My Homeowners Policy and Insurance To Value

Is your home fully protected?

You made a significant investment when you purchased your home. Just like any other investment, you want to see your home increase in value. You may start out making minor changes to your home. Then, over the next several years, you take on even larger projects like upgrading the kitchen, adding a bath, building a new deck, or converting your basement to a family room. As your sense of enjoyment and pride in your home increases, the value of your home increases as well. But, is your insurance coverage enough to protect these improvements?

Nearly two out of three U.S. homes are underinsured.1 Many people believe they're well protected if their insurance coverage is based on the price they paid for the home. Others believe they're adequately insured if the insurance coverage is based on the fair market value (the amount the owner would expect to receive if the home were sold today). The fact is, the amount of insurance you buy should be based on the cost of replacing the home. In fact, most insurance companies only insure homes that are written at 100 percent of the replacement cost.

The costs associated with replacing or rebuilding a damaged home are substantially higher than those to build a home new. Why? Partly because specialized contractors and skilled laborers repair and rebuild the home at a labor rate that is usually higher than the rate negotiated in building homes new. The costs of demolition, debris removal, rebuilding to current local building codes, and special planning and architectural work problems that often aren't encountered during the process of new construction drive up the cost of repairing your home as well.

What can you do to fully protect your home in the event of a fire or other disaster?

First, check with your insurance agent. An agency representative can help you calculate the amount of coverage you need to adequately protect your home. The following (among other factors) enter into the calculation:

  • The total living area of your home
  • The type of exterior wall construction: frame brick, veneer, stone, etc.
  • The number of bathrooms
  • The type of roof
  • The type of construction: standard or custom built
  • Additional features such as attached garages, decks, porches, pools, fireplaces, and finished basements

What will happen if you do not have adequate, up-to-date coverage on your home?

The results could be financially devastating. While you take every precaution to protect your home, it is still at risk. If a fire or severe weather were to totally destroy your home and it is not insured to value, you risk not having enough money to replace it with one of similar size and quality. This leaves you to make up the difference or settle for less, in size or quality.

Regularly updating the Replacement Cost of your home with your insurer is the best way to make sure your homeowner's policy will adequately protect you in the event of a loss.

By adequately insuring your home for its full replacement value, you are protecting your investment and your equity, and will have peace of mind knowing your family is protected in the event a disaster occurs.

The Insurance To Value coverages described here are in the most general terms and are subject to the actual policy conditions and exclusions. For actual coverage language, conditions or exclusions, please refer to the policy or contact your Central agent.

1Sprinkle, Tim. "The 5 Most Common Homeowner Insurance Shortcomings: Are Your Clients Covered?" August 2014.