This time of year, news of wildfires should get you thinking about your insurance policy and whether or not you have enough coverage to replace your home. Building costs have dramatically increased across the country, and if you live in a wildfire zone, those costs will only rise when the season hits. Will your coverage cut it, and are you with the right insurance carrier to settle your claim?
Examine your policy—the cost of replacing your home is usually represented in the coverage known as Dwelling or Coverage A. This value is an estimated cost to replace the structure of your home at the time the contract was written. However, affluent homeowner insurance companies normally will offer, and sometimes insist on, a home appraisal to help determine the estimated replacement cost of the structures. While this is only an estimate, it’s vital that your home is properly insured to 100% of its value.
The vast majority of complaints and issues following fires stem from underinsurance. More than half of homeowners are underinsured by an average of 27%. Consider the value of your home—27% is a significant loss!
Your policy includes a coverage known as Extended Replacement Cost Coverage. This coverage extends your dwelling value to a specified percentage above the replacement cost shown on the Declarations page. In the standard and middle markets this percentage is limited somewhere between 10% and 50% above the value shown on the Declarations page. But in the “High Net Wealth” market, the amount will often be double the value shown on the policy—the highest offered in the industry. This coverage varies drastically from carrier to carrier, yet it is one of the most important components of your policy.
When wildfires hit, it’s difficult to ever recover fully. Emotional and sentimental losses are forever—don’t let financial losses compound the issue.
Review your Extended Replacement Cost coverage every year. Most policies include a built-in “inflation factor” to increase coverage year-on-year. These generally keep pace with lesser-value homes, but are far less reliable for larger homes.
Don’t get stuck biting the balance of your home replacement. Call your agent for a replacement cost check-up today.
(Tom Torgerson’s article is his own professional opinion and is not meant as an Association endorsement of its content nor his company)
