21 Jul Is Your Home Underinsured?
Purchasing and owning a home is one of the biggest investments a person can make in their lifetime. In fact, a residence is often times the largest asset ever owned by a person. Therefore, the question begging to be asked is why would someone sacrifice on the amount of coverage they have just to save a couple of bucks? Most homeowners are aware that their house faces natural dangers everyday that can result in severe damage or complete destruction. However, according to CBS News statistics in 2009 showed that about 64% of American households were underinsured with roughly 27% less coverage then they needed. That means that if a person’s home were to be destroyed, their insurance would only cover around 75% of the costs to rebuild it. Is that a price your willing to pay just to save a measly amount of money today?
Most homes are owned under mortgages and lenders tend to require homeowner’s insurance, but they only require it to the full value of the loan rather than the full replacement value of the home. The underinsured problem isn’t an issue for minor damages to a home, but is truly exposed when a catastrophe occurs resulting in major damage to the point of the residence needing to be rebuilt. When this happens, homeowners face excessive out-of-pocket costs because their insurance doesn’t provide the money needed to reconstruct.
So the question remains, how can you avoid the financial crisis that could transpire with inadequate insurance coverage for your much-loved home?
Producer Online, an insurance publishing group, describes how homeowner’s insurance works and why people often end up underinsured without even knowing it:
“Typically, an insurance policy stipulates the level of coverage that should be carried on a given home. Coverage is often increased by a set percentage when a policy is annually renewed. However, the automatic increase may not keep pace with economic factors that raise home replacement costs. For example, because of the recent spate of catastrophes, construction labor costs are very high, creating unanticipated repair and rebuilding cost increases. Failure to make sure that insurance coverage is adequate could result in a homeowner having to bear thousands of dollars in uncovered damage”.
The trick to finding the right policy for you is to pick the one that is both affordable and extensive, and you must also keep that policy up-to-date with both your current situation and the economy. The following are some tips to considering when searching for your homeowners insurance policy:
- Take into account the economy! For example, according to the National Association of Home Builders, the cost of common construction materials such as cement, drywall, lumber and nails have skyrocketed over the past couple of years at a rate even quicker than gasoline prices. This means that a house that cost $125/square foot only a few years ago now costs almost $200/square foot to rebuild!
- Always report any remodels or improvements. The Harvard University Joint Center for Housing Studies found that Americans spent an estimated $149 billion on home improvements in 2005. Often times, homeowners forget to report these upgrades to their insurers and therefore the result is an underinsured home!
- Consider purchasing disaster coverage. One of the reasons that Hurricane Katrina was so financially disastrous to people was because they lacked any kind of flood insurance for their home. Avoid their mistake by purchasing additional coverage for your policy if you live in a region known for floods or earthquakes.
Preventing your house from becoming underinsured is tricky but not impossible. The key is to remain up-to-date and adjust the coverage when needed. It is wise to do your homework and learn the true replacement value of your home and your possessions so that you don’t end up financially and emotionally distressed in the event of a catastrophe. For more information on NC insurance or for a free North Carolina insurance quote visit our website at spiveyinsurancegroup.com or call Spivey Insurance Group today at 877-318-5951 to talk to one of our friendly agents!