Home Insurance and How to Confirm You Have Enough

Sheri and I had dinner Saturday night with a friend. It was a delightful evening as we caught up with what has happened in each other’s lives. Our friend had a couple of questions about her home and car insurance and was concerned her home may not have enough coverage to cover a total loss. After all, prices for homes in her part of the metroplex have risen sharply in the past few years.

I asked her for a copy of her home insurance declaration pages and determined she is under insured, probably about $75,000 to $85,000. To determine this, I simply divided the amount her home is insured for by the square footage of her home which told me she is insured for roughly $100 a square foot. Based on the level of finish out in her home, I believe she should increase the amount of her home insurance to somewhere between $125 and $130 a square foot or $75,000 to $85,000 more.

To truly know if my estimate is accurate or not, I’d need to perform a replacement cost analysis with several home insurance companies. Most home insurance companies require a replacement cost estimate to determine the amount of home insurance coverage for a home. I did not perform one, but provided her with an estimate based on quotes I’ve done for other homes in her neighborhood and the improvements she’s made (replaced carpet with hardwoods throughout, upgraded kitchen countertops, etc.).

She was concerned my estimate may not be high enough since most homes in her neighborhood are selling for $200 a square foot. This would entail almost doubling the amount of coverage on her home insurance, which I suggested may result in her being over insured. The reason is that even if homes are selling for that much in her neighborhood, part of that sales price is the value of the lot her home is built on. Home insurance doesn’t cover the lot as nothing is going to happen to the lot if the home burns down or is hit by a tornado. Home insurance is only concerned about the amount of coverage needed to replace her home.

If you want to take a deep dive into figuring out the replacement cost for your new or current home, there are a couple of tools homeowners can use.

  • HMFacts by Decision Ready Data Solutions, (see http://www.hmfacts.com/homeowners/) where you can run your own for a discounted price of $7.00 if you use the discount code of INTROIVT.
  • Marshall Swift Boeckh has an estimator many home insurance companies use. Consumers may be able to access the system, however, the cost and link were not working.

If you prefer, have a home insurance advisor provide you with one. It takes a five minute conversation for me to ask the questions needed to work up an estimate and you can compare this to your current level of coverage.

For Sheri’s and my friend, not having enough home insurance would cost her a significant amount of money if she were to experience a total loss. Being over insured would keep her from having to pay extra to rebuild her home, but she’d end up spending more for coverage she’d be unable to use. Getting it just right is what a professional insurance advisor should do. Is your home properly insured? Share your thoughts, questions, and experiences with me on my Facebook, Google +, and LinkedIn pages. I’d love to hear from you!

Thanks!

Ed Wise

Wise Insurance Group

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