Sunday, May 21, 2017

Is Your Home Under-Insured?

Recent research shows that 60% of the respondents never shopped around or checked on the adequacy of their homeowner’s insurance when the policy was up for renewal. 75% of them said that cost was a major influence on the amount and type of coverage they had. While the cost of insurance cannot be ignored, it should not be the deciding factor in the amount of coverage that is taken. The coverage should be based on what it will cost to rebuild a home that has been destroyed by natural calamity.

Market Value vs. Replacement Cost

The real estate market is yet to recover from the mortgage crisis of a few years ago. Many homeowner’s look at the current market value of their home and, on finding that the value has dropped over the last few years, reduce their insurance accordingly. However, that is a major mistake. A home’s value may have come down by 30% but if it is destroyed, the cost of rebuilding it may be 30% higher. That is the kind of gap that could ruin a family financially. What you need to do is base your coverage on what it will cost you to rebuild a home that has been lost. There are 2 types of insurance options to consider.


  • Actual Cost Value (ACV):This is the less expensive of the options. It covers the “as is” or depreciated cost of the house. Coverage is limited to what is known as “like kind and like quality.” In other words, if a roof of a 12 year old house has to be replaced, the insurance payout will be for the cost of a 12 year old roof. The difference(the current market cost of a new roof) will have to be paid by the homeowner. Since depreciation happens quickly, it is easy to miscalculate the coverage that is available and find that a major part of the repair or replacement cost is not covered by the policy.
  • Replacement Cost: These policies cover the actual repair or replacement cost at the time the work is to be done. In other words, if the 12 year old roof is to be replaced, the policy will cover the cost that is prevalent today. Obviously, this is more expensive than the ACV coverage, but it offers complete protection.

Finding the Right Coverage

Thinking about worst case scenarios can be depressing. Finding your way through the complexities of insurance can be dull and boring. The cost of insurance can lead to efforts to reduce the premiums.  All these factors conspire to create a situation where it is easy to use ballpark estimates to decide on a policy without considering what you really need. You cannot afford to make mistakes or take risks when it comes to protecting your biggest investment. Balancing the cost of insurance and the coverage that is required requires professional expertise. An insurance broker will be able to guide you to the right choices – those that will not waste money on excessive premiums but at the same time give your family and your home the protection it needs. Procrastinate no longer and contact the insurance broker, today.

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