Your home is your most prized asset. With severe weather on the rise across the country, it's more important than ever that homeowners review their insurance coverage.
All homeowners should insure their houses according to what it would cost to rebuild the house in the event it is destroyed. This amount is called the replacement cost, and it is different from the market value of your home and even from your tax assessment value. An accurate assessment of your home's replacement cost is essential to making sure you have enough coverage.
What can I do to make certain that I have enough insurance?
Know your home
Quick - in what year was your house built? What type of foundation do you have? These are the types of details your insurance provider needs to know in order to calculate the replacement cost of your home and make sure you have the right coverage.
Your insurance professional can help you calculate the right rebuilding value based on the details you provide about your home. You may also wish to hire a professional appraiser.
Take stock of your stuff
A complete inventory of your belongings will help you get the right coverage and make it easier to file a claim. Click here to complete a room-by-room inventory of your possessions. (For an Excel version click here.)
Replacement cost is the total cost that your insurance company would pay to fully reconstruct your home if it were destroyed.
Replacement costs include things that may not be included in the resale value, like the cost and availability of skilled labour, debris removal, extra expense due to more stringent building codes, and more. Upgrades, renovations and other improvements can also make rebuilding a home more expensive than was originally estimated in your insurance policy.
Resale or market value is based on a number of factors that have no direct correlation to your home's replacement cost (the cost of reconstructing your home). These include the amount that would be paid for the house if it was sold, based on details such as location, land value and the amount paid for surrounding homes.
Many policies may require you to consult with your insurance professional to make sure your insurance is up to date. For example, it should reflect any recent changes to your property or renovations to your home. Remember that many policies require that any material renovations must be reported either before or at the time they are made. Even if you haven't renovated, you may have purchased expensive contents. To be sure, always check with your broker or agent.
The estimated replacement cost could exceed what you paid for your home for a number of reasons:
Upgrades, renovations and other improvements can make rebuilding a home more expensive than the original cost.
Construction on your home may need to meet newer, more demanding building codes.
The cost of demolition and preparing the land to rebuild is included as part of the replacement cost.
The materials used to build your home may have gone up in price or may no longer be available, which means that using materials of like quality to rebuild your home may cost more.
A contractor rebuilding just one home won't benefit from the same cost efficiencies as a builder constructing many homes within a development.
Following a catastrophic event such as a wildfire, labour and building materials may be scarce, resulting in inflation of the costs of construction.
If your insurance company doesn't know about the renovation, you may not have enough coverage. The improvements you've made could have an impact on the valuation of your home.
For example, if you expand your kitchen and add new appliances and granite countertops, you have added value to your home. The amount of your insurance should reflect those changes so that you have adequate coverage.
Some policies cover minor remodeling work, but even if you think the changes are small, always check with your insurance representative to be sure.
Because most home insurance policies cover contents up to a certain percentage, it is likely that your new home theatre will be covered. However, the only way to be sure is to talk to your broker or agent as every policy is different.
