By Lyle Adriano
Just how well are your property owners covered? As it turns out, they might not have enough insurance to cover a total loss. According to a recent survey by Marshall & Swift/Boeckh, a large portion of US homes—about 60%—were undervalued by a significant average of 17% for insurance purposes. What this means is that a property worth $200,000 is typically underinsured by $34,000.
While such figures are a cause for concern among consumers and their agents, they are arguably an improvement over past statistics. During the 1990s, 73% of homes were undervalued by a staggering 35%.
Many homeowners feel confident that they have enough coverage if the reimbursement is equal to the current resale value of their properties. However, market values can fluctuate over time, and can leave properties even costlier to replace than expected.
Carriers focus on the costs needed to clear out debris from a damaged home and rebuild the property. The replacement cost of a house is almost never equivalent to the property’s actual market value, and is usually higher. Increases in labor and building material costs, as well as changes in local building codes, can bump up replacement costs considerably.
To address underinsurance issues, many carriers adjust their policies yearly to account for inflation. These adjustments, however, fail to consider any remodeling projects policyholders might have undertaken that can make replacement and repairs even more expensive.
Norrine Brydon, vice president of data research at CoreLogic, remarked that it does not make any sense for homeowners to conceal additions and renovations to their property from their insurance companies, particularly if they do so to avoid paying higher premiums for the changes made, which are typically negligible.
“A homeowner who has been with the same company for years and has not told his insurance company about changes to his home might find coverage out of whack,” she warned.
She adds that insurance is all about trust, and that consumers “. . . want to know and have trust that the insurer knows the most about it and will be there in the event of a loss.”
