Determining whether or not your house is over or underinsured starts with the “valuation” for your residence/dwelling. Let’s begin with some foundational information. Proper limits of coverage on the residence/dwelling starts with an understanding of the loss settlement provision your policy contains. Are your home’s losses paid based on?:

• Replacement Value (essentially the cost to rebuild)
• Actual Cash Value (essentially the cost to rebuild minus depreciation.
• Some other type of valuation.

Knowing which type of loss settlement option (see bullet list above) your policy contains will then determine what limits of coverage are appropriate. Most home insurance programs intend to pay losses at replacement value. To properly insure policyholder’s homes, carriers “subscribe” to a specific “replacement cost guide” that will spit out the cost to rebuild your home based on factors such as:

• Location-based costs of materials and labor
• Square footage
• Year built
• Construction features

The replacement cost guides that carriers use are subscriptions from vendors like Marshall & Swift , e2value. So, how can I know if my home is over/underinsured?

• Work with your agent or company representative and review your company’s replacement cost estimator. It is not uncommon for the details of your replacement cost guide to be inaccurate.
• This is the best way to resolve appropriate limits of coverage for your specific policy.
• Find a free replacement cost estimator and compare to your current limits. Here is one you could try: Cost to Build a Home

Once the valuation for the residence/dwelling has been determined, the rest of the coverages are typically percentages of the dwelling limit. For example, the percentages may look like this

• Other Structures - 10 to 20% of the dwelling amount
• Personal Property - 50 to 70% of the dwelling amount
• Loss of Use/Additional Expenses - 20% (or more) of the dwelling amount

Coverage for Other Structures, Personal Property and Loss of Use may be customized (within limitations) to fit your needs. There are tools to help you compare your coverage to building cost norms. However, proper valuations and selection of limits for your homeowners insurance policy are best completed with the help or your agent or company representative. Have additional Homeowners Insurance questions? We LOVE to Help! Please feel welcome to call us at 607-324-7500
This article was originally published at https://www.quora.com/profile/Jeff-Ryan-24