Out-of-Date Homeowner’s Insurance Can Prove Costly

Coverage may not completely pay for rebuilding house

Often, homeowners only look at their insurance policy when they buy a home. Industry experts indicate that homeowners must revisit their policies at least yearly or every other year to ensure they have enough coverage to rebuild should disaster strike ~ reported Paul Adams in the Chicago Tribune yesterday.

Remodeling, upgrading, and simple increases in the costs of construction materials can catch homeowners by surprise after a disaster.

Maryland Insurance Administration Associate Commissioner Randi Johnson says, “Good [insurance] carriers will every couple of years send out a survey to you asking about this stuff, and it’s important for consumers to fill those out.”

Many homeowners, in particular those impacted by premium hikes in the aftermath of the 2005 hurricane season, are reluctant to revisit their insurance coverage, increase their coverage, or face even higher premium costs.

Homeowners should revisit their insurance coverage despite cost concerns to ensure their insurance covers their property value, minus the cost of the land, according to Johnson.

To determine accurate figures, American Insurance Association Associate General Counsel Eric Goldberg warns that homeowners should discuss material costs with area builders to ensure that their replacement cost estimates provided to insurers are realistic.

Homeowners will receive insurance estimates from insurers based upon the square footage of their home and the basic features in the house, unless they inform their insurers of additional features and upgrades. While insurance policies do adjust for inflation, experts caution that inflation adjustments may not be enough to cover the rising costs of construction materials.

Goldberg warns, “The cost to replace your home tends to increase every year regardless of what’s happening with the ups and downs in the housing market.”
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