Save Me Time!
- Most homeowners are underinsured.
- You can fix this by knowing the right questions to ask your agent.
- Keep reading to learn some ways you may be underinsured.
The Rest of the Story
The main reason you may be an underinsured homeowner is…you practice “don’t ask, don’t tell”.
Lack of Communication
We’ll get into some specific things you may be underinsured for in a moment, but first let’s address the reason you’re underinsured for those things.
It’s because your agent didn’t ask you if you needed to change any of the coverages below or you didn’t tell them. That’s it!
Everything on the list below can be fixed if you know when to tell your agent that something about your home or possessions has changed and you need to update your coverage.
So let’s help you understand what some of those triggers are that might require an update.
Seven Sources of Underinsurance
- Water Damage
- Personal Floater
- Personal Contents
- Umbrella Coverage
- Roof Replacement
- Housing Inflation
Do you think insurance pays if your home gets flooded? A lot of times it doesn’t.
Do you think if you buy national flood insurance (NFIP) that now your water damage is covered? It still may not be.
Did you know you can buy an endorsement that will cover some of the water damage not covered by your main policy or your NFIP policy? You can, but it still doesn’t cover all water damage.
If you live in an area with high risk of water getting into your home, there is a very high chance you are underinsured. There is no perfect insurance for water risk. However, you can be less underinsured if you buy additional coverages to protect you.
Wait, didn’t we just cover water damage? No, a “floater” has nothing to do with floating in the water in your home. It’s another anachronistic way insurers describe things like calling a flood not a flood!
A floater is a policy to cover your possessions that aren’t covered by your basic home insurance policy. Got that? No? It’s OK, insurance isn’t good at plain English.
Floaters cover things that are too valuable to be in your contents policy and require special documentation. Think of artwork, jewelry, collectibles, etc. You can read more about how floaters work here.
If you bought something rare or expensive, you might want to ask if it needs to go on a floater policy, so it’s not uncovered if it’s damaged or stolen.
Let’s stick with the plain English. Personal contents are your stuff. Pretty much everything that didn’t come with the house is contents.
Most insurance defaults your contents coverage to a percentage of your home replacement value, often 50%. This is enough for most people, but if you think you need more than 50% (maybe you have some very expensive furniture or clothes?), you should tell your agent.
Did you win the lottery? Inherit a lot of money? Make a killing in the stock market? If you have over $1 million in assets, you probably need an umbrella policy to protect you from personal liability.
What does an umbrella policy do? You can read more about that here but, in short, an umbrella gives you extra liability coverage beyond what is in your auto and home policy.
For example, if you ran a red light and caused an accident that seriously injured the other driver or…
someone was served alcohol at your house and later was involved in an accident or…
you set off fireworks for July 4th and a friend was injured by a mishap, then…
You might be sued for more than the liability provided in your home and auto coverages. This is where an umbrella policy would protect your wealth.
Add a new room to the house? Re-do the kitchen? Put in a pool? You probably need to increase the replacement value of your policy. Tell your agent!
If you have an older home, your roof may not be fully covered if it’s damaged and you’ll have to pay out of pocket. If you’ve done maintenance to upgrade your roof, make sure to tell your agent so they can update your eligible coverage.
If you don’t maintain your roof, you may find you are underinsured if it is damaged.
Probably the biggest source of underinsurance is people don’t update the value of their homes. If you have been in your home for a long time and have always had the same insurance company, you may still be insured at the original replacement value of the home.
Often, insurers will increase this for inflation each year, but depending on where you live, that may not be enough. If you live in an area where building costs are high, or have risen significantly since you’ve moved in, ask your agent if you have the proper replacement value.
Otherwise, if you have a total loss, the insurance company may not pay you enough for you to be able to rebuild.
How to Fix It
Hopefully, it’s clear by now, but there are two things you can do to solve your underinsurance problem.
One, click those links above to learn more about each topic and how it might apply to you. Next, take that information and talk to your insurance agent to make sure your policy reflects your current circumstances.