Is the amount of property insurance on your home correct? What is the appropriate amount of coverage for your home? To begin with, it should be insured for at least 80 percent of its replacement cost when covered under a standard homeowners policy. Replacement cost refers to the amount necessary to repair or replace damaged building parts with items of like kind and quality. Some insurance companies even require 90 percent or higher figures when the guaranteed replacement cost option is offered. With this option, the policy pays the full cost of replacing your home, without any depreciation and often without a maximum reconstruction payment. (This gives you added protection if there is a sudden jump in construction costs due to a major shortage of certain building materials. Construction costs often “surge” following large catastrophes, such as hurricanes.) Note that guaranteed replacement cost coverage approaches can vary by state and is not even available in every state. Many homes are either underinsured or overinsured. For example, some homes insured for long periods of time with one insurance company may have inadequate limits of insurance due to increased building costs. In many cases, homes have been remodeled and improved, and this information has not been conveyed to the insurance agent or company, resulting in severe underinsured home values. If your home is underinsured, you not only have inadequate protection for total losses, but you may also lack full protection for smaller losses. Sometimes homes are mistakenly insured for their market value. However, market value is normally not indicative of the home’s replacement cost. For example, market value also reflects the cost of the foundation and the nondestructible land value, both of which normally survive intact if the house burns to the ground and has to be rebuilt. In addition, some homes may be insured improperly to meet mortgage company requirements. Some mortgage companies require the amount of insurance be at least equal to the mortgage balance on the house. The mortgage balance is also not reflective of the home’s replacement cost, which is often considerably more but can also be less. Insurance companies and agents often struggle in properly educating mortgage companies about these distinctions, but there is nothing to prevent you from insuring to actual replacement cost if that is indeed greater than the mortgage balance. The problem occurs when the mortgage balance is greater than the replacement cost, which will result in the purchase of a higher limit than needed. The bottom line is that you should work with your insurance agent to determine the correct replacement cost and resulting insurance limit for your home. Most agents use sophisticated replacement cost estimating packages that can fairly accurately determine the replacement cost value of your home. Factors that these programs use to determine this figure include the following.
As a final note, you should request an annual review of your homeowners policy to keep up with increasing building supply and labor costs. Also ask your agent about the advisability of adding an “inflation guard” endorsement to your policy or about the availability of guaranteed replacement cost coverage to help assure that your home is properly protected. Get more personal lines insurance and risk management tips and ideas from IRMI. Copyright 2008, International Risk Management Institute, Inc. Add Comment Spring is often the time of year when boat lovers start to consider purchasing a sailboat or powerboat. Many people, however, are unaware of the significant loss exposures associated with boat ownership, and some people mistakenly believe that there is coverage available under their personal auto policy (PAP). Virtually all PAPs, though, do not provide any liability or physical damage coverage for boats. Other people may look to their homeowners policy for coverage. But most homeowners policies only cover losses arising from certain low-valued or low-powered boats. You should thus contact us before buying a boat to discuss the proper insurance protection for it. Consider the following tips to assist you in this process.
International Risk Management Institute, Inc. Today's Tip Blow Out Your Candles! 07/22/2011
The National Fire Protection Association reports that, while deaths from residential fires have decreased in the last several years, those caused by candles have increased dramatically. Candle deaths increased 650 percent from 1980 (20 deaths) to 2005 (150 deaths). Candles cause an estimated 16,000 home fires each year. In most cases, candles triggered house fires when they were left unattended, were tipped over, and ignited nearby combustibles. Almost half of home candle fires start in the bedroom; mattresses and bedding are the most common items to ignite. A child playing with or near the candle is one of the biggest contributors to candle fires; drinking excessively and falling asleep leaving the candle is burning is another. Consider the following safety tips concerning candles and share with your family:
International Risk Management Institute, Inc. | Allison InsurancePeriodically staff members will write and post articles covering our products, insurance news, and how you the consumer can reduce and manage daily risks. ArchivesApril 2012 CategoriesAll |
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