Whether you are purchasing your first home or finally getting around to checking your coverage on your day off, determining if your home has enough coverage can be a confusing/impossible task for most. At first glance you may feel your home is underinsured. I have had many people call me frantically saying "I can sell my home for $350,000 and it is only insured for $275,000, I don't have enough insurance!". I have to remind them that property values and re-building costs are quite different. Remember, re-building your home does not take into account the neighborhood you live in, or how many acres your home sits on. Rarely if ever will the property value not exceed the re-building costs (even in this trying real estate market).
Once the person has calmed down we then have to set about the task of calculating how much it would cost to re-build the home. For this, insurance agents use what is called a "Costimator" or "Cost Estimator". The industry standard is the Marshall & Swift/Boeckh Cost Calculator. In this calculator we input the square footage of the home, how many bathrooms (are they custom or builder's grade), any attached structures and many many more items. It is quite detailed even asking us to determine what percentage of the home is paint vs wall paper. The biggest determining factor of the re-building cost of home is the square footage. The calculator uses a dollar amount per square foot to attain a starting point. Then it adds in for Hardwood floors or Ceramic tile etc. This is why it is extremely important not to guess at the square footage, this could drastically skew the coverage amount.
Finally, as a safeguard most polices add as an endorsement either 25% or 50% (some even more) above the coverage amount stated on the policy. In the event of a total loss if the calcualtion was not accurate there is still enough coverage to re-bulid the home back to the way it was before the loss. Protecting your biggest asset, your home, is important! Call your agent to make sure you have enough coverage!
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