BACKGROUND
For many of us, homeowners insurance is purchased to protect our most valuable asset – our homes.
In making decisions about insurance coverage, homeowners must determine the level of coverage that will repair or rebuild their homes in the aftermath of a fire or other covered risk.
Both the insurer and policyholder want to assure that the coverage is adequate to cover any losses. But only the policyholder can make the final determination of how much coverage to purchase since it is the policyholder who must pay the premium. The insurer or its agent provides substantial information to assist a homeowner in making that decision.
In most cases, the coverage is adequate. But in rare instances the policy does not cover all the losses – in other words, the homeowner is underinsured.
Underinsurance can occur for several reasons. For instance, a homeowner may fail to inform his or her insurer of a home improvement – such as an addition to the house. Or the policy coverage is not updated over many years to reflect current repair costs. Natural disasters, such as wildfires, also can have an impact, bringing into play the supply and demand factor.
For example, the coverage is usually adequate to replace the structure if just one home is lost. But when many homes are destroyed at the same time and in the same area, building supplies become scarce and more costly and construction crews tend to be spread thin, often causing fees to climb. These unanticipated cost hikes can have an impact on the policy’s ability to cover all losses.
ACIC’S POSITION
Insurers are responsible for providing homeowners with information about levels of insurance coverage that are available. Ultimately, consumers have the right and duty to decide the amount of coverage they are willing to purchase in order to protect their home and their assets.