You Have Probably Seen the Commercials Talking About Gaps in Insurance; But What Does That Mean?
Current statistics in a study by J.D. Power and Associates show that 59% of homeowners are under insured. As humans, we tend to tune out commercials. This may seem to have no impact on us, unless we realize we are part of that 59%.
However, as homeowner or renter you need to be extremely aware of where you stand in this picture. If you fall in the 59% range, this means that if something were to happen to your home, your insurance would only cover about 79% of what actually needs to be covered. Worse yet, the under insured category includes, as documented by Chief Actuary, James Lynch of the Insurance Information Institute, that 4% of homeowners have no insurance whatsoever. This translates to them, having the full burden of replacing their home which would leave most people in dire straits.
Being insured only 79% of the way would be a hard hit because restoring the remainder of loss would rest totally on your shoulders. Your loss for being under insured would be 21%. The following example illustrates in practicality how this works.
For ease of this example, we will work with simple numbers. Let’s say your home is worth $100,000. In the occurrence of a catastrophic event that nearly destroys your home, you report to your insurance company. If you fall in the under insured category this is how it will play out. Your insurance company pays $79,000 to restore the damage; you have to come up with the extra $21,000 to get your home back to where it was. Would this be easy for you to do? Keep in mind if you were at this basic level, your contents of the home would not be covered. Also note the replacement cost of your home may have increased.
It is important to have your insurance reviewed at least every two years. Being aware that an increase in your home’s value, also means an increase in its replacement cost. Even if your home was to decrease in value, the replacement cost continues to grow. This is due to the nature of economics as labor and materials progressively cost more.
This is valuable information to take to heart. We insure our property for our protection. If you find your premium rises a bit to be properly insured, it is vital to understand that this is extremely lessening the risk on your shoulders. How much extra a month is worth not having to come up with $21,000 or more on your own?
Whenever improvements are made to your home, this is a cause to have your homeowners insurance reviewed and updated. Take advantage of free insurance reviews, they are very educational and in your best interest.
FREE INSURANCE REVIEW
Our agents pay close attention to detail and are very thorough. They will keep you from engaging in risky business when it comes to protecting your home and loved ones. Your agent will assess the cost to rebuild and replace your home and assets (as opposed to insuring only market value).