You Need Enough Insurance to Rebuild Completely After a Claim

Far too many people do not have enough home insurance to rebuild their homes completely if they are destroyed or severely damaged. Many people forget to factor in inflation when they are faced with the possibility of having to completely rebuild their homes after a natural disaster or fire.

This is a particularly devastating hazard for someone who purchased their home many years ago. Your home insurance should cover the cost to rebuild your house at today’s market prices for materials and labor. Many homes that were built several years ago still have the same amount of homeowners insurance on them as when the owners originally bought them.

You should purchase either guaranteed replacement cost or extended replacement cost. Guaranteed replacement cost will help you rebuild your home back to its original condition with whatever the current market price is for materials and labor. This is the best and most comprehensive home insurance coverage that you can purchase.

If your insurance company offers it, guaranteed replacement cost is a worthwhile investment. Because of rapidly increasing material and labor costs, many home insurance companies have transitioned to using extended replacement cost which can provide coverage for 20% above the originally insured cost of your home.

So, for example, if you bought your home ten years ago for $200,000 and the market has appreciated 3% per year, your home could have a value in today’s dollars of approximately $268,000. If you do not have either guaranteed replacement cost or extended replacement cost, you would only receive the $200,000 you have insured your house for. If you purchased one of those additional policy benefits, you could have received $240,000 or more to rebuild your home.

If you do not purchase guaranteed replacement coverage or extended replacement cost coverage, you are at the mercy of inflation. For what amounts to a small increase in your home insurance premium each year, you are protected from the possibility of having to pay a considerable amount of the repair cost out of your own pocket.

Inflation will deteriorate your ability to adequately rebuild your home more and more every year if you do not purchase protection from it through your homeowner’s insurance. Too many homeowners in the United States are underinsured and do not have adequate homeowners insurance protecting them from disaster. You should ensure that you have adequate home insurance to rebuild in order to completely reconstruct your home at today’s costs.