Contributed by John Allanson of Allanson Insurance Agency.
With the terrible devastation of the wildfires recently in the news, now is the time to review your current homeowner’s insurance coverage to make sure that your policy limits accurately reflect today’s replacement cost, so that you are not “caught short” in the event of a total loss. Unfortunately, that was the case for many homeowners with claims from the wildfire.
Current replacement costs for homes in the Monterey Bay area (according to several local contractors) are $400 per square foot and up; it is relatively easy to “do the math” on your own home and compare to the coverage limit for “dwelling” on your policy. It’s realistic to expect to spend an additional $150K for design, permit, engineering and other soft costs. If there is a road to build or a new septic system to install or hillside construction to do, then the cost goes up from there.
Many policies have the option to add “extended replacement cost” that increases the amount of coverage on your home up to a specified percentage, in case of a sudden spike in labor or material costs. Make sure to ask if you have this, and if not, is it available.
Insurance policies pay to rebuild your home as it is currently constructed; building codes change every year and the increased costs to comply with those codes may not be covered in your policy or may have a limit that is too low. If your home was built before 1990 be sure to check in to this coverage carefully, as you will need it.
Your coverage for contents should be reviewed as well; be sure to ask about limitations on items such as jewelry, silver, and collectibles. Your company will ask for an inventory of items you want to be reimbursed for; if you don’t have a written inventory then take a video of each room, with the drawers and cabinets open, so that you can use this as an aid to make a list if needed in the future.
Last but not least, look at the dollar amount of coverage and time limit for loss of use – this is what pays for you to live elsewhere while you are rebuilding. It could easily take a year or longer to replace your home after a major loss.
Remember, your insurance policy is a legal contract between you and the insurance company. The details and fine print really do matter, not just the “bottom line” price. A thorough review on a regular basis with a licensed agent (as opposed to a 1-800 clerk or online advice) will go a long way towards giving you peace of mind in the event of a disaster.