Having the right amount of home insurance

I would like to welcome our guest blogger – Tony Lucacio from Merrimack Valley Insurance in Billerica.   You will find Tony every 2nd Wednesday of the month, here on our blog.

Personally I have I always know I can reach out to him to answer any questions I may have regarding insurance for a home, condo, etc and to help a client who is purchasing a new home

Trying to save dollars on home insurance may not be the way to go.  Read Tony’s explanation of why:

Today’s home owner’s are rightfully looking for saving dollars where ever possible. However, cutting corners on your Massachusetts home insurance may have serious financial consequences at the time of a loss.

A common misconception among home owners is that because the value of their home has decreased over the past few years that they are now able to decrease the amount of coverage on their home. But, your home insurance property value is not based on the market price, but rather the cost of construction. It is entirely possible, and likely for many homes, that the cost to rebuild a home is greater than what any sale could bring on the open market.

The penalty for being underinsured at the time of the loss can be financially crippling. Your policy has a coinsurance clause that establishes the minimum amount of insurance you must purchase in order to be made whole at the time of a loss. A coinsurance amount of 80% requires you to carry insurance equal to 80% of the construction value. The following is an illustration of how your claim is calculated.:

(Insurance Purchased / Amount Required) X Loss Amount = Loss Payment

Consider a home with a replacement value of $250,000 and a 80% coinsurance requirment, or $200,000. The homeowner only purchased coverage of $150,000 believing that was sufficient to cover his mortgage or any damage. That same home now has a fire with damage totaling $50,000. The calculation would be as follows:

(150,000/200,000) X 50,000 = $37,500

You can see the claim payment of $37,500 would leave the home owner with a financial loss. And this would be before applying the deductible, usually $500 or $1000.

What should homeowners do to not be underinsured? Tony Lucacio at Merrimack Valley Insurance Agency suggests you speak with your agent and have them assist you with calculating your needs. They will have up to date information in order to assist with deciding how much coverage will cover your needs.

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