Will Your Insurance Pay to Rebuild Your Home?

If you haven't reviewed your home insurance in the past few years, you could be exposed to significant risk. If the dwelling coverage limit in your policy is too low, you could be coming up short on cash if you file a claim. Since a home is the biggest investment for most folks, this uninsured loss could be significant.

So pull out your homeowners policy, look up the limit for dwelling coverage and ask this question: "Do I have enough dwelling coverage to rebuild my home?"

If you have the slightest doubt, then call your insurance company and ask them the same question. Don't be totally discouraged if they may provide only a little guidance here.

But some insurance companies can be very helpful. They offer a home replacement cost analysis based on the home owner's statements about things like the number and type of rooms, the quality and details of the existing construction, and the homes special features.

Ideally your insurance agent should visit your home to assess its replacement value and take into account the specific risks to the home. Their analysis should also take into consideration things like local market conditions and building codes that would contribute to the costs of rebuilding your home. Some insurance companies offer this service through their network of local agents.

But I don't advise folks to rely 100 percent on an estimate provided by an insurance agent as the right number for the dwelling coverage in your homeowners insurance policy.

I strongly urge homeowners to also use MSB's computer program to calculate the replacement cost of a home. You can log on and get an estimate of the replacement value by answering specific questions about your home. Use the free worksheet in advance to make the process easier and more complete. For about eight bucks you can receive a printed AccuCoverage report that includes an estimate the insurable replacement cost of your home based on the same reconstruction cost data for your local area. This is based on data that is also used by much of the insurance industry for claims processing, so it's a good process.

If the estimates of your homes reconstruction cost is 20 percent more than the dwelling limits in your policy, call your home insurance company immediately and increase your dwelling limits.

Once you've increased your home's coverage, you will need to revisit it every several years, or anytime you have made improvements that increase the value of your home. If this is a hassle for you, then you can put this on autopilot. Many insurance companies offer a dwelling coverage escalator. This feature automatically increases the dwelling limits in the policy each year. Ask your insurance company about this add-on which can cost an additional $50 or so per year - a small amount to pay for additional peace-of-mind.

Ray Martin

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Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.

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