Tools and Calculators
Underinsurance: A Common Problem
How Much Is Enough? Make sure your home is covered for all it’s worth.
A home is the largest investment most people make in their lifetime. Recent industry figures indicate about two out of every three homes in America are underinsured. The average underinsurance amount is about 22 percent, though some homes are underinsured by 60 percent or more. This means millions of American homeowners are at risk of major financial loss should a disaster ever affect their home. Homeowners in these unfortunate situations find themselves responsible for tens of thousands of dollars of unexpected out-of-pocket costs to rebuild their house. Many of these homeowners are financially unable to rebuild a house like the one they had prior to their loss.
FAQ's about Insurance to Value
What is reconstruction cost?
Reconstruction cost is what it would cost to rebuild your house from the foundation up with materials of similar kind and quality.
Is reconstruction cost the same thing as market value?
No. Reconstruction costs for your home may differ considerably from market value, particularly for older homes. Market value is what a willing buyer would pay for your home, including the lot. Location is a major factor in determining market value. Homeowners should also not assume that coverage matching their mortgage balance is sufficient to rebuild their home. The amount of insurance you buy should be based on rebuilding costs, not the selling or purchase price of your house.
Why are reconstruction costs often higher than replacement costs, or the costs of building a new home?
There are a variety of factors.
What are some factors that affect reconstruction costs?
- Access to home site limited because of trees, lawns, other homes, and fences.
- Sometimes building code changes that occur after the initial build.
- Inflation is generally greater for building materials than other commodities.
- Unusual materials are required that are expensive to locate or duplicate, particularly for older homes.
- In a partial reconstruction, there is also extra cost in matching and aligning the undamaged part of the structure with the reconstructed part of the structure.
- In partial loss situations, the removal of undamaged contents to put elsewhere for safekeeping.
- New home builders schedule their work for a building season and work most efficiently in a “factory-line” approach, which saves on both labor and material costs. Your reconstruction will be a “custom” job.
- There are more new build contractors than reconstruction contractors. With an easier task of building a home, and a greater supply of those doing it, new build contractors charge significantly less for a job than a reconstruction contractor does.
- If the damage to the home is as a result of a catastrophe, or at the same time as a catastrophe, demand surge pushes the price higher for labor and materials for all construction.
- Extra costs to tear out damaged materials or demolition and debris removal.
- Repairing a partially damaged home often means working from the top down, while new construction is usually from the ground up.
Home Sweet Home. Where all your valuables are protected.
Home Improvements: A contributing factor
Remember when you updated your master bath? Or maybe added on a new deck? And, don’t forget the kitchen remodel. Millions of Americans have taken advantage of near-record low interest rates and mortgage refinancing in recent years to upgrade their homes. According to one study, nearly 40 percent of those who have significantly remodeled their home have not updated their homeowners insurance, or weren’t sure if they had done so. Let your agent know if you have remodeled or even made improvements to your home as upgrading or renovating existing spaces also adds value to your home and needs to be included in your policy’s coverage amount. It’s the best idea to contact your agent before or shortly after a renovation begins, rather than waiting until it is complete.
Personal Possessions: Not to be forgotten
Most policies only cover the current value of personal possessions, such as clothing, furniture and appliances. For example, the current value of a 5 year old TV is less than its original purchase price. The current value will not be enough to cover the cost to replace items with new ones. You should consider buying optional “replacement cost” coverage for your personal belongings, then your damaged or stolen possessions can be replaced with new. After all, wouldn’t you rather replace that 5 year old TV damaged by lightning with a brand new TV?
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(06/08)
Get a Home Insurance Coverage Quote
Talk to your Nationwide insurance agent about tailoring an affordable homeowners insurance policy that’s right for you.
Or call 1-877-On Your Side® (1-877-669-6877).
Did You Know?
According to a recent article, nearly 47% of those who own valuable collectables report that they don’t own special insurance coverage for these items. For example, typical jewelry “payout” limits are around $1000. To fully replace items valued beyond this amount, special coverage is required.
