Would your homeowners insurance policy cover a total loss if you needed it to?

Post Date: 12/16/2019

With the sharp rise in property values in the last several years, you could be left with substantially less than you expect if you haven't reviewed your coverage lately.

The most valuable asset you will ever own will most likely be your home. Part of taking care of it is making sure you have the right insurance coverage just in case you ever need to use it. Homeowners insurance isn’t the most riveting of topics for the majority of us and it can be difficult to understand the complicated policy paperwork when it shows up in the mail periodically. The language is complicated as are the columns and figures included in most coverage declarations for us laypeople. And, just to make things a bit more challenging, living in a real estate market that has seen exponential growth recently can spell out a lack of coverage that can be shocking.

According to the National Fire Protection Association’s website, between 2013-2017 there were 780 home fires that were caused by holiday decorations. My guess is not one of those homeowners thought it would happen to them. Aside from the possible loss of life and physical devastation that accompanies this type of incident, the emotional burden can also be hard to bear. Smoke and heat detection systems as well escape routes are important tools for planning to avoid this type of heartache but so is having enough insurance coverage for your property. Here are some tips to help you understand how to assure your property is covered appropriately.

Work with a great agent! Any insurance agent on his or her game should be scheduling annual insurance reviews with their clients. If yours isn’t, reach out and get one scheduled. Between 2010 and 2019 the Bozeman real estate market has seen an increase in the median single-family home price of 55%. If you purchased your house 9 years ago and haven’t looked at your insurance policy since you closed, you are most likely WAY underinsured.

Market Value and Reconstruction Value are different figures. Market Value includes the land your home sits or what it would sell for in current market conditions, taking into account the area, neighborhood and the value of your neighbor’s properties even though these things have no direct correlation with the actual cost of rebuilding your home. In the event of a total fire loss, you would still own the land. The Reconstruction Cost is the actual cost of rebuilding your home.

The Reconstruction Cost is what your homeowner’s policy should cover and Nikole Wieweck with Payne West Insurance in Bozeman recommends reviewing that portion of your policy at minimum every 3 years. An inflation guard with most insurance policies will raise your rate 3-4% annually automatically but with the cost of rebuilding outpacing that inflation rate by a substantial margin it’s important to stay on top of it.

Extended dwelling coverage is included in the average policy. This is usually written as an increase of percentage in original coverage if the repairs or replacement exceeds the amount displayed on your declarations page. An example would be: If your home is insured for $500,000 and the extended dwelling coverage was written at 50% that would be $500,000 x 50% or $250,000 for extended dwelling coverage. That would equate to $750,000 that would be available for you to make yourself whole, or indemnified. This percentage fluctuates per policy and is usually written as 25%, 50% or 100%. These terms are general and your individual policy can be reviewed.

The goal of this type of policy is to put you into the same position you were in, no worse or no better than prior to your loss. So whether you bought a builder’s grade home, asked for some changes to an existing plan and were living in a semi-custom home or had a one-of-a-kind custom home built to your specifications the goal is to get you back to where you started.

Additional coverage for personal items such as jewelry or personal protection from identity theft or cyber-attacks can also be included in some policies and should be considered dependent on your individual needs. Keep the joy in the holidays and every day by making sure your insurance agent is working as hard for you as they should be and that your family, home and peace of mind are protected. Reviewing your policies with a knowledgeable agent is easy and if you haven’t done that recently, schedule an appointment to do it today.