Home prices are through the roof thanks to housing, labor, and materials shortages, supply chain disruptions, inflation, higher rent prices, and strong demand. So, it’s a great time to own or sell a home. Many people have drastically increased the value of their largest asset without much, if any, out of pocket cost. But, before you take out a second mortgage to travel the world or open that business, make sure your home insurance limits are keeping up with your value.
Your home insurance policy has limits, or caps, on the amount that the insurance carrier will pay in the event of a total loss. These limits apply to your main structure, other non-attached structures (e.g. shed or doghouse), and your personal property inside of the structures. For example, if your policy has a limit of $300,000 for your main structure, also called “Coverage A,” then that is the maximum amount you will get if a hurricane causes a total loss to your home.
Now let’s say that your home was worth $300,000 when you bought it 3 years ago. Back then, you bought a policy with a limit of $300,000, but now your home is value at $500,000. What happens if a hurricane destroys your house tomorrow? Yeah—you’re out $200,00 to rebuild it. How can you avoid this? Easy. Save $200,000.
Just kidding. You need to tell your insurance agent that you want to be sure that you are not underinsured. Some insurance policies penalize policyholders who are underinsured by enforcing co-insurance clauses. Coinsurance is a topic for another day, but the key concept is this: if you’re underinsured, you will pay a financial penalty if you suffer a loss in the form of a lower settlement. Coinsurance exists so that policyholders are not tempted to underinsure to save money on a premium, which brings me to my next point.
You will have to pay more in premiums to raise your coverage limits. But the amount will likely be negligible when compared to the possibility of being stuck with the difference after a total loss.
Right now, through hurricane season (Nov. 30), Clint & Company is offering to review insurance policies for free. Get your policy and use the link to schedule an appointment: https://bit.ly/3vF9dEz.