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Homeowners insurance only covers rebuilding costs


Although surveys are not scientific, it can still be interesting to see what people say, particularly when they have no reason to be less than honest. It’s not so likely you will get honesty if you start telephoning people to ask about their sex lives. But ask them about their insurance policies. . . Well, the odds on truthfulness improve. Anyway, there’s a nonprofit called the Insurance Information Institute. It’s actually owned by the insurance industry but it does a good job in offering advice and giving timely information to people. You might benefit from visiting their site every now and again just to see what’s in the news and how it might affect you. Just remember it’s not independent advice. No one is going to write anything bad about insurers, but some information is often better than none.

As to their most recent survey, it turns out the level of misunderstanding is as great as ever. You always hope people will pick up the realities of life, but it seems half the adult population still think the insurance industry pays claims based on the resale value of their homes. In fact, the price people might be prepared to pay for your home has nothing to do with the calculation of how much is paid out on a claim. Indeed, if you have reduced the amount of coverage over the last three years since the housing bubble burst, you may now be seriously underinsured. It may have saved you money, but this can be a bad deal should your house burn to the ground.

In fact, when it comes to the structure, an insurance company only ever pays out on the cost of repairing or rebuilding. That means you must always have an up-to-date estimate from reputable builders on how much the materials and labor would cost for different types of job starting with clearing the site, reinforcing damaged foundations and rebuilding from the ground up. Even though the resale value of properties has been falling sharply, the same cannot be said of the cost of materials nor the cost of skilled craftsmen to lay bricks, replace wiring and plumbing, and plaster walls. So, before you renew your current policy on auto-pilot this year, talk to a few builders to see whether your insured value is adequate. In this, don’t just think about the premium rate. It’s a better deal to have the right amount for insurance purposes and a higher deductible. In this, the higher deductible gives you a discount on the premium and, assuming the worst case scenario never happens, you end up with peace of mind.

Get homeowners insurance quotes based on current valuations and make the best financial decisions for your family. You should also review the amount for replacing contents. Again, remember you are not looking for the cost of replacing your old furniture and goods with new. You are looking for the value of like for like. You are not supposed to make a profit out of your homeowners insurance claim. If you have a ten-year-old sofa, you can only claim whatever it would cost to buy a secondhand replacement in the same condition.


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