See what creates gaps in coverage and how to avoid them.

Many people don’t give homeowners insurance much thought unless they have a claim or need to pay the premium. This approach can be costly if coverage limits don’t keep up with rebuilding costs and disaster strikes. Yet two out of every three homes in the U.S. may be underinsured, estimates the American Property Casualty Insurance Association. If you’ve let your homeowners insurance policy coast for several years without increasing limits, you might be underinsured.

What creates the gap in homeowners coverage?

Your current coverage may have been adequate at one time, but rising inflation can lead to being underinsured. Higher prices for construction materials and labor mean higher costs for rebuilding. And in the event of a widespread disaster such as a tornado, local construction prices may go even higher due to increased demand.

Building additions or adding premium upgrades that increase the value of your home without increasing coverage limits can also create a coverage gap.

Extended and guaranteed replacement protect against inflation

One way to protect against higher-than-expected replacement costs is to add extended replacement coverage to your homeowners insurance. This option provides additional coverage above the policy’s coverage limit. For example, if the policy covers $200,000 for the dwelling and 25% extended replacement cost, the insurer will pay up to $250,000 to rebuild your home.

Another option is to add guaranteed replacement cost coverage to your homeowners insurance policy. This means that if there’s a covered loss, the insurer will pay whatever it takes to rebuild your home, even if the cost exceeds the policy limits.

Extra insurance may be needed to cover standard exclusions

Every year, countless homeowners are disappointed when their claims are denied because the event that caused a loss is excluded from their policy. A common exclusion that catches people by surprise is flooding. While water damage from a burst pipe is usually covered, flooding from rain, sewer backups or sump pump failure is typically excluded. If your home is at risk for water damage from excluded events, you can add an endorsement to cover specific events like water backup, sump pump overflow or buy a standalone flood insurance.

Other things typically excluded from homeowners insurance are pest infestations, mold, damages from power surges caused by a utility company and intentional damage.

Coverage for home-based business assets and liability is also excluded from standard homeowners policies. You can close this gap with business insurance. These policies are designed to cover equipment used and stored at home, as well as claims from individuals injured on your property while there for business purposes.

The “set it and forget it” approach to insurance coverage results in many homeowners being underinsured. Make sure your coverage limits are up to date. And remember, as a Consumers member, you have access to group discounts on homeowners insurance through Nulty Insurance.

 

 

 All loans subject to approval. Rates, terms, and conditions are subject to change and may vary based on credit worthiness, qualifications and collateral conditions.