Determining if a Home is Underinsured

Determining if a home is under insured can be done by looking at specific coverages that are contained on a homeowners policy. A home can be under insured if there is not appropriate coverage for the replacement cost, liability and contents coverages on a homeowners insurance policy. If changes need to be made a policy can be endorsed to add or change coverage amounts.

A home can be significantly under insured if the replacement cost coverage is not set to an appropriate amount. Calculating the replacement cost coverage for a home is done by an insurance agent or an insurance carrier by using what is called a replacement cost estimator. An estimator used specific criteria about a home to determine the appropriate replacement cost. It is important to remember the replacement cost of a home is not the same as its appraised value. This is because it will cost more to completely replace a home after a loss. In order for the replacement cost coverage on a homeowners policy to be of any benefit the home needs to be insured to its full replacement cost value.

In addition to the replacement cost there is another important coverage for the contents of a dwelling that can leave a home under insured. Contents coverage provides protection from losses that are due to perils such as theft and fire. It is important to set the contents coverage of a homeowners insurance policy to an adequate amount. The best way to determine how much coverage is needed is to take an inventory of all of the items in a dwelling. This includes items such as furniture, appliances and electronic equipment. The contents coverage limits on a personal property or homeowners policy are the maximum amount the insurance company will pay in the event of a loss.

One coverage that is not thought of all that much but if not checked can leave a home under insured and that is liability coverage. Liability coverage on a homeowners insurance policy is designed to pay for medical costs in the event that someone becomes injured on an insured’s property. This can be a friend, a relative or anyone else that is visiting the household. Liability coverage also pays for the legal costs in the event that a homeowner is sued as the result of an injury that was sustained. Liability coverage can be difficult to quantify but should be set at an adequate amount. A homeowners insurance policy generally does not cover negligence and carelessness on the part of the insured.

If an insured or insurance agent determines that a home in under insured there are steps that can be taken to remedy the problem. The most common step is to endorse a policy to add or change coverages on the policy. An endorsement can be done at any time to add to or change a policy without having to rewrite it.