As many of our friends know, we have a cabin located in Julian, California.  As almost everyone knows, that area was the site of the big Cedars fire this year and many of our friends in the area lost their homes, personal property, and personal items.  The fire was a tragedy but now, after the burn, the second impact is being felt by many.  Their insurance policy is only covering a fraction of their losses!

Many people ordered their home insurance policies when they purchased or built their homes.  The value they used for the policy limits on the dwelling was related to either their cost of building (at that time) or the purchase price of the home.  Some people only insured their homes based on the amount of the loan required by the bank.  Today they are realizing that the insurance coverage was totally inadequate to cover the replacement cost of their structures and their personal property.  You must keep in mind that when you insure a home you insure it based on the replacement cost of the structure not the market value of the home, which includes the land and location.

California is one of the states that has seen double digit inflation in the past years.  Building costs have sky-rocketed.  Ten years ago, most people in cities were using a replacement cost value of $75 per square foot or lower to insure a home of average construction.  Today that value has doubled.  The average replacement cost value per square foot is running from $125 to $160.  Obviously this is only an estimate and varies from location and type of home built; however, it is a good estimate.  It is essential that you, the homeowner, review your values each year with your agent or company to be certain that the limit is adequate to replace the structure in case of a loss.  The responsibility of insuring a home to the adequate limit rests with the homeowner.  An insurance agent or company can assist you in determining that value, but the final limit must be determined by the homeowner.

In case of under insurance, the insurance company has the right to adjust based on the actual cash value (replacement cost less depreciation) or, at their option, pay the policy limits on the policy and close the loss.  This could result in you receiving far less than the amount needed to rebuild or repair the home.  Worst case scenario would have the bank, which held the loan on the home, taking the entire payment leaving you nothing from the insurance company to rebuild or repair your home.

The personal property coverage in your homeowners policy is based on a percentage of the dwelling value, which is usually 50%, unless you request that limit to be increased.  Contents value is based on the cost to replace with "new, like kind and quality" of items lost.  On that basis the cost to replace items with intrinsic value or antique value is far from adequate.  Special items like those, along with jewelry, furs, firearms, fine arts, and other high value, unique items should be "scheduled" for their specific value on your homeowners policy or on a separate floater (valuable items) policy.  It is terrible to lose a $5,000 antique dining table, but worse to discover that the policy only replaces the lost item with a comparable table from the local furniture store.

So, don't join the folks in Julian, California, who are suffering a second major loss.  Be certain the value limit on your homeowners policy is adequate enough to replace the structure and your contents.  You'll want to make sure you have insured your home to 100% value of the replacement cost.  Each insurance company has their own methods for determining this value, so it may differ from company to company; however, the values should be close to one another.  Depending on what insurance company you are with, your agent can ask you the necessary questions to determine what the insurance company feels the home should, at least, be insured at.  Equally important, do this every year!  There could be thousands of dollars difference in your ability to recover, especially if you have remodeled or added to your home.  Keep in mind that values in California have been growing much faster than the percentage for inflation used by insurance companies on the annual renewal of the policy.  This could result in your home being dramatically under insured in just a few years.

The annual review should also include the need for special coverage to protect those items that are "special".  It would also be a good time to look at other important coverages like earthquake and flood and making sure you have the appropriate endorsements attached to your policy such as personal injury, replacement cost for the dwelling and contents, etc.

Is your home insured for an adequate amount?

The following replacement cost estimator can be used to help get an approximate idea of what your home should be insured for.  If you fill out the following pages and fax it over to us we can run some numbers for you to gage if you are currently insured for a sufficient and adequate amount.

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