This is a scenario I see commonly, and the answer isn't that simple (gee, what a surprise!). Insuring a home contains multiple layers of coverage for multiple different perils. Although personal needs and selections vary, to be adequately covered we suggest you carry Hazard Insurance, Wind/Hurricane/Hail insurance, and Flood insurance. As insurance agents, we try our best to offer the most comprehensive coverage at a competitive price. Unfortunately due to cost and availability, sometimes it is less expensive to seperate the coverage into multiple policies with multiple carriers, rather than go the traditional and easier route of writing one single policy. This has several advantages and several disadvantages. Some of the advantages include benefits for you and the company, i.e. it allows the insurance carrier to offer better premiums since they get to provide coverage for their "desired taste" and only extend coverage to the piece of the pie they think is profitable. It also allows you to slice the insurance up 3 ways, thereby allowing you the chance to better comparison shop for the ultimate lowest price.
However this method comes with several disadvantages. Becuase there are multiple in-force policies with different companies, due dates can happen at varying times, which can be a cause for confusion when you are trying to pay your bill and avoid forgetting a payment. Also, different carriers offer coverage AND renewals with different terms. Some carriers will automatically issue a renewal offer with higher limits of coverage for the dwelling to account for rise in inflation. Beacause not every carrier offers a renewal in this way, over time the coverage amounts offered can vary greatly from one policy to the next
Why should this concern you? Of the many stipualtions within your insurance policy, there is one requirement that requires you to select a limit of coverage that meets or exceeds the cost to repair, replace, or rebuild your home. If the estimated replacement value exceeds your limit of coverage at the time of a claim, the value of your claim could be reduced by an equal factor. The logic is this: The insurance carrier would have received more premium if the policy was issued with a higher limit of coverage, therefor they will take a counteractive approach and reduce the claim payout to account for this loss in premium.
Example 1: Bob insures his home with carrier ABC at the estiamted cost to replace of $200,000 in 2011. Carrier ABC DOES NOT automatically offer coverage increases at renewals, they expect Bob to kepp in-tune with his current replacement value and request increased coverage whe nneccessary. Bob is unaware of this and his mortgage company continues to renew his policy year after year, automatically. Fast forward 6 years later in 2017, the replacement value of his home is now around $250,000 due to inflation and changes in market conditions making materials and labor for rebuilding about 25% higher than in 2011. Bob's house catches on fire and the kitchen needs to be completely gutted and replaced, to the tune of $60,000 in damage. At the time of loss, Bob's home has an estiamted replacment cost of $250,000 but is only insured for $200,000 (80% of the estimated replacement value). This means instead of receiving $60,000 in claim value, Bob only receives $48,000 (80% of the claim value). Bob is now short $12,000 and must come up with that out of his own pocket to complete the neccessary repairs.
Example 2: John whos house is next door to Bobs, and has identical charactersitics down to the year built and floor plan insures his home with carrier XYZ at the estimated cost to replace of $200,000 in 2011. Carrier XYZ automatically offers renewals with dwelling limits 4% higher than the previous year, to account for rises in inflation. John is aware of this and continues to renew his policy year after year. Fast forward 6 years later in 2017, the replacement value of his home is now around $250,000 due to inflation and changes in market conditions making materials and labor for rebuilding about 25% higher than in 2011. Bob's house catches on fire and the kitchen needs to be completely gutted and replaced, to the tune of $60,000 in damage. Because his carrier automatically increases coverage year after year, his insurance provides up to $253,064 for his dwelling. This means he will receive the full claim value of $60,000. John can complete his reapirs with no additional money out of pocket.
As you can see, it is very very important to discuss your coverage limits with your insurance agent regularaly. It is also important to purchase insurance policies that allows for automatic inflation adjustments so you aren't left unprotected and uncovered.
Call our team of insurance professionals at Evolve Insurance Agency at 941-244-2760 to request a review of your insurance today. Due dilignece today saves a lot of headahces tomorrow.
-David Kronk, Principal Agent