According to a recent economic study… a full two-thirds of homes are underinsured

This really caught my attention and I thought to myself, are two-thirds of my clients underinsured? I care about them all. What if I had to pick the two-thirds that would fall into this category. That would give me nightmares.

The problem according to a JD Power and Associates customer satisfaction survey is that 50% of American homeowners don’t have a clear understanding of their home insurance. Another study by Marshall & Swift/Boeckh who are recognized consultants to the insurance industry reported that two-thirds of Americans underinsure their homes. These are 2 big problems.

Everyone is looking to save money on their insurance, me included, but there is more to price than the bottom line.

Here are the top four reasons people find themselves underinsured.

Shopping solely based on price – Price has always been a sticking point with insurance. Insurance is one of those gotta-have intangibles that unless you’ve been in a situation where you’ve needed it, the value isn’t always obvious. Let’s face it, insurance is a gamble for most. By choosing to under-insure your biggest asset you are risking a potentially huge financial loss.  One you might not be able to recover from.

Confusing market or assessed value with the cost to rebuild or the insurance value – The J.D. Power survey suggests that most consumers believe their policy limits are based on the real estate value of their home, rather than the replacement cost of the physical structure. One-third of those surveyed had contacted their insurer upset wit one simple issue: since the value of their home had plummeted, why did they need so much insurance? Shouldn’t they be able to reduce their coverage and thus their premiums?

The assumption is that these two numbers are tied together and consumers feel they are paying for coverage they don’t need.  That couldn’t be farther from the truth.

Real estate market values are based on factors such as location, condition of neighboring properties, prevailing interest rates, local market conditions and even property taxes. None of these influence what your insurance really covers.

Also, people think that a newly built home would reflect the cost to rebuild. That seems reasonable but not necessarily true. Re-building a home is always more expensive than building a brand new one. Demolition and removal of a destroyed home has to occur before rebuilding can begin, local ordinances come into play and can increase expenses, builders can’t buy materials in volume when working on a single home and it usually takes longer to rebuild.

Failing to have insurance reviewed or adjusted – Some people buy their insurance and never look at it again. We recommend and strongly encourage and invite our clients to review their insurance every year. Things change in your life and you might not realize how that can impact your insurance protection. That’s our job. That’s what we do for our clients.  We have frank and honest conversations about what coverage you have and what you don’t so you can clearly understand your policy and what you are paying for and the value in it.

Thinking $100,000 liability coverage is more than enough – Accidents happen all the time. Your dog bites your neighbor’s young child in the face and they need stitches, possibly reconstructive surgery. Your teenager beans someone with a baseball while a the park causing eye damage. Your runaway grocery cart causes someone to fall and break a hip. Accidents yes, but the reality is that you could be held financially responsible in any one of those situations and each could easily exceed $100,000.

The question is, how much liability does someone need? Clients will ask, what’s normal?  There is no such thing as normal. One size does not fit all.  We at King Insurance & Financial Services will offer you an asset review to determine your net worth which in turn will give you a good idea how much liability coverage you should have. It’s a good yard stick to measure with.

Hopefully you now can see that insurance is not just about price but about protecting your assets.  You work long and hard for what you have and if you’re going to pay for the gotta-have it insurance, you can have some comfort in knowing your family’s financial security is protected.