Homeowners have more than one reason to pay attention to these developments because even if you aren’t looking to purchase or modify your home, the cost of building materials will affect your home insurance coverage in two major ways: your rates are likely to increase and you also may not be covered with enough coverage to protect your home and your finances should you experience a loss.
When insurance carriers create your premium, they are assessing the amount of risk they are undertaking while insuring your home. An increase in the amount they will spend to restore a loss means a higher financial risk for them and higher premiums for your homeowners insurance.
When you insure your home, you must remember what you are protecting your home from. A standard HO3 policy will protect your home from many different perils including vandalism/theft, damage from vehicles, and fires. Destructive perils can cause damage to your home, but some can destroy it completely. Homeowners must protect their homes, even those which are paid off, with an adequate amount that will cover a complete rebuild should they suffer a major loss.
Homeowners policies have a coinsurance clause that requires a home to be covered at a certain percentage of the home’s value – typically at least 80 percent. If rising construction costs have caused you to no longer meet the coinsurance requirement, you could face a coinsurance penalty. While you will still be covered in the event of a loss, you may not get the full replacement cost of your home.
Here’s how you can make sure you have the right amount of coverage and avoid a coinsurance penalty.
- Know what your coinsurance clause is. This information is usually located in the “conditions” section of your policy. Not sure how to understand the policy requirements? Reach out to your insurance advisor for assistance.
- Know the current replacement cost of your home. You should insure your home for replacement cost (the amount it would cost to rebuild your home). Because construction costs can change rapidly, it is important to assess the replacement cost on a regular basis to ensure you have the right amount of insurance. We recommend evaluating the replacement cost every one to two years.
- Purchase the right amount of insurance. Meet with your insurance agent to discuss your homeowners policy and keep them up to date on improvements you make to your home. They can help ensure you have the right amount of coverage.
Keeping your insurance in line with your current needs is an important part of owning a home. Give us a call at Hennessey, Thames & Leavitt to discuss your homeowner coverage. You can reach us by phone at 601-636-5560, by email at email@example.com or come by and see us at 1001 Belmont St, Vicksburg, MS. Check us out on Facebook or our website at www.leavitt.com/vicksburg.