If you own a home and have a homeowners insurance policy, you likely assume that it covers the full cost of rebuilding your house in the event of damage or destruction from a covered hazard. But have you double-checked to ensure you have enough coverage? Here are two often-overlooked scenarios that could leave you underinsured — and the affordable policy options that can provide peace of mind.
Extended Dwelling Coverage
Reconstruction costs don’t always match your home’s market value, and your current homeowners policy may not reflect the true cost of rebuilding your home. Extended dwelling coverage ensures you’re covered if construction costs rise beyond your policy limits.
Consider this example: your home is insured for the replacement cost of $200,000 based on the market value when the policy was written. A wildfire destroys your home and hundreds of others in your area. Due to the disaster, demand for construction materials and labor skyrockets, increasing costs by 20%. Now, rebuilding your home would cost $240,000 instead of $200,000. If you have 20% extended dwelling coverage, your insurance will cover the full $240,000. Without it, you’re stuck with the original $200,000 coverage and would need to pay the $40,000 difference out of pocket or settle for a less expensive rebuild.
Building Ordinance or Law Coverage
If your home is damaged and needs to be rebuilt, you’ll likely need to follow current building codes. Building codes have become stricter in recent years, and this can result in significant additional costs. A building ordinance or law coverage option helps you cover the extra expenses of meeting these updated requirements.
Let’s revisit the example above: if your home is insured for $200,000 and you have 10% building ordinance coverage, you’ll receive an additional $20,000 to help cover the costs of bringing your home up to current building codes. Without this coverage, you would have to pay those extra costs out of your own pocket.
Both extended dwelling and building ordinance policies are affordable add-ons that protect you from gaps in your coverage in the event of an unexpected loss. They provide valuable protection, ensuring that your home can be rebuilt properly, even when the costs rise unexpectedly.
Conclusion
Make sure your homeowners policy covers you adequately for the unexpected. Extended dwelling and building ordinance coverage are smart, affordable options to ensure you’re fully protected.
