Homeowners insurance companies tell you how much coverage you need for your house. But are they right?
A group of homeowners in San Diego County claim that they were underinsured. They are now rebuilding, and some are rebuilding bigger than before. The insurance industry says that this proves they did not underinsure these people.
How do you know if you are underinsured? There is no real way to know. However, here are some ideas. First, you can get quotes from a variety of different insurance companies. See what they are quoting you at. If one is substantially lower than the others, that may be a sign. Second, call 2 or 3 contractors. Ask them for a quote to rebuild your house. (Remember, the land is not covered – just the structure.) Compare that to the amount of insurance you have. Third, check with neighbors who have similar houses in your development or in your area. If the square footage is similar and the quality of construction is similar, you will have a ballpark. Fourth, check with a realtor to see if they can tell you what properties are worth and how much of that is land. The rest of the value is the house.
And yes, the insurance companies undervalue properties all the time. If your home is undervalued, you may not be able to rebuild. Do not rely on your insurance company to make sure you are properly insured.