replacement cost value is based on the cost a builder would charge to construct the home. We like to recommend using our Replacement Cost Estimator tool to help determine the proper amount. It can figure in factor such as:
- The cost of building supplies right now
- The cost of labor right now (there’s a shortage, and wages are on the rise)
- The cost of the build comprehensively
Factor in the Increase in Your Home’s Value
Here’s where a client typically goes wrong. You need to be sure your home insurance Coverage A is always up to date. The cost of building has increased over the last few years, and so has the value of property in our area. When you put inflation into the picture, you can feel more confident about your insurance policy offering enough protection. You can include an Inflation Guard Endorsement in your policy for this (it makes sure that your home’s insurance policy’s value follows inflation.
You Do Not Have to Do This on Your Own
There are many other factors to keep in mind when choosing the value of Coverage A. Our agents can work with you to create a clear, easy-to-understand value for you for replacement coverage. We’ll use our tools to gain some insight. We will also factor in your lender’s requirements (nearly all mortgage lenders require property owners to have at least enough coverage for the value of the mortgage). And, we also factor in things like the value of your home based on local schools and market demand.
It takes a good amount of insight like this to know what the true replacement value of your home is. Hopefully, you never have to worry about this type of risk. Yet, a tornado could sweep through the area and leave you without a home. That is when our team at Lillie-Couch Insurance will be there to help with the cleanup, rebuilding, and the reestablishment of your home after such a terrible event.
