Home and Auto Insurance Policy Coverage Review

Over 40% of home and auto insurance customers have not updated their policies in over a year, raising concerns about potential coverage gaps in the event of claims, according to a recent VIU by HUB survey.

Homeowners often allow their insurance policies to renew automatically, assuming that coverage will adjust to meet their current needs. However, this complacency could lead to coverage shortfalls. The VIU by HUB survey found nearly a third of respondents who filed claims discovered their coverage was inadequate, and 14% found claims were not covered at all. These figures underscore the importance of regular policy reviews to ensure comprehensive protection.

Understanding Policy Coverage and Adjustments

Many policyholders rely on automatic features like inflation guards, which annually adjust coverage limits by 4% to 8%. However, these adjustments may not account for major home modifications, such as renovations that significantly increase the home’s value or rebuild cost. It’s crucial to consult with an insurance professional to ensure coverage aligns with any substantial changes.

Chip Merlin, founder and CEO of Merlin Law Group, stresses the need to focus on the cost to rebuild the house rather than its market value or mortgage balance. Rising construction costs necessitate frequent reassessment of replacement-cost estimates to avoid being underinsured.

Potential Coverage Options and Considerations

To enhance coverage, homeowners might explore extended replacement-cost options, which offer additional funds if rebuilding expenses exceed policy limits. Merlin warns against assuming a set insurance limit guarantees sufficient protection, particularly if reconstruction costs rise.

• Check if your policy covers replacement cost versus depreciated value.
• Inquire about exclusions or limits for specific risks.
• Confirm coverage for ordinance or code upgrades and additional living expenses.
• Review deductibles for specific perils like wind or hurricane damage.

The Importance of Proactive Reviews

The survey also revealed a gap in insurer communication, with 56% of policyholders stating they hadn’t been contacted by their provider in over a year. This lack of outreach places the onus on homeowners to conduct annual policy reviews. Regular discussions with insurance agents about any substantial changes in the home, such as renovations or changes in property use, are essential in maintaining adequate coverage.

While identifying coverage gaps is critical, it doesn't necessarily mean opting for every available upgrade. Merlin advises prioritizing coverage against financially catastrophic losses, balancing affordability with the need for comprehensive protection. Homeowners should focus on covering losses that would be too costly to manage out-of-pocket, ensuring peace of mind should disaster strike.