While most homeowners have homeowner's insurance policies, many homeowners are not adequately protecting their homes. According to Marshall & Swift/Boeckh, an expert source of building cost information to the property and casualty insurance industry, about two out of every three homes in America are underinsured by an average of 27 percent.
And this underinsurance problem is painfully exposed when homeowners face a total and unexpected loss as did many homeowners in Louisiana and the Gulf region who were affected by Hurricane Katrina.
Much of the damage from that hurricane would be covered by private insurance or government funds. But if recent history is any guide, many people will find that their cost of rebuilding will outstrip the benefits provided by their insurance.
For example, more than 3,700 homeowners in California suffered total loss in the wildfires two years ago. According to John Garamendi, the state's insurance commissioner, a large proportion of those homeowners found out that the money their insurance provided fell far short of what they needed to rebuild the homes that they lost.
Buying the right amount and right type of insurance means larger insurance policy premiums for the insurers. And insurance companies say that homeowners, all too often, do not step up to the responsibility of buying adequate coverage for their homes. When homeowners remodel and improve their homes, they sometimes fail to follow through with a call to their insurance agent to update their coverage.
Another contributor is the surging price of lumber, steel and other building materials and the rising costs due to new building codes and escalating energy and labor costs.
Consumer groups say that the problem lies in the way that homeowner's insurance is sold. In the competitive marketplace of selling homeowner's insurance, the last thing an agent wants is for the customer to run down the street to a competitor because they got a quote for $50 a year less. They say many agents provide quick quotes to close a sale, lack the training to properly assess the value of the homes they insure and often rely on over-the-phone interviews and computer programs to estimate the value of the dwelling to insure.
The result is that consumers buy cheaply priced coverage that they mistakenly believe will replace their home in the event of a full loss.
The insurance industry's position is that the insured has the duty to select the proper policy coverage limits, a position that is supported by laws in many states. However, if you repeatedly ask your insurance company, agent or broker to provide the proper coverage limits in your policy so that your coverage is sufficient to fully cover the cost to replace or rebuild your home and you are advised that your coverage is sufficient, then the insurance company, agent or broker has assumed a special duty of care and you may have a right to seek full coverage of your loss.