I received an email Monday from Kathy O’Brien, a realtor with Dave Perry-Miller’s Intown office. She asked a very interesting question concerning the post I wrote two weeks ago on the impact rising home prices have on home insurance (see https://wiseinsurancegroup.com/impact-rising-home-prices-home-insurance/). The post I wrote approached the topic from a home buyer, however, Kathy’s question was directed from the point of view of a north Texas homeowner. Her question was, “With home values increasing significantly over the past few years, what, if anything, can home owners/consumers do to ensure their property is sufficiently covered?”
Home prices in north Texas have risen steadily since 2010 and taken off like a rocket since 2014. Over the past four years, home prices have surged by 40%. Kathy’s question raises a real issue current homeowners should evaluate, and that is do they have enough home insurance coverage to replace their home in the event of a total loss? I believe there are two things built into most current home policies that help keep this from happening and one action both homeowners and agents should take to prevent anyone from being under-insured.
Inflation Protection: Most home insurance policies come with an inflation guard protection built in. This coverage is designed to increase the amount of coverage annually based on the inflation rate. Historically, the inflation rate usually runs in the 3% to 5% range annually, however, a 40% rate in home values over four years is much more than that. Many of my clients are seeing adjustments in the amount of coverage on their home in the 7% to 10% range over the past two years which is more in line with the rate home values and home construction are increasing.
Inflation protection was optional on many policies 7 plus years ago, but has become more of an included feature in the policies most companies write. If your policy isn’t adjusting each year, or hasn’t in a while, then a new replacement cost estimate should be done at least every two to three years to ensure you have enough home insurance to cover your home for a total loss.
Extended Replacement Cost: This is an optional coverage I add to most home insurance policies I write, provided the company offers it. It’s designed to provide a bit of “padding” to the dwelling coverage, the amount the home is covered for in the policy. The carriers I work with provide a level of 25% to 50% of the home’s insured value, so if a home is insured for $200,000 and the extended replacement cost option selected is 25%, then the amount of extended replacement cost coverage is $50,000.
Its purpose is to provide additional coverage if the home suffers a total or near total loss and the amount of coverage isn’t sufficient to rebuild your home. In times when home values are rapidly rising or we experience a large catastrophe like the tornadoes which struck north Texas in December of 2015, this coverage can be invaluable in helping you rebuild your home.
Annual Review: Most people never review their home insurance unless there’s been an increase. Many agents don’t review policies either, however, I do. I review every policy we write every year and look at two things – the amount the home is covered for and how much the rate has changed if any. I also requote each policy to see if we can write a new policy to save our clients on what they pay for home insurance.
I recommend all homeowners review their home insurance policies as well. Look for changes in the amount of coverage on the home, policy changes, and rates. You’ll be a more informed consumer if you do and probably avoid being under or over insured. Rates are adjusting now due to the hail and tornado claims across north Texas last year so this is a great time to review yours.
What do you think? Share your comments, questions, and experiences with me on my Facebook, Google +, and LinkedIn pages. I’d love to hear from you!