With the recent house and condo values in London Ontario, have you checked your insurance coverage on your home lately? Is it enough? Did you know that 73% of homes in Canada are underinsured, and of those homes, 68% are underinsured by at least 30%?
Many of these problems originate in the confusion between market value and replacement value.
Many base their insurance coverage on the market value of their home. Market value is what a buyer will pay for your property, but this is irrelevant if the damage is destruction. What you should be basing your coverage on is the replacement value. Replacement value is much more complicated to compute.
When computing replacement value, you must determine all the costs of rebuilding your home. Rebuilding is often 20-30 percent more than new construction because of the added demolition and removal costs.
In some cases, it may cost even more to rebuild your home than the market value. In any case, don’t just base your homeowner’s coverage on the lender’s requirements, and these often only cover the mortgage balance leaving you with nothing.
- It’s a good idea to insure your home for the cost of rebuilding it. Check your homeowners’ policy to see the maximum amount your insurance company would pay if it had to be rebuilt.
- Find out what it would cost to rebuild your home. Your insurance agent can calculate rebuilding costs for you or you can hire an appraiser (call or email me for references). Make sure your insurance agent knows about all improvements you’ve made, such as a deck or larger kitchen.
- Make sure the value of your policy is keeping up with increases in local building costs. Many policies include an inflation guard; if yours doesn’t, consider purchasing one.
- Find out if you have a “replacement cost” policy for your house. If you own an older home, you may have a “modified replacement cost” policy.
- For the contents of your home – find out whether you have “replacement cost” or “actual cash value” insurance.
- Check the limits on certain personal possessions, such as jewelry. Consider buying an “endorsement” to insure valuables separately.
I send the above to all my clients once a year to remind them of prudent ways to protect their possessions and, of course, themselves.