Although we all enjoy saving some money, we can pretty much agree that when it comes to having an insurance claim, the most important thing for everyone is having the right insurance in place. At least it should be.
This applies to every type of insurance purchased and basically any claim when you have suffered a loss. It could be an automobile accident, a cyber attack on your business, a heat prostration loss on your farm, or a fire destroying your home. It is at these times that we discover the true value of our insurance coverage purchased and learn if our limits and coverage are adequate. Trust us on this, it is not the time to find out that your insurance coverage has gaps or that your limits fail to replace the loss.
For simplicity, the focus of this article will be your home insurance and the importance of insuring your house to full value. Full value includes every expense that your insurer will pay in costs to rebuild your home, and you need to realize that goes beyond the basics. We realize that many people think this is a simple calculation, determine the square footage of the home and multiply by an estimated factor of cost per square foot. You could not be more wrong!
We addressed part of the reason this assumption is incorrect in a previous blog, The Cost of Building A House. But we want to expand beyond the areas highlighted in that article, meaning mostly the additional cost added when your home is destroyed (in most cases by fire).
It is understandable that most people never read the wordings regarding any of their insurance coverage, we get that. It certainly is not an exciting read. However, if you are familiar with the wordings of your Erie Mutual homeowner insurance coverage you will find that there is an allowance under the property coverage which allows when the damage to the property (plus the cost of cleaning and removal of debris) exceed the limit of insurance to make available an additional 5% of the limit of coverage to cover debris removal expenses. When this happens, it basically means that your total insurance limit was not adequately determined prior to the loss.
For example, your dwelling is insured by your insurance company at a limit of $300,000. At the time of a total loss by fire, the cost of the rebuild has exhausted your $300,000 limit. There is an additional 5% (or $15,000) available to cover the debris removal expenses. This additional $15,000 (if used entirely) is a shortfall on the part of your insurer, the dwelling should have been properly insured at $315,000.
The good news for a policyholder is that the additional coverage is available, but as an insurer, the extra claim expense was not factored into the consideration of the premium charged on the policy. That shortfall will have a financial impact on the insurer. As the homeowner, your bigger concern should be that you could possibly not have been able to cover all expenses with the additional 5% allotted and would be short along the way in the total cost of your rebuild. An insurer should be including the expense of debris removal in the full insurable value of your home (remember we mentioned earlier that full insurable value includes every expense that your insurer will pay in the costs to rebuild the dwelling).
Determining the correct cost to rebuild a house is always easier to calculate after the loss has happened. It is our job to determine what that correct cost is for your home before the loss, and make sure that you have the right insurance!
Article Written by Darcy Johnson
Erie Mutual Insurance Manager – Sales, Marketing & Business Development
Please contact us with any questions you may have about this or any other topic related to your insurance.