How much are you willing to pay out-of-pocket in the event of a claim?

| November 25, 2019
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Insurance is very confusing, and more so it can be very frustrating.  It is time consuming, and no one really wants to bother with it. 

Insurance is also expensive, and even I will admit to previously being guilty of getting the cheapest policy I could find.  That may mean a severe lack in protection, leading to what could potentially be devastating out-of-pocket costs.

There have been several policies just in the last two weeks where I realized my clients were currently underinsured. When I asked them why they decided on the coverages they had, they all said something similar:

“I don’t need more.”

“I only paid that much for the house.”

“I know how much it will cost to rebuild it.”


The reason for these responses tends to be the common misconception that the Dwelling coverage on their Homeowner’s policy is the market value of their home, or what builders are marketing the purchase price for a new build to be.

This could not be less true.  The Dwelling coverage on a homeowner’s policy does cover the cost of materials as well as labor.  However, there is far more to it than that; especially because the situation is not the same as a new build. Newly built homes do not take as long because there are several advantages; there are no neighbors to work around, there is more space, the workers have longer hours they can spend on construction, and since they buy in bulk the materials are cheaper.  When you have a home in an established neighborhood and a kitchen fire burns it down, it can take nearly a year as by law, they can only work certain hours of the day so as not to make your neighbors hate you. A longer build time means higher costs of labor alone.

Other legal factors that your Dwelling Coverage includes for that ordinance are the permit codes and fees to do the work.  Debris removal is included.  Temporary fencing to keep trespassers off the property during the time of repairs or rebuild are included. 

What happens when you do not have the proper amount of coverage?

Marshall & Swift/Boeckh (MSB) is a provider of building cost information and insurance-to-value.  They state in their index reports that 60 percent of homes are undervalued by 17 percent.  Where will that difference come from if you have a claim?

Your pocket.

Let’s take a look at the math; and to prove a point, we will be using the Market Value of the home for the argument.    The average home today costs $300,000 for single family dwelling, and most homes average at 17 percent underinsured.  

$300,000 x .17 = $51,000

You read that number correct. That would mean the average person is going to be paying $51,000 out of pocket to return their home to the state that it was in before the loss occurred.

I don’t know about you, but I do not have that kind of cash sitting in a shopping account.

Here’s a real kicker:

Did you know that increasing the amount of your dwelling coverage even by hundreds of thousands of dollars does not do much to your premium?

One of my new clients this month learned that they were almost $200,000 underinsured as they had believed in insuring the market value of their home.  They were so adamant that they insisted on getting rebuilt estimates themselves, as well as having me come inspect their home.   Sure enough, they would have been out of pocket all that money. And with verifying insurance-to-value on their belongings and making a few changes here and there on their policies, I was able to get them more protection while saving them money!

Don’t want for a disaster to strike to find out that you were not as protected as you believed to be.  Send me an email at or call my direct line at 480-385-7383 for a review of your insurance and to see what I can do for you.  

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