You should review your homeowner’s insurance policy to see that you have true replacement-cost coverage. Today’s “guaranteed replacement cost” coverage isn’t always guaranteed because the policies may have limits, caps, or substantial exclusions. That is, if your home is destroyed in a disaster, your insurance may be inadequate.
Some people think they have replacement cost coverage but they don’t. The amount of insurance you have may not be what it takes to rebuild. That’s especially true if you have made major improvements and the coverage hasn’t been adjusted. One study has found three-quarters of all homes nationwide are undervalued for insurance purposes, by an average of 35 percent.
Therefore, you should read your policy carefully, increase coverage to recognize major improvements, and ask your agent how much coverage you would have if you needed to rebuild.
