Does your homeowners insurance cover the mortgage, repairs, and rebuild? If not, you need to prevent underinsuring your home.
Many do not have homeowners insurance coverage that caters to damage due to disaster. There are chances that if your home was destroyed tomorrow, your insurance company would only pay for part of it. According to CoreLogic, some homes are underinsured by as much as 60%, and the average insurance policy falls short by 22%. Today many insurers are considering construction costs and other factors that can affect potential underinsurance.
Why are Homes Underinsured?
Many homeowners base the amount of insurance coverage on the price of their home, which is often what your mortgage lender requires. If your home is destroyed, your mortgage lender will be paid, leaving you with the cost of repair or rebuilding. Considering construction costs have been increasing far faster than inflation (5.8% a year), you may be hit financially if your insurance only covers the mortgage. Oftentimes homeowners upgrade their properties without properly informing the insurance company, causing shortfalls in your coverage.
Guarding Your Home Against Underinsurance
The following three factors are to be considered to prevent underinsurance of your home:
- The square footage of your home
- The average cost of construction per square foot in your area
- Any materials or features in your home that will affect the cost to rebuild
Good insurance agents should provide accurate construction costs for your area. However, they won’t know about those expensive add-ons unless you tell them or they inspect your property. Also, ask your insurer to perform an annual review of your policy to match coverage with costs.
Knowledge of these things will prevent underinsuring your home. For further assistance with your homeowners insurance policy, contact the experts at Steve Wilk Insurance. Our new office is at 310 S Main Street, Suite C, Lombard, IL 60148.