After considering the adversarial posture of an insurance company toward its policyholder in the event of a claim and assuming the best – that you would be successful in recovering the most that your policy provides to restore your property after a catastrophic loss – did you buy enough insurance to actually restore your property?

Some people will negotiate a terrific deal when purchasing a commercial building or residential dwelling and then will insure that building for the amount of money they paid for it.  The mortgage lender is certainly happy with that amount of insurance for it fully protects their financial investment, but is the market value of a structure sufficient to rebuild it if it were destroyed?  Most likely, it would be significantly less, and it is probably not your plan after a major loss to simply pay off your loan, remove the rubble at your own expense, and live or conduct business on an empty lot.

Even before the current exponential increase in costs for building materials, the market value of a structure did not reflect the cost of replacing all or most of it which, in the event of a major fire or storm, would be the purpose of an insurance policy.

A general contractor or builder in your immediate area will be able to tell you what an average cost per square foot would be to replace all or most of your building today if it were significantly damaged.  Take that cost and multiply it by the square footage of the building you are insuring and then add a few dollars for next year’s inflation.  This will tell you whether or not your home or business structure is insured for a sufficient amount of money.

Until such time the costs of building materials begin to stabilize, this is probably something that you want to do prior to your renewal each year.