Your home, along with the contents within it, may have a possibility that it is underinsured. If a disaster strikes - for example, a fire roars out of control and engulfs your house - you could suffer a catastrophic financial loss. Despite the fact that many homeowners have invested in coverage for home insurance and car insurance Ontario, the cost of replacement may be too costly for them if disaster strikes. They are exposed to a substantial loss, often without realizing it.
Our goal here is to help you avoid this situation. First, we'll explain the most common reasons many consumers are underinsured (a few may surprise you). We'll then take you through the steps of making sure you have adequate coverage in the event of a disaster.
Reasons Your Home May Be Underinsured
Several factors play a role in causing consumers to purchase less home insurance than they need. One of the most common is simple neglect on the part of homeowners. Many buy coverage, and then forget to update their policies to reflect their changing circumstances. But other problems play an even bigger role.
First, most insurers use software to estimate the cost of rebuilding a house and replacing the contents. This helps them calculate premiums. Occasionally, the software produces cost estimates that are below the actual cost of replacement. The result is that homeowners purchase too little coverage.
Another problem is that insurance agents and brokers sometimes make recommendations that are less than ideal for homeowners. For example, they might suggest disregarding a certain type of coverage if there is little chance the covered event (e.g. flooding, wildfires, etc.) will occur. Here again, the homeowner may end up underinsured.
Also, many homeowners forget to tell their insurers about improvements they have made to their homes. Examples include granite counters, room additions, and hardwood floors. These and other upgrades warrant a review of the homeowner's insurance policy and coverage limits.
Another factor to keep in mind: the cost of rebuilding a house rises over time. If years have passed since you last reviewed your policy, invest the time to do so. Make sure your coverage limits are high enough to cover the current cost of rebuilding your house in the event it is severely damaged or destroyed.
A Common Misconception That Leads To Inadequate Coverage
A lot of consumers are surprised to learn home insurers spend very little time evaluating the amount of coverage homeowners need. It's important to understand the reason. Premiums for home insurance tend to be relatively low given the coverage limits attached to policies. Because of this, insurers aren't compelled to spend significant time uncovering every detail. The result? Your insurance company may be completely unaware of your home's customized landscaping, new patio, or other features that may influence its replacement cost.
Don't assume your insurer will accurately evaluate your coverage needs. Doing so may lead to a financial loss down the road.
Steps To Making Sure Your Home Is Properly Covered
Thus far, we've presented many of the reasons homeowners are underinsured. Let's now focus on how you can avoid - or correct - the same problem.
The first step is to calculate the replacement cost of your home and everything in it. There are several online tools that can help you do so for your province and circumstances. Once you have the information you need, compare the costs against the coverage limits of your current home insurance policy. Make any necessary changes to your policy to correct the differences.
Second, determine whether you need coverage for specific disasters. For example, floods, earthquakes, and hurricanes may not be included in your policy. If you live in an area where such natural events are common, consider purchasing a rider to your current policy, or an entirely separate policy.
Third, consider buying a policy that offers compensation for loss of household items based on their replacement cost. A lot of policies are based on actual cash value (ACV), which takes into account the depreciation of any given item. The problem is that the compensation you'll receive from your insurance company is unlikely to be enough to replace the lost item.
If you haven't done so recently, review your home insurance policy. Also, be sure to take the time to compare rates to ensure better coverage if your current policy is soon to expire.
Our goal here is to help you avoid this situation. First, we'll explain the most common reasons many consumers are underinsured (a few may surprise you). We'll then take you through the steps of making sure you have adequate coverage in the event of a disaster.
Reasons Your Home May Be Underinsured
Several factors play a role in causing consumers to purchase less home insurance than they need. One of the most common is simple neglect on the part of homeowners. Many buy coverage, and then forget to update their policies to reflect their changing circumstances. But other problems play an even bigger role.
First, most insurers use software to estimate the cost of rebuilding a house and replacing the contents. This helps them calculate premiums. Occasionally, the software produces cost estimates that are below the actual cost of replacement. The result is that homeowners purchase too little coverage.
Another problem is that insurance agents and brokers sometimes make recommendations that are less than ideal for homeowners. For example, they might suggest disregarding a certain type of coverage if there is little chance the covered event (e.g. flooding, wildfires, etc.) will occur. Here again, the homeowner may end up underinsured.
Also, many homeowners forget to tell their insurers about improvements they have made to their homes. Examples include granite counters, room additions, and hardwood floors. These and other upgrades warrant a review of the homeowner's insurance policy and coverage limits.
Another factor to keep in mind: the cost of rebuilding a house rises over time. If years have passed since you last reviewed your policy, invest the time to do so. Make sure your coverage limits are high enough to cover the current cost of rebuilding your house in the event it is severely damaged or destroyed.
A Common Misconception That Leads To Inadequate Coverage
A lot of consumers are surprised to learn home insurers spend very little time evaluating the amount of coverage homeowners need. It's important to understand the reason. Premiums for home insurance tend to be relatively low given the coverage limits attached to policies. Because of this, insurers aren't compelled to spend significant time uncovering every detail. The result? Your insurance company may be completely unaware of your home's customized landscaping, new patio, or other features that may influence its replacement cost.
Don't assume your insurer will accurately evaluate your coverage needs. Doing so may lead to a financial loss down the road.
Steps To Making Sure Your Home Is Properly Covered
Thus far, we've presented many of the reasons homeowners are underinsured. Let's now focus on how you can avoid - or correct - the same problem.
The first step is to calculate the replacement cost of your home and everything in it. There are several online tools that can help you do so for your province and circumstances. Once you have the information you need, compare the costs against the coverage limits of your current home insurance policy. Make any necessary changes to your policy to correct the differences.
Second, determine whether you need coverage for specific disasters. For example, floods, earthquakes, and hurricanes may not be included in your policy. If you live in an area where such natural events are common, consider purchasing a rider to your current policy, or an entirely separate policy.
Third, consider buying a policy that offers compensation for loss of household items based on their replacement cost. A lot of policies are based on actual cash value (ACV), which takes into account the depreciation of any given item. The problem is that the compensation you'll receive from your insurance company is unlikely to be enough to replace the lost item.
If you haven't done so recently, review your home insurance policy. Also, be sure to take the time to compare rates to ensure better coverage if your current policy is soon to expire.
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