Many New York Homeowner Insurance Clients Finding a Coverage Shortage After a Major Claim

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Pitfalls of Homeowner Insurance you should be aware of. Your biggest single investment could be at risk.

Your "Actual Reconstruction Cost minus your Insurance Coverage (equals your) Out of Pocket expense!

A recent 2009 survey questionnaire of homeowner insurance policyholders in the Hudson Valley Region of Rockland and Orange Counties in New York, showed a lack of knowledge concerning proper coverage limits.

Most New York homeowners look at several houses, found one they liked and start the purchase process. Along the way, they are advised to get an inspection done, get an attorney and purchase a homeowner insurance policy, paying the annual premium upfront. On each anniversary, a renewal notice and bill go to the Insured or mortgage escrow account, and a check is cut to the insurance company. Very few people review the renewal to make sure the protection is keeping up with building costs.

This is part important: "Have you ever sat down with your insurance agent to make sure the reconstruction / replacement coverage on your house is accurate and up to date?" That is one of the first questions to ask most of the new clients during a review for home insurance. Over the last decade, the inflation costs of construction have far outpaced other sectors in the economy. If the home insurance policy hasn't kept pace, it could be in for a rude awakening! A coverage gap is something to be concerned about. (Actual Reconstruction Cost – Insurance Coverage = Out of Pocket Cost / Coverage Gap)

Additionally, property owners create another coverage shortage by not advising their agent or the insurance company when they build an addition or do a major renovation upgrade to their home. Most New York homeowner insurance policies contain a clause requiring the Insured (owner) to notify the company and / or the agent of any significant additions or alterations to the home. In some cases, the clause will specify a dollar amount threshold, like changes of $5000 or more, which would trigger the required notification. Here is an example.    

Suppose there is a home insurance client in Suffern. The insured has a home replacement cost of $200,000. After a few years of ownership and the addition of two children to the family, the owner decides to add a couple of rooms. The new construction costs are $80,000. In all of the planning, the owner forgot to update the home insurance coverage. 10 years later, there is a major fire claim and the home is a total loss. Upon investigating the loss, the claims adjustor pulls out photos and a diagram from the original policy application. It is determined the company and agent never received proper notice to update the replacement cost coverage limit on the policy.

In this scenario, the Insured would have to make up the difference between the policy coverage and the total loss amount. Taking into account for inflation, the homeowner may incur an out of pocket expense of more than $100,000 to rebuild the home, taking into consideration the same square footage and level of construction quality. This is a shocking reality to many homeowners.

CALL TO ACTION: Please print out this article as a reminder and contact your independent agent. Your insurance agent should be able to complete a Free Replacement Cost Estimation on your homeowner insurance and send you a copy for your file.

For More information On This Subject Go To:

Michael Murphy has been a licensed agent in Rockland County, NY for over 20 years.
All Choice Insurance Agency, Inc.
Suffern, NY 10901
Our Phone Number is: 845-357-9200    


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