Is Your Homeowners Insurance Enough to Rebuild Your Home
Homeowners often take comfort in knowing they have insurance, but too many do not realize their coverage might fall short if they ever need to rebuild after a major disaster. The devastating effects of the many recent hurricanes have raised an important question: would your insurance truly cover the cost of rebuilding your home at today’s prices or are you underinsured? You can read the full article from the Wall Street Journal here.
Why Underinsurance Is So Common
According to industry experts, a significant percentage of homeowners are underinsured and would not receive enough money from their policies to rebuild fully. Surveys show that only about 30% of homeowners have updated their coverage to keep pace with rising building costs, and fewer than half adjusted their policies after major renovations. Meanwhile, the cost of building materials and labor rose sharply in recent years, with construction materials up about 40% and labor up more than 15% between 2019 and 2023. That means many homeowners have a dangerous gap in their protection.
The Market Value Myth
One of the biggest misunderstandings is that a home should be insured for its market value. The truth is that what you paid for your house, or what it is currently worth in the market, has little to do with what it would cost to rebuild it from the ground up. Insurance companies set coverage limits based on replacement cost, but computer models can miss upgrades like custom cabinetry, high-end countertops, or luxury appliances. Without adjustments, you may not have enough coverage if you need to replace those features.
The Importance of Replacement Cost Coverage
Many policies cover personal belongings at replacement cost, but not every policy guarantees replacement coverage for the dwelling itself. Some higher-end insurers include guaranteed replacement coverage in standard policies, which means they will pay the full cost to rebuild even if it exceeds the policy limit. For others, you may need to purchase extended replacement cost coverage, which provides an additional cushion of 25% to 50% above your dwelling limit. This can be crucial after large-scale disasters when labor and material costs surge.
Condo Owners Take Note
If you own a condo, your association is typically responsible for insuring the structure while you insure the interior of your unit. Unfortunately, many condo associations are underinsured, which can leave owners exposed to unexpected costs through special assessments. Reviewing association documents and confirming proper coverage is a step many condo owners overlook.
My Annual Insurance Review Practice
Every year I set aside time with my insurance agent to review my homeowners policy in detail. We schedule a call to go over any changes to my home, from improvements to upgrades, and make sure coverage is aligned with today’s replacement costs. We also look at inflation adjustments and whether extended coverage is needed. Too few people do this, and it puts them at risk of being underinsured when disaster strikes. A 30-minute call once a year could mean the difference between being fully protected or facing financial stress at the worst possible time.
Final Thought
Homeowners insurance is not something to buy once and forget. Rising costs and home upgrades make it essential to keep your policy updated. Take the time to meet with your insurance agent regularly and confirm that your coverage is enough to rebuild.
If you have questions about how to review your homeowners insurance or want to be connected with a trusted insurance professional, reach out to me. I am happy to guide you through the process so you can feel confident your biggest investment is fully protected.
