How Much Coverage Do You Need?

No one wants to suffer a loss to their home – especially a total loss. But wouldn’t it be nice to know that if such a tragedy did occur you would be able to rebuild your home? Insuring your home to the amount needed to replace it will help make sure that you can do this. Yet current industry data shows that nearly 60 percent of homeowners are underinsured by more than 20 percent!

Here are some common questions you may have about how to determine the appropriate replacement cost of your home and why it’s important to keep this information up-to-date.

What is Replacement Cost?

The replacement cost of your home is the cost to rebuild today with similar materials and craftmanship.

How Much is Enough?

When you first place your policy with us, your agent can walk you through an estimator tool that helps you evaluate the replacement cost of your home. Estimator tools are developed by building valuation companies that specialize in understanding the costs to rebuild residential and commercial buildings. Your agent will need information such as the square footage of your home, the materials used to build your home, information on your kitchen and bathrooms as well as special building features such as upgraded windows, hardwood floors or skylights, to name a few. Using this information and the estimator tool, you and your agent can determine just how much coverage you’ll need for your home.

Why Is the Replacement Cost of My House Not the Same as the Sales Price of My Home?

The cost to rebuild a home is generally not the same as the sales price, or market value, of a home. The market value includes the cost of the land, which will still be there, even if your home is destroyed. Market value is also influenced by other factors such as the location of the home, travel time to work or shopping, the quality of the school systems and the desirability of the neighborhood. Market value is not a reliable indicator of the amount of insurance you need.

I Just Built My House – Why Can’t I Just Use Completed Value for My Coverage Amount?

Often, when a home is built, it is part of a development or subdivision. The contractor is able to purchase lumber, plumbing and electrical supplies at a discount because he is buying large quantities. It’s the same as the price break you receive when you buy in bulk at the grocery store. In addition, the contractor can schedule electricians, plumbers and carpenters more efficiently which saves time and money. These savings can be substantial and are not available when rebuilding one home after a loss. But even if your home is not part of a group of homes, the pricing can be different. Reconstruction cost – or the cost to rebuild your home – is generally more expensive than building a new home from scratch. Home reconstruction involves the removal of damaged materials and a need to work around existing landscaping, power lines and other buildings. All of this requires more highly skilled workers who charge a higher wage. Building experts say it costs up to 30 percent more to rebuild a house than to build it new.

How Do I Keep Adequate Coverage?

You should plan to review your homeowners policy with your agent on a regular basis to ensure that all of your coverages are adequate. As part of that review, the replacement cost value of your home should be updated. Although we increase your coverage amount each year to account for inflation, this increase does not reflect any changes or additions you make to your home. Even common changes such as installing hardwood floors, adding a deck or patio, finishing a basement or updating a kitchen or bath can affect your replacement cost. That’s why it’s very important to contact your agent prior to making any renovations or improvements to your home.

To determine whether you currently have enough coverage to rebuild, call your agent and request a coverage review as soon as possible. Your agent can assist you in making sure you are properly protected in the event of a covered loss.

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