Part 2 of 2: Fixing the Problem
Shockingly, most US homeowners are underinsured. In fact, insurance industry estimates suggest that as many as two out of every three homeowners are underinsured. Being underinsured can lead to major financial loss and out-of-pocket expenses, or even to the loss of your home.
Let’s take a moment to fully grasp what that “two out of three” figure means in real life. Think about the neighbors on either side of you. Statistically speaking, out of the three of y’all, two of you have short-changed your homeowners coverage.
These aren’t fantastic odds. Are you willing to place a very sizable bet — your home and possibly your savings — that you’re not one of the at-risk homeowners?
Heck no. You’re way smarter than that! (After all, you’re smart enough to be checking out our site!) Being the savvy, shrewd homeowner you are, you’re ready to take the steps necessary to figure out whether you’re underinsured. In addition, if you determine you are underinsured, you’re committed to doing what it takes to fix the problem.
In part one of our “Are You Underinsured?” blog series, “Understanding the Problem,” we explained what it means to be underinsured, the possible consequences, and the most common reasons homeowners become underinsured. Here in part two, we talk you through what to do to make sure you’re covered.
What Steps Should I Take to Make Sure I’m Properly Covered?
Determine How Much It Will Cost to Rebuild Your Home
Start by calling your agent. Verify they have accurate, updated information about square footage, finishes, and any renovations. Your agent can use a valuation tool to come up with a current valuation and replacement cost estimate for your home: your first data point. Make sure to request a copy of the reconstruction valuation report so you can verify it for accuracy and retain it for your records.
Source additional estimates for your home’s replacement cost. No, we’re not implying your agent isn’t being straight with you. While your agent is going to do the best they can to give you an accurate figure, it’s crucial that you confirm that figure. There are many ways you can go about it:
- Contact a local builder or your local builders association. Ask them to provide you with an approximate rebuilding cost per square foot for your area. Then, multiply that cost by your home’s square footage. This method isn’t foolproof, but it gives you another data point to consider.
- Hire an independent local appraiser or professional home-replacement cost estimator to perform an analysis. Of course, this is the most accurate method. That said, going this route could run you around $300.
- Use a web tool that generates replacement cost estimates. HMFacts offers a tool that, for $7, lets you create your own estimate in about 30 minutes. Another option is e2Value’s Pronto estimator, which is slightly less detailed but faster to complete an estimate. The National Association of Home Builders offers a free, macro-enabled Excel price estimator tool. Building-Cost.net’s free valuation calculator is backed by an organization that’s been calculating building costs since 1950.
Before we move on, let’s be clear: Yes, it really is important to get multiple data points. No resource or tool can promise you an infallible replacement cost figure. The more data points you gather, the more accurate a view you’ll have on what it will really cost to rebuild.
Create a Detailed Home Inventory
If disaster strikes, you need to be able to accurately convey to your insurance carrier all you’ve lost. That’s why we recommend creating a detailed home inventory of all your furniture, electronics, household appliances, furnishings, and other valuables.
The National Association of Insurance Commissioners offers a simple checklist you can use for this purpose. You can use your camera to create a supplemental photographic inventory. You can also take your inventory digital using apps such as Sortly, Magic Home Inventory, and Nest Egg.
Regardless of how you create your home inventory, doing so gives you another data point: your personal property value. Make sure to consider that value as you determine appropriate coverage.
Review Your Policy and Update Coverage Where Appropriate
- Working with your agent, walk through your coverage. Before you make changes, it’s important to make sure you clearly understand your current coverage.
- Check the all-important insurance to value (ITV) ratio. Verify whether your policy has a clause related to the ITV ratio of your coverage. In many policies, if the ITV ratio of your coverage falls below 80%, any claims may result in a reduced payout. Make sure your coverage meets or exceeds the ratio required by your policy.
- Closely review any policy exclusions. For example, if you live in an area prone to hurricanes or tornadoes, a standard policy may include exclusions related to wind and hail.
- Review your liability coverage. If you’re sued for injuries that took place on your property, you may be on the hook for medical bills, lost wages, pain and suffering, legal costs, and even death benefits. Fortunately, liability coverage is generally pretty affordable. Increasing it likely costs less than you think.
- Consider adding coverage to your policy to address any gaps. For example:
- If you add extended replacement cost coverage, your insurer will pay up to 125% (or more) of your policy value. Insurance experts often recommend adding this coverage.
- If you add an ordinance or law endorsement to your policy, you’ll have coverage in the event you’re required to bring wiring, plumbing, or other items up to current codes.
- If you add a “floater” to your policy, you can use it to cover the full value of any expensive valuables. Floaters don’t have deductibles, which means you incur no out-of-pocket costs for replacement if valuables are lost or stolen.
- If you add additional policies covering damage from floods, earthquakes, or other natural disasters not covered by traditional policies, you’ll significantly reduce out-of-pocket costs in the event you’re impacted.
- If you live in an area where hail, hurricanes, or tornadoes are common, you may want to consider increasing your coverage with supplemental policies in those areas.
- If you opt for a supplemental policy called parametric insurance, it can cover your deductible as well as other assets not covered by traditional policies (e.g., fences, evacuation costs).
- Ask your insurance agent for a new policy quote that includes the updated coverage.
- Obtain additional quotes from other insurance carriers. That way, you can assess whether your current carrier is still the best choice for your needs.
Make a Plan to Review Your Coverage Every Year or Two
Sorry, but doing this once doesn’t mean you’re covered forever. Those property values and construction costs will continue to fluctuate. Those windstorms, wildfires, and rains will keep coming, which means the risks and conditions around your home will continue to evolve. Every year or two, plan to review your plan to ensure you’re properly covered.
How Can Covered Help?
We built our safer, smarter online insurance marketplace to help homeowners like you get exactly the right coverage for their needs. When you use Covered to search for home insurance, you control the criteria. That means, during your annual or biannual reviews, you can quickly and easily compare coverage and rates from different carriers, as well as the costs of different coverage levels and deductibles. We can also help you determine if you may be able to save money by bundling your homeowners insurance with other policies.
Whether or not you move forward with changing your coverage or provider, the team at Covered is happy to help you find the information you need to make the decision that’s right for you. You can get started on a new quote or talk to one of our agents today.
We can’t control nature. We can’t control fluctuating property values and building costs. What we can control is how we’re covered. Together, let’s say sayonara to underinsurance, making certain that — if disaster strikes — you and your home are covered.
Relax. Get Covered.