Enough?

Verify That Your Dwelling Limits Are Adequate

One of the painful aftermaths of fires and tornadoes that decimate homes may be the crushing realization that the home is dramatically underinsured. According to one of the largest residential building cost data companies, Marshall & Swift/Boeckh, 64 percent of U.S. homes are undervalued by an average of 19 percent. If this figure is applied to a home with a replacement cost of $400,000, it might be insured for only $324,000, a shortfall of $76,000.

This underinsurance results in a potentially huge coverage gap, particularly if the home is not insured with a guaranteed replacement cost provision. A survey by United Policyholders, a consumer advocacy group, said 75 percent of California home owners affected by the 2007 San Diego wildfires were underinsured by an average of $240,000. [The statistics for this year's losses look like they'll be worse.]

Here are some general tips to consider to reduce the likelihood of your home being underinsured:

• Make sure your home has been physically inspected. This will increase the likelihood that it is insured for its replacement cost value. Ask for periodic reinspections of your home (particularly high-end ones) to ascertain whether the dwelling limits are adequate.
• Consider guaranteed replacement cost (or guaranteed rebuild) coverage; an alternative would be to procure coverage that offers a 30 to 50 percent cushion above the dwelling limit (extended replacement cost coverage).
• Increase the ordinance or law coverage (10 percent of dwelling limit for many homeowners policies) to a higher percentage of coverage. Note that this recommendation is particularly important if you have an older home.
• Keep the insurance company informed about any remodeling at your home, since remodeling can dramatically increase the need for higher dwelling limits. Americans spend more than $170 million annually on home improvement projects, according to the National Association of the Remodeling Industry.
• If building costs are rising rapidly, an inflation guard endorsement is worthy of consideration. This endorsement increases the dwelling limit of insurance (along with other coverages) to reflect increases in values due to inflation.

~ Jon

Merriam Insurance Agency

Used with Permission, Copyright 2012
International Risk Management Institute, Inc.

Protect! (Historic Homes) p3

If you are planning any type of restoration to your home, make sure you hire contractors and architects that specialize or have experience in restoring historic homes. Note that the local historical commission typically has to approve any renovation plans.

~ Jon

Merriam Insurance Agency

Used with Permission, Copyright 2012
International Risk Management Institute, Inc.

Protect! (Historic Homes) p2

If you want to replicate custom or historical features of your historic home, such as stained-glass windows, antique wood floors, ceiling moldings, or hand-carved banisters, ask us about a restoration cost homeowners policy or about adding an endorsement onto your policy providing this coverage.

~ Jon

Merriam Insurance Agency

Used with Permission, Copyright 2012
International Risk Management Institute, Inc.

Protect! (Historic Homes) p1

Historic homes pose more challenges for home owners as they are typically subject to historical renovation regulations. Here are some recommendations worthy of consideration for your historic home.

You should avoid any type of functional replacement cost endorsement because this allows less costly construction materials and methods to be used to repair your home. These materials and methods may reduce the value of your home.

~ Jon

Merriam Insurance Agency

Used with Permission, Copyright 2012
International Risk Management Institute, Inc.

Protect! (Older Homes) p2

Difficulty in estimating replacement cost

Older homes are often constructed with materials and using techniques that are either no longer available or extremely expensive to duplicate, making it quite difficult to accurately forecast what the cost would be to rebuild following a loss. As a result, there is a risk that the value for which your home is insured is too low. 


Sometimes a guaranteed replacement cost endorsement is available to protect against this contingency. With it, the insurer will pay the actual replacement cost to entirely rebuild your home after a total loss, even if it is much higher than your dwelling limit. If guaranteed replacement cost coverage is unavailable, consider extended replacement cost coverage, which might allow an additional 20 percent or 30 percent of the dwelling limit in the event of a total loss to your home.


~ Jon
Merriam Insurance Agency


Used with Permission, Copyright 2012
International Risk Management Institute, Inc.

Protect! (Older Homes) p1

Older homes (i.e., greater than 40 years old) present extra risks for home owners; thus, special insurance needs may arise. The following are some factors and tips for you to consider when purchasing insurance for your older home.


Increased construction costs. In some cases, building ordinances can increase rebuilding costs by 30 percent or more. Thus, an ordinance or law increased limit (HO 04 77) or similar endorsement is worthy of consideration. This endorsement provides higher limits for rebuilding an older home when an ordinance will increase the cost.

~ Jon

Merriam Insurance Agency

Used with Permission, Copyright 2012
International Risk Management Institute, Inc.