Are Your Properties Underinsured?
By: Charles Sells
If you have owned any of your real estate investment properties for more than two years, the odds are pretty good that you are currently underinsured. That’s right: If you have a property you acquired prior to 2020, you are likely not holding enough or the right type of coverage for that asset because not only have home prices risen, replacement costs have skyrocketed as well. In fact, according to LendingTree’s QuoteWizard, “Home insurance is in the middle of a major change: one that could leave potentially millions of Americans underinsured.”
In QuoteWizard’s “State of Home Insurance in 2022” report, home insurance premiums are reportedly up just 2 percent nationwide in 2022 over 2021. However, in many markets, that gap is much, much bigger. For example, in Idaho, premiums are up 34 percent. Southern and midwestern states are paying the most in insurance, and most homeowners and real estate investors do not realize that their policies, while more expensive these days, may not have fully adjusted to compensate for the expense associated with repairing or replacing damages.
According to the analysts, “On average, it now costs around $36,000 more [italics mine] to rebuild your home than it did just a few years ago. Add to that the increased cost of replacing the items in your home and your existing policy may no longer fully cover the cost of rebuilding your home after a total loss.” Some insurance carriers are touting new products designed to hedge homeowners against inflation that automatically rise in value by 2 percent each year. However, QuoteWizard analysts warned, this might not be enough to accommodate recent inflation.
Another issue that real estate investors probably have not had to consider in the past is that more and more residents are working remotely either part-time or full-time. Most insurance policies are not designed to cover working from home or home-based businesses – both types of employment are on the rise – and, as a result, may not cover the electronics and other paraphernalia associated with housing business equipment in, well, your house. Renters and homeowners are likely to need riders on their conventional policies if they are working from home on a regular basis.
If you are a real estate investor who works from home or has a home office, you may not have considered this expensive potential issue either. Be sure to check your policy to make sure it is still up-to-date regarding inflation, replacement costs, and home-office coverage so you and your assets are fully covered.