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Are you underinsured?

Posted: 4:23 PM, Aug 27, 2019
Updated: 2019-08-27 16:23:24-04
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Before a hurricane threatens our area, find out what storm damages your home insurance covers and whether you need to add more protection. If a hurricane destroyed your home, would your insurance cover the cost to rebuild?

Don’t wait until a storm is threatening offshore to find out.

If you’re like most people, you probably don’t have more than a vague idea about what your policy covers and what it doesn’t. The danger is that you may think you’re adequately protected when you are not. By some estimates, close to two-thirds of U.S. homes are underinsured.

How does it happen?

Sometimes people make home improvements without telling their insurance agents. Or, policy limits simply haven’t kept up with rapidly escalating building costs. Sometimes policies have special exclusions or restrictions that homeowners don’t realize are there.

Checking up on what your policy covers will be easier in the future thanks to a new state law that will require companies to print a coverage checklist on the front of every homeowner’s policy. Among other things, the list will have to show in large type the coverage limits and the dollar amount of the hurricane deductible: ($4,000 makes a bigger impression than 2 percent). More importantly, it will detail how much the policyholder would receive for living expenses and for how long if the home is destroyed.

Your overall insurance limit is the first thing to check since that could come into play with a destructive storm. Ideally, you want a limit high enough to cover the cost of rebuilding your house on the same site, not including the value of the land. If you have a mortgage on your home, your lender may require you to carry enough insurance to replace your home, but cannot require more than that even if your mortgage is for a higher amount.

If your limit looks too low, ask your insurance agent to evaluate your situation. The market value of your house might be twice the limit, but that doesn’t necessarily mean the limit is wrong. With property values rising rapidly, it can be very difficult to separate the replacement cost of the building from the cost of the land.