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As per this survey, the median value of an existing single family home is about $220,000 and the homeowners have insurance that is only sufficient to pay about 80 percent of the costs to replace or rebuild their homes after a disaster or accident. This means that the homeowner has to pay an additional $44,000 towards replacement or rebuilding costs. Marshall and Swift/Boeckh LLC is one of the leading providers of building replacement cost data.
Homeowner insurance policy is a compulsory when the homeowner initially purchases the property. The coverage on the policy is estimated based on the market price paid by the homeowner to buy the property. However, one needs to periodically update the policy and increase the coverage depending on the increasing property rates and ever rising prices on building materials, energy and labor. And if the home is located in any disaster prone area, rebuilding costs are bound to increase further as the homeowners in this area are required to construct homes that include additions that can provide protection against strong winds and earthquakes.
However, most people find their homes to be underinsured when a disaster strikes. The biggest mistake committed by several customers buying homeowner insurance policy is that they never bother to read or understand the terms included in their insurance policy. Even the insurance companies are now adopting a smart business strategy where a moratorium is issued on coverage changes in areas that are likely to get affected by a disaster. This moratorium is issued well in advance before the disaster occurs. This prevents the homeowners from increasing their home coverage when the disaster is about to strike. Another smart strategy adopted by insurance companies is removal of “guarantee replacement cost coverage” clause while issuing home insurance policy. Guaranteed home replacement cost coverage clause provides the benefit of home replacement after a disaster irrespective of the coverage limits indicated in the policy. This clause is now replaced with “extended replacement cost” coverage that provides coverage up to those limits that have been specified in the policy.
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