Most homeowners have insurance on their houses to cover their most valuable possession, but they may not be able to recoup all of their losses in the event of a disaster. Looking at nearby properties for sale or offers from interested parties, you might think that your home insurance policy covers up to the value of your house, but that value is not always the same as the cost of repairing or rebuilding the structure. Today, we will discuss the dangers of being underinsured, including the relationship between replacement cost and market value.
Underinsured Homes – Causes and Dangers
If a hurricane or particularly bad storm hits your area, your home’s insurance will be able to cover most damages that occur according to the specifics of your policy. Very few physical home damages can come close to the total value of your house, so you should be covered no matter what if your policy covers up to the value of your home. But what if your home is completely destroyed?
You might think a $200,000 policy is sufficient for a $200,000 house, but this isn’t always true. Many factors that affect the current cost of building a home are not the same as those that determine the market value of a home. For example, some of the costs of home replacement you don’t need to worry about when valuing a home traditionally include:
- Labor costs
- Material costs
- Demolition costs
- Junk removal and transportation costs
- Inspection and zoning costs
Whatever the current value of your house is, these costs have already been baked in. Other factors such as location, size, the relative safety of the neighborhood, and neighboring house prices make up most of your house’s value.
The replacement cost of your home might be more or less in one year compared to another, but that doesn’t mean you should roll the dice by having an insurance limit that straddles the line. America has recently faced shortages of building materials like lumber, and house construction costs went through the roof as a result. If a significant accident destroyed your home in this time period, you would have likely spent much more on rebuilding your home than the previous value, forcing you to pay out of pocket to finish the job.
How Much Insurance Do I Need To Match Replacement Cost?
Not all homes have a value that is less than their replacement cost, but you should always review your homeowner’s policy if significant time has passed. To determine the cost of replacing your home, you can discuss your situation with an insurance agent or hire an inspector or appraiser to visit your home.
You can also decide the perfect replacement cost for your house by determining whether or not you want the house to be rebuilt in the same way. Even if your home has expensive roof tiles, you don’t need to rebuild them the same way if they are not crucial to your enjoyment of the house in the present. This can decrease your replacement cost and lead to monthly savings with a lower premium.
Anderson & Associates Insurance Group has been assisting residents of South Florida in determining the perfect level of insurance for their unique situation for years. We can help you obtain insurance for your home, health, automobile, boat, and anything else integral to your daily life. Call us today for a free, no-obligation quote and a discussion on how we can start helping you save money.
