How Much Should I Insure My House For?
Over 60% of houses in the United States are under-insured by about 20%*!
That is a startling statistic when you think about it. This means that people in this category would have to pay $60,000 out of pocket to replace their $300,000 home in the event of a total loss. Now, if that uninsured statistic is true, then you’re forced to ask these two questions:
- Is my house currently underinsured?
- If so, what can I do to fix that?
First, you need to understand the basics of your replacement cost.
Every company uses a replacement cost estimator tool (RCE) to create this value. It takes the current cost of material and labor and uses those in conjunction with the main features of your home (e.g. square footage, construction type, quality of bathrooms and kitchens) to compute your replacement cost. It does not take into account land value, location, and other factors that could affect the sale price of your home. With this in mind, here are four more things you and your independent agent can do to ensure you are properly covered.
Review your home’s main features.
Ask your agent to share these main items with you: square footage, construction type, external wall covering, foundation type, year built, quality of kitchen and bathrooms, garage information, and finishing details. Your agent may get this information off of your public property card, which can sometimes have misinformation on it. So double check with them.
Ask about extended replacement cost options.
Every reputable company should have a relatively inexpensive additional coverage option. At roughly $30 a year, it would automatically increase your home’s replacement cost. Ask your agent to price extended dwelling coverage of 150% or guaranteed replacement cost. Extended dwelling coverage will add 50% of your home’s calculated replacement cost on top of what is there. So if you are currently insured for $300,000, this endorsement will add an extra $150,000, making your total coverage $450,000. Guaranteed replacement cost has no cap on your coverage. If you are insured for $300,000 but the total loss required $850,000, this endorsement will cover that amount.
Notify your agent of any improvements or alterations you make to your home.
You might remodel your kitchen, add a patio, or do other work on your house. This could have an impact on your replacement cost. Your current agent should be asking for updates every year or two years.
Make sure you know who you’re doing business with.
Companies are always trying to gain more of the market when it comes to home insurance. To do this, less reputable companies may cut replacement cost standards to lower their premiums and become more competitive. So it is imperative you know you’re with a company that correctly calculates replacement costs and has a good track record with claims.
Talk to an independent agent today to see if you’re properly covered!