Is Your Home Under Insured?

Photo by Gabby K on

Did you pay $200,000 for a house and insure it for $200,000 thinking that you are fully covered if your home is destroyed?  Many do.  Many are wrong.

The resale value of your home or the amount that you borrowed to buy it is NOT what you should insure.  Why?  The first reason is that the policy itself excludes coverage for “loss of value”.  A reduction in the value of your house is not covered under your policy.  The second reason is that, should the home be totally destroyed, the cost to rebuild it will depend upon the inflated values of building materials and labor at the time you rebuild it which is likely to far exceed the amount that you paid for it.

Since the Spring of 2020, the costs of construction materials have increased from 15% to 75%, with lumber leading the way.  The cost of building and reconstructing similarly sized homes has increased by many tens of thousands of dollars in only the last year.  That number will continue to rise for some time to come.

Your mortgage lender will insist that their interest in the home be covered.  Thus, at a minimum, your lender will require your home to be insured for the amount they loaned you.  That covers and protects THEIR financial interest in the home, but what about yours?  If the loss is not a total loss, will the amount of your total insurance be enough to cover today’s costs for lumber and other material while you rebuild and keep up on your house payments during the reconstruction process?

Seek the advice of a reputable builder in your area as to the cost per square foot of building a new home similar to the style of your home.  Multiply that figure by the size of your home in square feet.  That figure will closely represent the dollar amount for which your home should be insured.



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