The majority of homeowners have insurance, but nearly 60% of homes are still underinsured. This means that if an accident or natural disaster occurred, the claim would not provide enough funds to complete a rebuild. That leaves homeowners financing at least some of the work out-of-pocket and going into debt to rebuild.
When you have to make an insurance claim, a content insurance claims lawyer can help you through filing your claim for lost possessions and structural damage, but there is only so much they can do if you are underinsured. They can improve the monetary value of your claim and make sure you know what you are entitled too, but they’ll ultimately be constrained by the limits of your policy.
Although insurance policies are often confusing and difficult for homeowners to understand, you may want to take a closer look to make sure you haven’t fallen into the underinsurance trap. There are a few signs to look for, and a few smart ways you can make sure you’re covered.
#1 Market Value vs. Insurance
Almost half of all homeowners believe that the insured value of their home is connected to its market value, but that’s usually not true at all.
The insured value of your home is related to the cost to rebuild in the same location using the same or similar construction materials as the original. When the value of your home goes down, that doesn’t mean you should reduce your insurance.
#2 Be Careful Reducing Premiums
Sometimes homeowners opt to pay lower premiums in exchange for accepting a higher deductible. The deductible is the amount you have to pay for reconstruction or replacing personal belongings before the insurance begins to cover expenses.
If you want to reduce your premiums, prepare to pay more if something happens.
#3 Check Actual Cash Value vs. Replacement Cost
When it comes to your content, many policies offer Actual Cash Value (ACV) rather than Replacement Cost. ACV may mean lower premiums, but should you lose your personal belongings in a fire or flood, you might not receive enough compensation to replace everything.
Actual Cash Value refers to what a specific item is actually worth, accounting for wear-and-tear. For example, a couch you’ve owned for five years won’t be worth nearly as much as what you paid for it. With Replacement Cost coverage, the insurance company provides you with the amount it costs to buy the same couch new.
#4 Valuables Not Covered by Your Home Insurance
There are also valuables that may be limited or even not covered by your insurance, usually high-cost belongings like jewelry, precious metal coins, furs, or artwork. You may need to purchase coverage for these items separately after having them appraised or face strict limits on your coverage.
#5 Uninsured Renovations
As a rule of thumb, any time you spend at least 5% of your home’s value or $5,000 (whichever is less) in renovations or remodeling, you should contact your insurer. It’s likely to mean an increase in coverage and premiums. However, if you fail to let the insurer know, replacing or repairing that work after a disaster might be outside the scope of your coverage.
These are the five main sources of underinsurance. Check your policy and contact your insurer if you believe that you’re lacking coverage anywhere.