This is a great question, one which we receive often.
Basically a simple answer is you should have enough insurance to rebuild your home or property in the event it is completely destroyed by fire, tornado or other catastrophe. It is estimated that 60% of American homes are underinsured by 22%.
The amount of insurance should cover the cost of the rebuilding at current construction costs, not including land. This is not the price you paid for your home or what property appraised for although the resulting number may be similar, but replacement cost is a different equation.
Although the insurance company may offer some help and suggestions in determining the replacement cost of your home or property, ultimately the responsibility of setting the replacement cost belongs to the property owner.
Your agent can also give guidance as to what value in regard to replacement cost must be carried. There are various endorsements that affect the building coverage on your policy such as coinsurance requirements, blanket property endorsement, agreed amount and other endorsements.
There can be penalties in your current insurance if a person does not carry full replacement cost valuation on their property.
Some additional resources are:
- Obtain a replacement cost estimate from a building professional. This may be cost prohibitive.
- Use an insurance company replacement cost estimator; such as Marshall & Swift. Some insurance companies will provide this service on larger homes.
- Talk to a local builder
- Online sources as well.
For more details on this subject contact Ramey King Insurance at 800-453-9691 or visit their office at 320 Eagle Drive, Ste 210, Denton, TX 76201