You’re not the first person to look at their insurance policy and realize that your property’s insured value is too high. In fact, two out of three homes in the US are underinsured, yet there are still plenty of people who believe they’ve over insured their home. We’re not saying this may not be the case, but the only real way of finding that out is by reviewing the value listed on your policy (usually called Dwelling limit or Coverage A) on a yearly basis. This way, you’ll be able to know whether your home is properly insured.
On the other hand, there are also cases when you may find that your insurance is too low. In this case, you can easily adjust your policy or use an endorsement to add extra coverage.
One of the main issues with insurance though is when your property’s value increases so much that you quickly find yourself in a situation where your home is over-insured. Luckily, there are quite a few things you can do if you don’t agree with the estimated reconstruction cost of your home or its insured value.
Check to see whether you’re over insuring your property
When people make large claims, one of the main issues they’re going to deal with is finding out their home is underinsured. Even so, when people check the cost of their home insurance, they often want to reduce costs as much as possible. New buyers are often surprised to find out just how much they need to pay to insure their home, while people who’ve had a home for a long time may feel quite annoyed to see that their property’s insurance value has increased, while its resale value may not have followed the same trend.
Prior to lowering your property’s insurance, there may be a few other factors that can help you in this regard. For instance, you may be able to take advantage of various discounts that can be added to the insurance policy. Other options may also be available, such as getting a new security system or increasing your deductible or lowering your personal property coverage.
If you don’t agree with the value the insurer wants you to insure your property for, rest assured, since there are always options you can consider.
Top 3 ways your property insurance dwelling value can go up
Prior to letting you know exactly why your property’s value may be too high and what can be done about it, it’s important to understand why this happened in the first place.
There are 3 factors that may influence this increase, including:
- You’ve had an evaluator visit you for an insurance property inspection. After checking the cost of reconstruction, he recommended your insurer increases your property’s value.
- There may be a clause in your home insurance policy that’s meant to protect you from the costs of inflation. This clause may also increase the value of your property insurance on a yearly basis, yet only by a small percentage. However, in the long run, this inflation can become pretty substantial and eventually force you to review your property value for accuracy.
- You’re the proud owner of a new property that’s going to be insured for the very first time. In order to check its value, the insurance broker or agent used basic tools and info you’ve provided them to determine the home’s insurance value.
Things you can do if you don’t agree with your property’s insurance value
A lot of people believe that the insurance value set by an agent or broker is final, but that’s not true. There are many cases when this type of evaluation can be erroneous. Luckily, there are a few ways you can check whether your property is over insured. The main reason people get insurance is to protect their assets, so if you think that something is indeed off, then you have every right to investigate and get an answer. Therefore, don’t be afraid to call your insurance agent and request a review or ask questions.
Usually, if you have a solid and legitimate case, the insurance agent or broker will submit your request for review to the insurance underwriter.
Have inflation adjustments caused your property’s value to increase?
Inflation clauses are put in place by insurers to protect their clients when they insure their property. The reason for this is simple: if a homeowner insures his home for a certain dollar amount and after several years he files a claim, he won’t have to worry about coming up short on the dollar amount required to rebuild his home from the increased cost of construction. The inflation clause is intended to keep up with an increased cost of construction over a period of time.
The bad news about this method’s accuracy is that it depends on the homeowner’s foresight, specifically him insuring his property for the right replacement cost at the time of writing the policy. If the numbers are off, in the beginning, they will continue to be off in the future- and sometimes by a significant amount.
When it comes to standard inflation that happens over a long period of time, insurers recommend that homeowners use current reconstruction rates to re-evaluate the value of their property. You should speak to your insurance representative about your home’s value and review the dwelling coverage every few years for accuracy. Getting a readjustment can in many cases be as simple as making a call and talking to an agent.
Effectively negotiate by using these simple tips when your property’s value is increased
If you’ve discussed with your insurance representative about the increase and the results are not what you were hoping for, then rest assured. There are 3 very simple approaches you can consider negotiating with your insurers.
3 simple methods to get a second opinion on your property’s insurance value
One of the first things you can do is ask your insurer to recheck their calculations. You should specifically check the square footage they’ve used and then compare those numbers with the standard in your area (based on info from local builders). If you find that your numbers are off, show those numbers to your agent and ask them to have an underwriter make an adjustment to your policy. In many cases, they’ll offer you a different solution or a compromise.
Get in touch with one or more insurers and request that they estimate the cost of having your property reconstruction and have them send you a quote. If their cost is different, be sure to ask why especially if the info you’ve provided them for this purpose is identical to the info you provided your insurer. Make sure they also used the same rating tools as your insurer.
Another thing you could do is get in touch with a private appraiser who is accepted by most insurers. It’s important to do a bit of research in this regard and only hire someone that is accepted by your insurance company. Wasting money on this and finding out your insurer doesn’t accept the independent investigator’s review is not the goal. The methods and tools used by the independent appraiser must also be approved by the insurance company. You should know that in the majority of cases, independent appraisers are a bit more accurate and their appraisal amounts may be higher. It’s true that the appraisal value may be lower in some cases, but this happens quite rarely. Before hiring an appraiser, you need to inform them of the previous appraisals you’ve got, including the cost per sq. ft. used by your insurer. If the appraiser is well reputed and experienced, he’ll tell you right away if your values are within the normal range and may even help you save some time and money in the process.
Check your home insurance policy type and coverage requirements. In most cases, insurers provide many types of insurance coverage for properties.
What you need to know about home value and guaranteed replacement cost
Guaranteed replacement cost will effectively insure your property to replacement value, including a certain percentage over the value of your insured property in the event the reconstruction cost may go over the policy limit after making a claim. Depending on the company used, some of them may put a cap on the value to 125% of the insured property’s value. However, there are also companies that may provide a guaranteed replacement regardless of the cost. To know which insurance type to get, it’s advised that you speak to your insurance representative about it. If you opt for guaranteed replacement coverage, then you need to insure 100% of your property’s evaluated reconstruction cost at the time the policy was written. This coverage is the best by far since it fully protects your home regardless of what happens to it. Still, there are a few other options out there that provide great coverage at a much lower cost.
What you should know about replacement cost
Replacement cost is a bit different compared to guaranteed replacement cost. The difference lies in the fact that you’re only going to be protected up to the property’s insured value and no more. If you believe your home insurance dwelling evaluation is incorrect and you deem that a lesser insurance amount is better suited for your property should you file a claim in the near future, then you need to get in touch with your insurer. This way, you can talk to them about lowering your insurance cost by getting a replacement cost insurance policy instead.
To benefit from replacement cost, you need to insure your property to a certain percentage of its value. Depending on the insurance company used, you’ll find that most of them offer different plans that vary in a requirement to insure to eight or up to eighty-five percent of your property’s reconstruction value. Jurisdiction also impacts your insurance policy and cost, so you need to speak to your insurance company about this as well. By doing so you may very well avoid the argument regarding whether the value is valid. If you’re comfortable taking your chances, then this can provide you with a safe middle ground.
How reducing or increasing dwelling value affects your insurance coverage
A wide range of the coverage found in a homeowners’ insurance policy is provided as a percentage of the insured property value. For instance, your personal contents and belongings may have been insured at about 70% of the property’s value and your extra living expenses may be set at 10% or 20%. Each time your insured property’s value changes, it’s important that you verify how this will influence the rest of the coverage you’ve got. There are cases when the value of the items in your home could be a lot higher than the items of the average individual. Under these circumstances, it’s important that you exercise care when changing your property’s value and that’s because this will impact the rest of the related insurance amounts for:
- Extra and detached structures— (Other Structures/Coverage B)
- Personal contents— (Personal Property/Coverage C)
- Extra living expenses— (Additional Living Expenses/Loss of Use/Coverage D)
Cutting down on your property’s insurance value won’t affect your home policy’s liability coverage, special endorsements, riders, or any special limits the policy may contain.
What other options do I have to save on insurance costs?
If you’ve properly evaluated the reasons why your property insurance costs are so high and you are still adamant on saving money, there are ways you can do that.
First, you may want to get in touch with your insurer to increase your deductible. In turn, this will help you save a lot on insurance costs (usually about 40%).
Bundling your insurance is also recommended. Get in touch with the insurance company you currently use and ask them to provide you a quote for your car and home insurance.
Getting in touch with other insurance companies is also recommended because costs vary greatly. Many people may also worry about getting hit with an early cancellation penalty should they decide to cancel their policy prior to the renewal date. However, what many folks don’t realize is that in that most insurance policies are written on a Pro-Rata basis (daily rate) and any unearned premium will be refunded by the insurance company—even if you cancel your policy mid-term.
Written by David Clausen