The Marshall wildfire that devastated parts of Boulder, Colorado, in early January has left many homeowners reeling not only because they lost their homes but because they are discovering their home insurance won’t cover the costs to rebuild.
According to the Insurance Information Institute (III), the average underinsurance amount for U.S. homeowners is 23%, though some homes are underinsured by 60% or more. Another research group, CoreLogic, states that 64% of U.S. homeowners don’t have enough insurance to rebuild their homes and are underinsured by an average of 27%.
Why Is This Happening?
There is no one cause for this phenomenon, but experts point to the following as the leading causes:
Property is undervalued.
Many homeowners will insure their properties for the cash value of the home, not the replacement value.
Homeowners misunderstand what’s covered.
The difference between the cash value and replacement value can be vast. If a homeowner insures the home for cash value thinking it will be enough to rebuild, odds are out-of-pocket expenses could exceed the cash value received.
Failure to account for construction cost increases/inflation.
Materials and labor prices fluctuate daily. Policies should include a percentage cushion written into the replacement costs to ensure