Is Your Home Under-Insured?

Due to the interesting effects of the pandemic construction costs are rising significantly from inflation. This could be a cause for concern for homeowners because the increase in the cost of materials for building, supply chain issues, as well as labor shortages, can leave some homeowners underinsured in the case of an emergency if they need to rebuild.

In the case of a significant emergency disaster, a homeowner without enough coverage might find themselves having to pay out of pocket to cover what insurance will not. It is a good time to go over your home insurance policy and make sure that you have plenty of coverage in the unlikely event that something happens where you need to make a claim.

Here are some good things to know when it comes to making sure you have plenty of home insurance coverage

Know your home’s replacement cost

When determining how much coverage you should have on your home, an insurer will use a replacement cost calculator to help them determine how much coverage is needed to rebuild your property.

To come to a number they will use information about the home such as the total square footage, the construction materials used in the home, the year the home was built, and more factors to compile an estimated replacement cost.

You can take measures into your own hands to estimate your home’s replacement cost. One method you can use is to multiply the home square footage by the current cost of construction per square foot in your local area. This is advice from a public insurance adjuster. To get a fair idea of the per square foot building costs for your area you can contact the local Builders Association, a local insurance agent, or even a contractor.

You could also have an independent insurance agency pull multiple homeowners insurance quotes to help you get a feel for what each insurer believes it will cost to rebuild your home.

It is a good idea to look at the declaration page of your insurance policy and see if you’re covered by replacement costs or the actual cash value of your home. This is important especially when it comes to personal property. Replacement cost coverage will pay to repair the home or replace belongings up to a certain coverage limit without factoring in any depreciation or loss of value. This simply means the insurance company pays to rebuild a home to the exact condition it was before the claim was filed. They will also replace any personal property with new items such as paying for a new laptop without considering its depreciated value.

Check into guaranteed replacement cost coverage or extended coverage

Determining what it would cost to rebuild your home today could be quite easy but it can be difficult to predict what it would cost to rebuild in the future. Even a large catastrophic storm over a significant area where you live could cause extreme inflation in the cost to rebuild in that area in a matter of hours.

Extended replacement cost coverage or guaranteed replacement cost coverage is added to home insurance policies to help cover the cost of uncertainties. This type of coverage pays a percentage over your dwelling coverage limit if the amount isn’t enough to cover the cost of rebuilding the home. So, if you have a dwelling coverage of $100,000 as well as an extended replacement cost coverage of 25% the insurer will pay up to $125,000 for rebuilding costs.

Look into your other coverage options

There are home insurance policies that come with an inflation guard to help offset any possibility of not having enough coverage because of inflation. This guard automatically raises coverage limits to account for regular inflation as the policy is renewed.

This could cause the premium to rise due to the inflation guard, but it is not a good idea to lower coverage limits just to save some money. This inflation guard is a good thing to help protect you from being underinsured without realizing it.

If you are in an older home look at your policy and see if there is ordinance or law coverage. This coverage will pay the cost to meet current building codes when you need to rebuild as your home will need to be put back together to meet current codes, not the ones that it met when it was built years ago. If you do not have this you will most likely have to pay out of pocket for work that needs to be done to bring your home up to current building codes.

For more information on purchasing a home in Portland or surrounding areas please contact us anytime.

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