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  • Wendell Brock

Start Your Spring Cleaning

Your house is a very, very, very fine house, with two cats in the yard, life used to be so hard. Now everything is easy 'cause…you updated your property and casualty policy.


Property & Casualty insurance (P&C) is a term for policies that cover things like your house, cars, RVs, boats, motorcycles, etc. and the liabilities associated with them. These types of policies help safeguard against property damage as well as protect you from liability issues.


Most often, a person’s home is their biggest asset. Doesn’t it make sense to make sure it’s properly protected in case of a loss? Now is a great time to do some “spring cleaning” regarding your P&C policies. Because of the high inflation we have experienced, and the significant increase in home values, it’s important to make sure your coverage is up to date with the current value of your home.


Homeowners are typically required to maintain a policy that covers 80% of the replacement value of their home. If the coverage falls below the required amount the insurance company assumes the homeowner is self-insuring for the difference. This is called the coinsurance clause in the policy. This clause requires a policy holder to maintain the right level of coverage, so the insurance company receives a fair premium for the risk of possible claims.


Here's an example of how the increase in value of your home can result in inadequate coverage if your policy is not updated. If you bought a house for $300,000 and the insurance company is insuring it for 80% of the value (the required coverage, excluding the value of the land, which is not part of replacement value of the house), and you suffered a loss, the insurance company would pay up to $240,000 to rebuild the house. If your house increases in value from $300,000 to $500,000 the insurance company will pay per the coinsurance formula in the policy.


The typical coinsurance formula is:

(actual amount of insurance / required amount of  insurance) X amount of loss = amount of claim.


If your policy hasn’t been updated to the proper value this is how the insurance company would calculate the payment for the loss filed: ($240,000 / $400,000) X $100,000 = $60,000. Resulting in a $20,000 coinsurance cost to the homeowner to complete the needed repairs.


Some homeowner policies have an inflation clause that automatically increases the policy to the required level. This is one reason why homeowners policies tend to increase regularly, because the value of the home keeps going up. While we don’t anticipate having losses, they do happen, so we need to keep our policies up to date to make sure we don’t fall into a coinsurance scenario. 


Photo by Ian MacDonald


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