If your home were destroyed, would your insurance policy cover all of the damage?
A 2013 survey by Marshall & Swift/Boeckh, a Los Angeles-based building cost information firm, found that 60 percent of Americaï¿½s homes are undervalued by insurance by an average of 17 percent.
Many homeowners believe their coverage is sufficient if it is equal to the price theyï¿½d receive if they sold their home today; however, market values can fluctuate, making them vulnerable.
ï¿½In reality, changes in building code, higher labor costs and shortages of building materials in some areas can lead to spikes in replacement costs that homeowners do not anticipate,ï¿½ says award-winning news reporter Caitlin Bronson of Insurance Business America.
Here are some ways you can ensure you donï¿½t fall victim to this far-reaching problem:
Double-Check Your Contents Coverage
When it comes to protecting your possessions, replacement cost policies usually donï¿½t include the same level of coverage for contents. A homeowners policy generally covers up to half or 70 percent of the coverage amount on the house itself, reports Vanessa Richardson of NBC News.
ï¿½If you have anything of exceptional value (a family heirloom, a piece of art, jewelry, etc.), you should insure it separately,ï¿½ advises the Wall Street Journalï¿½s How-To Guide for home insurance.
Keep Your Insurer Informed of Renovations
Additions and interior renovations will likely alter your homeï¿½s value and thus change its insured value as well. Make sure to give your insurer current and specific details on any changes to your home. Furthermore, certain additions, like swimming pools, will add to your insurance premium cost and might mean you need additional coverage altogether.
Know Your Surroundings
The law requires you to have flood insurance if you live in a government-recognized high-risk area, but at least one in five floods occurs in an area the government hasnï¿½t officially designated as ï¿½risky,ï¿½ discloses Robert DiGiacomo of Bankrate.com. Research your surrounding area and its history, and consider buying a preferred-risk policy from the federal government.
Get a Second Opinion
Along with asking for quotes from multiple insurance providers, consider cross-referencing the figures provided by your insurer with those from a local contractor. A contractor can legitimize the estimate of how much it would cost to rebuild your home, using current, real-world prices.
No matter where you live or what your circumstances are, donï¿½t be afraid to communicate with your insurance agent and ask questions. Over-preparedness today could save you bundles in the future.