Koffee with Kristen: Is your home covered correctly?

Hello all!

I’m back again to talk to you about the importance of knowing what your homeowner’s coverage is and why you need it. So today let’s chat about the most important coverage on your homeowner’s policy, dwelling coverage, and the limit your home is insured for.

The purpose of insurance is to make you whole again in the event of a loss. What your home is insured for has nothing to do with the value of your home, this is very important to understand. The value of your home vs the replacement cost of your home are two very different things: The value of your home goes up and down depending on economic conditions and different factors about your area, whereas, the replacement cost is the total cost to rebuild your house from scratch reflecting today’s prices, construction methods, and building codes.

Now how do you know if your home is covered correctly? I don’t have the answer for you, but I can give a little insight on how you can tell how much you’re insured for, per square foot. For the sake of this conversation, I am going to use my home as an example:

My home is 1,200 sqft and my dwelling is at $210,000, which means my home is insured for about $175 per square foot, need to check my math? $210,000/1,200 = $175.00.

With the cost of labor and supplies right now, I would say that’s a pretty accurate calculation to use. Not sure if that number’s correct? Well, go to your kitchen, go ahead, I will wait… now look at one square foot in your kitchen; I’m sure in that one square foot you have the floor, the floor covering, and maybe a portion of a cabinet there. Now ask yourself: “is that enough coverage to replace the floor, the covering of the floor, the cabinet, and the labor that comes with replacing everything?” If your answer is yes, then that’s wonderful! If your answer is no, you might want to have a conversation with your agent.

I bring this up because I recently experienced this with one of my clients. He decided to branch out and try another agency, I’m sure you’re all thinking “no way Kristen, why would he leave such a wonderful person like you?” I know, I know, it happens. So, as I was saying, they left and the new agent insured their beautiful dream home, and I said to him, “please make sure you look at your coverages, I would hate for you to be underinsured”. About six months later, they decided to come back (smart move), I insured their beautiful dream home, and all was right in the world again.

Let’s fast forward to about a year later, unfortunately, there was a fire, a fire so bad that they can’t even live in their home anymore. It’s awful, I know but we took very good care of them. My client calls me one day to say, “I just looked at my old policy and I was only covered for X amount.” My response was “thank god you came back to me”. If they would have stayed where they were, they would be looking at about $400,000 out of pocket to make them whole again. Yes, I said that right: $400,000!!! I bring this up because it’s so important to know how much your home is insured for. Did you know that about 2 out of every 3 homes in America are underinsured?! Two out of three homes! Terrible.

The point of me talking to you about this is to make sure you know how much coverage you have; you don’t want to find yourself in a situation where you have an awful loss to your home, and you face having to pay out of pocket because you didn’t have enough coverage.

Please, please don’t hesitate to ask questions about your policy, it’s more than an insurance policy, it’s your peace of mind.

Thanks for having Koffee with me!