Although the majority of Canadians carry homeowners insurance, many are stunned to discover they do not have adequate coverage. That’s largely because lending institutions only require families to take out a policy that covers their financial risk. Banks insist on property insurance requirements because policies protect the money they lend, not necessarily the contents and outbuildings. This naturally begs the question: What happens if your property is underinsured and suffers a major or complete loss?
How to Tell if Your Home is Underinsured
An estimated two out of every three property owners possess underinsured home insurance policies. This shocking statistic is difficult to fathom, considering purchasing a home is typically someone’s largest investment. But it stems from the fact property owners have policies that cover the real estate value or purchase price, not actually what it costs to make repairs or completely rebuild.
Many policies do not account for the rising costs of materials, labour, and elements that are considered high-end. For example, ornate craftsmanship, hardwood flooring, or exotic materials often exceed average construction costs. The best way to determine if your policy is inadequate is to get an accurate estimate of what it would cost to completely rebuild the house at today’s prices. Then, compare that figure against the maximum coverage afforded by your homeowners policy.
What Happens if Your House is Underinsured?
When your home is underinsured, the carrier will not cover losses beyond the policy’s limit. That means homeowners have to reach into their own pockets and pay the difference in the event of a loss. If you cannot afford the out-of-pocket cost, you may need to renegotiate with the bank for new construction loan funds. In some cases, homeowners find themselves teetering on bankruptcy.
How to Ensure Your Property Fully Insured
Getting fully insured is not difficult. You will need to provide a reliable cost estimate to the insurance carrier and request a higher coverage limit. It’s also prudent to review how damage claims are determined to ensure you will only have to pay a deductible. This applies to personal property coverage as well.
Insurance companies are usually happy to underwrite new homeowner insurance policies at a higher-than-recommended coverage rate. In the event of a total loss, the value to you as a homeowner far exceeds the few extra dollars from your monthly budget.
Estimate Your Replacement Cost with Douglas Cost Guide
The process of calculating the replacement cost of your home has never been more straightforward. The Douglas Residential Cost Guide provides user-friendly, up-to-date information that can be accessed online. This trusted resource is also widely accepted by insurance companies. If you are concerned about underinsured home insurance, get an accurate estimate by using the Douglas Residential Cost Guide today.