In the short time Ive been selling insurance, I have found more homeowners overinsured for dwelling coverage than I have found underinsured. Remember, in a previous article I stressed the importance of insuring your home to its replacement cost value. While overinsuring the value of your home has fewer consequences than underinsuring, it still hits your pocketbook harder than it should. How does this happen? The culprit in many cases is the inflation guard endorsement.
This is an endorsement attached to the policy that increases the value of the dwelling at renewal each year. The original intent was to keep pace with inflation and rising material and labor costs. In reality, building costs have not gone up as much as the inflation guard endorsement, which is typically 2-5 percent per year. If 10 years ago you insured your home for $200,000 and had a 3 percent inflation endorsement attached, the insured value for your dwelling now would be $269,000. All the other basic coverage other than liability and medical payments are percentages of the dwelling value. To be fair, in some sections of the country, the increase in the dwelling coverage amount may be correct. If you have updated the bathrooms and kitchen or added living space these updates also would increase the value. Remember, the higher the dwelling value, the higher the insurance bill.
What should you do? I found only one online source, Accucoverage that will give you a replacement cost for your home and it cost $7.95. You could also call your insurance agent or company and request a copy of a current home cost replacement calculation, which should not cost anything. Make sure the report has the correct square footage, number and type of rooms and finish (builders grade versus customization). That information plus debris removal will determine the replacement cost. While these computer-based evaluations are widely used, an on-site appraisal by a licensed appraiser is the most accurate method.
The last thing you want is to get in an argument with your insurance company after a total loss has occurred. That could be very costly and certainly mentally draining. You want to make sure you have the right protection for your most expensive asset. While loss-of-use coverage -- payment for temporary living expenses -- would provide protection for you, this coverage can be exhausted in a prolonged negotiation settlement.
A knowledgeable insurance agent or company representative is your best protection for accurate and adequate coverage. Be sure to ask the appropriate questions and make sure you are receiving value for your money.
Dave Pushman is the former regional vice president of Geico in Macon and is now an independent insurance agent with Tidwell and Hilburn Insurance. He can be reached at email@example.com.