Is My Home Underinsured?

June 08, 2020

Home insurance is expensive and it seems as if the premiums rise every year.

Noting this, doesn’t it make sense that every dollar you do spend on homeowners insurance should be spent wisely in ways that will truly help if you suffer some kind of loss?

Sadly, many home insurance services find that more homes are underinsured, meaning their owners will not recover the cost of their dwelling or belongings after some kind of loss - is yours one of them?

Consider these important tips on how to have a policy that will actually protect your home and belongings as opposed to just costing you money without offering you the coverage you need in return.

Replacement vs. Actual Cash Value - A Big Insurance Mistake

Replacement cost versus Actual Cash Value or ACV is a big decision that many homeowners don't truly understand or know enough about.

Though it may seem advantageous to buy a policy that gives you actual cash value for your damaged home or belongings, actual value does not take things like depreciation or increasing costs into account.

A refrigerator you paid $5,000 for new might have a depreciated value of only $3,000 within a year or two after purchase and you can’t buy a new one with what ACV will pay you.

Similarly, if your home with a sales value of $250,000 is significantly damaged and needs massive repairs, the labor and materials costs alone will quickly surpass that amount and leave you without nearly enough money to rebuild.

In both of these instances, an insurance policy with a replacement cost benefit will replace these items including your home no matter what rebuilding cost are at the time of the loss.

Where Else Might Your Home Be Underinsured?

Beyond the issue of replacement cost versus actual cash value, there are a number of other areas where your home insurance policy may be lacking the coverage you need:

  • Improvements - Every new thing you add to your home, whether it’s a whole addition or just replacing your kitchen appliances, adds value that must be accounted for in your homeowners policy. Remedy: Let your agent know of changes like these so your coverage limits can be increased!
  • Valuables - Most insurance policies have small limits for personal property and may not cover valuables like expensive jewelry, fine art, antiques, many collectibles, and other things that are beyond the scope of normal policies. Remedy: Have your agent add a separate valuables rider to protect their value!
  • Disaster Coverage - Most homeowners insurance policies do not include flood coverage or certain other disasters. Remedy: Ask your agent to review your homeowners policy and add any necessary coverage to your policy so your home is properly protected against potential disasters!
  • Insurance Minimums - As tempting as it may be to opt for the minimum coverage to get a lower premium, it’s throwing money away if you don't carry enough policy limits to cover potential loses. Remedy: Review coverage limits with an experienced homeowners agent who can help you make the right decisions about saving premium dollars!
  • Policy Reviews - If you’re going year to year paying your premium without carefully reviewing the policy again, your home could be underinsured simply because of rising construction and materials costs, replacement value on your personal property, and more. Remedy: Have your agent get with you yearly to go over your policy and adjust your coverage limits as needed!

Avoid Being Underinsured

Hopefully, you’ll never have to deal with the kind of loss to your home or property that results in a big insurance claim being made; however, if you follow the above tips you're more likely to have the proper amount of coverage when a loss happens.

If any of the above points sound familiar, it’s probably time to discuss your homeowners policy with your home insurance services to make certain that you’re getting the protection you need and your insurance dollars are being well spent.

The worst time to find out you’re underinsured is when you put in a claim and are in most need of your insurance benefits!

Got Enough Home Insurance in College Station Texas?

Talk to Jones & Associates About Homeowners Insurance Today!

Call (979) 599-7532!