Are You Underinsured? Know Your Insurance to Value Ratio

Posted: January 13, 2020

The purpose of insurance is to be fully prepared when disaster strikes. But if your home is underinsured, you could be thousands of dollars short of the cost required to rebuild. Discover why it’s dangerous to remain underinsured, how to tell if you are, and how our agents at King Street Agency can help you attain the proper amount of coverage for your properties.

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What Does it Mean to Be Underinsured?

Insuring your properties is always a wise investment, and having any amount of insurance can provide peace of mind. However, when a disaster actually happens, then the amount of coverage you chose to purchase becomes a crucial factor.

If you bought the bare minimum or purchased insufficient coverage for some other reason, you may be underinsured and unable to rebuild if your properties become damaged.

Two-Thirds of Homes Underinsured

It’s so common for homeowners to buy less insurance than they would need to rebuild. Many people buy the minimum amount and never expect tragedy to happen to them. Just having any level of coverage makes people feel better. Until they have to actually pay for damage, this minimum coverage may provide a false sense of security.

For property owners who are meticulous when buying insurance coverage, another common mistake is often made. It’s all too easy for homeowners to purchase insurance based on what their home is worth rather than the actual cost it would take to rebuild it. This difference can be substantial and can leave you tens of thousands of dollars short in your time of need.

The Difference Between Market Value and Cost to Rebuild

There are a few reasons why it’s shortsighted to use market value as the determining factor when covering your home:

Cost of Construction Materials

Market value assumes that your home is in peak condition and ready to sell. If your home is damaged in a storm, the construction crew that you hire will have to spend thousands of dollars on concrete, lumber, and other materials to repair it. This is a cost that must be considered when obtaining coverage for your home.

Paying for Labor

Rebuilding your house will involve hiring a company and paying workers, and those expenses aren’t covered in the market value.

Obstructed Access and Other Unexpected Expenses

Unforeseen circumstances may lead to additional expenses when rebuilding. For example, a major storm may leave a pile of trees and debris that needs to be removed before rebuilding can even begin. Expenses like this show why rebuilding is often more expensive than the price shown in your home’s market value.

How to Ensure You’re Completely Covered

If you feel that you may be underinsured, now is the time to reevaluate your coverage levels. The first step is to weigh out your estimated cost of rebuilding. You can estimate the cost to rebuild if you factor in location, materials, and other factors unique to your area. You’ll never know the full damage a storm or other accident can cause before it hits, but it’s crucial to be prepared by having a complete and accurate insurance plan.

This may seem complicated, but our agents at King Street Agency can help you through the process.

Get the Coverage You Need at King Street Agency

If you lack the coverage it takes to rebuild in event of an emergency, then you may be getting a false sense of security from your home insurance coverage.

Find out if your current insurance plan covers the cost to rebuild your home, and get the coverage you need if it doesn’t. Our agents at King Street will take the guesswork out of the process so you can be confident in your insurance coverage.

Contact us today to schedule a consultation with one of our knowledgeable agents.