One of the most frequent questions we get about Roseville Home Insurance or Rocklin Home Insurance are questions about why the policies have to be written for so much more than the market value of the home itself.
Here are some FAQ that address some of those concerns - courtesy of the Insurance Information Network:
Q. What is underinsurance?
A. Underinsurance describes when an insurance policy has a stated limit that does not adequately cover the replacement cost of the insured item. This could include a home, auto, jewelry or artwork. The process of adequately insuring property is also known as “insuring to value.”
Q. What causes underinsurance?
A. Underinsurance may be caused by many factors, ranging from a failure to update a policy in a timely manner to an underestimate of reconstruction or replacement value. Failure to report new construction or additions to the property or a decision not to purchase sufficient insurance due to cost could also lead to underinsurance problems.
The cost of reconstruction of a home may also be estimated incorrectly, particularly in the event of post-catastrophe construction price spikes. Particularly difficult to predict are changes caused by new building codes enacted after a major disaster. Building code upgrades could be minor changes or may involve complex questions of infrastructure and redevelopment. Homeowners can protect against this by including building code upgrade coverage in their home insurance policies.
Q. How can a homeowner make sure the insurance policy adequately covers the home in the event of a total loss?
A. Homeowners should first fully understand the policy they plan to purchase. Knowing what it covers, what it doesn’t cover and what conditions define the coverage can help avoid problems after a disaster or major insurance claim.
The main coverage, usually called “Dwelling” or “Coverage A,” should be equal to the cost of rebuilding should the home be destroyed. Insurers make an honest attempt to estimate the cost of reconstruction of the home based upon the information provided by the homeowner. However, it is still only an estimate.
Many homeowner insurance policies now offer protection to help avoid underinsurance problems. Some policies provide general upgrades of the coverage limits of 25-to-50 percent. Others provide additional coverage specifically for building code upgrades.
For “Personal Property,” or “Coverage C,” a homeowner should make a complete inventory of all belongings. This will help determine the cost of the personal property so that it is reflected in the policy. A comprehensive home inventory can also serve as a shopping list of everything that will need to be replaced should the home be destroyed or burglarized.
Q. Whose responsibility is it to make sure that a home is adequately covered by insurance?
A. State courts have held that it is the homeowner’s responsibility to make sure that their property is properly insured. Although insurers take many precautions to match coverage to a homeowner’s needs, the homeowner makes the final decision of what they want and what they can afford.
In 2008, in the case of Everett v. State Farm, California’s Fourth Appellate District Court upheld a lower court ruling that placed the responsibility on the homeowner to maintain policy limits equal to the replacement cost of the home.
Additionally, a recent poll commissioned by IINC shows that 61 percent of respondents statewide believe that it is the homeowners responsibility to keep their insurance current.
Q. Is there any research available on whether there was underinsurance after a major California wildfire?
A. Yes. Following the 2003 Cedar Fire, a San Diego Union Tribune analysis of building permits in the Scripps Ranch community found that 96 percent of the destroyed homes were being rebuilt larger than they were before the fire, including 69 percent by more than 500 square feet.
Q. Were there widespread complaints of underinsurance following the 2007 Southern California firestorms?
A. No. The California Department of Insurance reported that out of more than 37,000 claims filed after the 2007 wildfires, only 105 requests for assistance – or .28 percent -- referenced underinsurance. About 80 of those requests were of a routine and easy-to-resolve nature, the Department reported.
A CDI study of "Requests for Assistance" shows the number of justified complaints declined statewide from 2002 through 2008. In its 2008 report, only 145 "Requests for Assistance" -- or 0.0017 percent of all policies -- were re-categorized as justified complaints.