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Underinsurance: A common problem

Make sure your home is covered for all it’s worth


While a home is the largest investment that most people make in their lifetime, recent industry figures indicate that about two out of every three homes in the U.S. are underinsured. The average underinsured amount is about 22 percent, although some homes are underinsured by 60 percent or more.


This means that millions of American homeowners are at risk of major financial loss should a disaster affect their homes. Homeowners in these unfortunate situations find themselves responsible for tens of thousands of dollars of unexpected out-of-pocket rebuilding costs. Many of these homeowners are financially unable to rebuild a home like the one they had prior to their loss.


To highlight the importance of adequate homeowners’ insurance, below are answers to some frequently asked questions on the topic.


Q: What is reconstruction cost?


A: Reconstruction cost is defined as what it would cost to rebuild your home from the foundation up with materials of similar kind and quality.


Q: Is reconstruction cost the same thing as market value?


A: No. Reconstruction costs for your home can differ considerably from market value, particularly for older homes. Market value is what a willing buyer would pay for your home, including the lot and location. Homeowners also should not assume that coverage matching their mortgage balance is sufficient to rebuild a home. The amount of insurance purchased should be based on rebuilding costs rather than a home’s selling or purchase price.


Q: Why are reconstruction costs often higher than replacement costs or the costs of building a new home?


A: There are a variety of factors that affect reconstruction cost, including:


  • Access to the home site, which could be limited because of trees, other homes and fences
  • Building code changes that might occur after the initial build
  • Inflation, which generally is greater for building materials than it is for other commodities
  • Unusual required materials that can be expensive to locate or duplicate, particularly for older homes
  • The extra cost of matching and aligning the undamaged part of the structure with the reconstructed portion
  • Removal of undamaged contents to store elsewhere for safekeeping
  • The fact that it would be a custom job and that laborers would have to work from the top down rather than from the ground up
  • Fewer reconstruction contractors in the marketplace
  • Extra costs to tear out damaged materials or remove debris
  • Demand surge if the damage is a result of a catastrophe  

To learn more about acquiring adequate insurance for your home, call Carter Glass Insurance Agency LLC at (919) 781-1973 or visit