When Hurricane Dorian struck the islands of The Bahamas in 2019, it caused over $2.4 billion of damage. 3 out of every 4 insured homes damaged by the hurricane were found to be underinsured. As a result, some homeowners had to pay part of the repair and rebuild costs themselves, which proved to be very costly.
To protect yourself fully against hurricane damage, you should ensure that you first have a homeowner policy in place and, secondly that the sum insured is adequate.
What does it mean to be underinsured?
You are underinsured if the value of your policy is less than what it would cost to rebuild your entire home. For example, let’s say five years ago, you decided to take out a $100,000 policy to cover damage to your home. Today, the cost to rebuild your home is valued at $200,000. In this situation, your home is insured for 50% of what it would cost to rebuild it, which means that it is underinsured.
When you need to file a claim, your claim settlement will be reduced by 50% to take this into account. However, if you were to insure your home to the full $200,000, you would be able to receive the full claim, with no out-of-pocket costs.*
*Disclaimer: This example does not take into account deductibles.
The 4 Do’s and Dont’s of underinsurance
To avoid being underinsured and paying unexpected out-of-pocket expenses, you should make sure that your insurance reflects 100% of your home rebuild cost. We have shared a few tips below to help you stay protected.
DO: Update your policy to account for higher construction costs
Due to the impact of the pandemic and global logistic challenges, there have been unprecedented increases in the costs of building materials and labour. This poses a major financial shock to homeowners that have a policy which hasn’t updated to reflect these new higher costs. To protect yourself from this risk, simply review your policy with your insurance agent regularly. Your agent should have the knowledge of current rebuilding costs to help you calculate the correct insurance amount to keep you fully covered.
DO: Update your policy following home improvements
Many people are underinsured due to not updating their insurance policy to include home improvements. Your new and improved kitchen, the beautiful new backyard deck, the renovations you’ve made to your bathroom, these home improvements and the amount you’ve invested all need to be included within your policy for your home to be fully insured. To update your policy, simply contact your agent with details of the changes you’ve made to your house.
DON’T: Choose to save money on premiums today, while ignoring risks tomorrow
Some homeowners decide to take out a policy that covers only part of the rebuild cost of their home, because they think their entire home is unlikely to be damaged. However, regardless of whether it’s destroyed completely or just the roof is damaged, you will be personally liable to pay for part of the damages with an underinsured policy.
Also, with increasing numbers of extreme weather events, choosing to focus only on savings today can later become incredibly expensive to you at your most vulnerable moments. Your insurance agent can help you find a plan that you can afford to pay, while still giving your home complete coverage.
DON’T: Wait until renewal to amend your home insurance policy
You can amend your policy’s insurance amount at any time. If you have concerns that you are underinsured, you should contact your insurance agent. They can give you advice on what changes need to be made to your policy to make sure you are no longer underinsured and that you have complete coverage for your home and household goods.
