You’ve poured countless weekends and a good chunk of your savings into transforming your house into a home. It’s your pride and joy. It’s your sanctuary. But one day, an unwelcome guest visits in the form of a major storm or a fire. Your cherished home suffers severe damage and you are devastated, but you hold onto hope as you figure that your homeowners insurance will cover it. However, you’re heartbroken when you learn that your insurance coverage falls short of the actual rebuilding costs. Why did this happen?
This is a scenario some homeowners experience when their property is hit by unforeseen circumstances. The unexpected shortfall in insurance coverage often results from not adhering to the 80% rule in homeowners insurance.
Making Sense of the Numbers
The 80% rule ensures that homeowners are able to get replacement cost coverage on their homes in the event of a claim, as long as they insure their properties at 80% of the full replacement cost value. If you do not insure your home for 80% or greater of the full replacement value, the policy then goes to ACV (actual cash value).
Ensuring Your Safety Net Holds
ACV factors in the age of the building material (for example, a 100-year-old home has original lath/plaster ceilings with a 100-year life expectancy). In this case, you would not receive any money to go toward a claim in the event one took place.
On the other hand, if your 5-year-old roof sustains damage, and it has a 30-year life expectancy, you would receive 83.33% (25 years of the 30-year life expectancy remaining) of the value of the roof, assuming you did not have your home insured at 80% or greater of the 100% replacement cost.
Let the 80% Rule Work in Your Favor
While it might seem like a daunting—and perhaps somewhat unfair—rule to follow, the 80% rule is here to protect you from financial hardship when tragedy strikes. In the end, having sufficient coverage means your home will be protected in the event it sustains major damage.
Many people put homeowners insurance on autopilot since it is usually collected as part of their mortgage payment, and most people want to keep their premiums as low as possible. However, when you need insurance, you don’t want to discover you do not have adequate coverage. The 80% rule can be a significant factor in protecting your investment.
Be sure to have an annual policy review with your agent. Contact Eric Luebbe Insurance today to discuss the best homeowners insurance policies in the Fremont, NE, area!
