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How to Avoid Losing Replacement Cost Coverage in Homeowners Insurance

July 3rd, 2024 | 4 min read

By Daniel J. Middleton

How to avoid losing replacement cost coverage in homeowners insurance

Are you concerned that your homeowners insurance policy might not provide the coverage you need? You're not alone. Many Central New York homeowners struggle to understand the complexities of their policies, leaving them vulnerable to unexpected gaps in coverage.

At the Horan insurance agency, we understand that your biggest worry is buying a policy that isn't quite right for your situation. That's why we're here to help. As an independent agency working with multiple carriers, we have the informed perspective you need to make the right coverage decisions for your unique circumstances.

One often misunderstood aspect of homeowners insurance is the 80% rule for replacement cost coverage. If you don't maintain adequate coverage relative to your home's value, you risk losing this valuable protection.

In this article, we'll demystify the 80% rule and show you how to safeguard your replacement cost coverage, ensuring that your home and finances are properly protected.

Jump to Article Section

  1. Understanding the 80% Rule in Homeowners Insurance
  2. The Consequences of Falling Below 80% Coverage
  3. Reasons Why Central New York Homeowners May Be Underinsured
  4. Protecting Your Replacement Cost Coverage in Central New York
  5. How Inflation Guard Helps Maintain Adequate Coverage
  6. Why Communicating Home Changes to Your Insurer Matters
  7. We Can Help You Maintain Your Replacement Cost Coverage with the Right Homeowners Insurance

Understanding the 80% Rule in Homeowners Insurance

Homeowners insurance policies that offer replacement cost coverage include a crucial requirement: maintaining a certain amount of coverage relative to your home's rebuild or replacement value.

This requirement is known as the 80% rule. If you slip below this threshold, you risk losing your replacement cost coverage, which can significantly impact your finances in the event of a loss.

The 80% rule is a standard provision in most homeowners insurance policies. It stipulates that you must maintain coverage equal to at least 80% of your home's replacement value. Some policies may require an even higher percentage, such as 90% or 100%.

If your coverage drops below the required percentage, you'll no longer receive replacement cost for partial or total losses. Instead, your insurer will only pay out the actual cash value, which factors in depreciation.

Explore more differences between replacement cost and actual cash value.

The Consequences of Falling Below 80% Coverage

Let's say your home in Fayetteville—a charming vernacular Greek Revival—is insured for $500,000, which represents its full replacement value. However, over time, you've inadvertently slipped to 76% coverage. In this scenario, if you experience a loss, like roof damage from a severe Central New York winter storm, your insurer will depreciate the value of your claim.

For example, if your 15-year-old roof sustains damage and requires replacement, instead of receiving the full $14,000 minus your deductible for a new roof, your insurer will calculate the depreciated value. With only five years of useful life remaining, you may receive just $3,000 for your claim, leaving you to cover the significant difference out-of-pocket.

Reasons Why Central New York Homeowners May Be Underinsured

There are several reasons why homeowners in Central New York may find themselves underinsured.

Inaccurate or Incomplete Information Provided to the Insurance Agent

When obtaining a homeowners insurance policy, it's crucial to provide your agent with detailed and accurate information about your home. This includes specifics about your home's

  1. age,
  2. construction type, and
  3. square footage.

Tell them about your kitchen finishes, flooring, fireplaces, basement, and any other unique features and amenities that contribute to your home's value.

Many homeowners in Central New York, particularly those in historic Syracuse neighborhoods like Strathmore or Sedgwick, may have older homes with distinctive architectural elements or custom craftsmanship that should be factored into their coverage.

Relying Solely on Public Records for Square Footage Data

Insurance agents often use public records to determine a home's square footage. However, public records may not always account for finished basements, sunrooms, or other living spaces that are common in Central New York homes.

Relying solely on this data can lead to significant undervaluation of your home's replacement cost.

Failing to Account for Unique Features or Upgrades Common in CNY

Central New York is known for its diverse housing stock, ranging from historic Victorian homes to luxurious waterfront properties along Skaneateles Lake. Many of these homes feature high-end finishes, custom woodwork, or specialized materials that can be costly to replace.

It's essential to verify that your insurance coverage reflects these unique features and upgrades to avoid being underinsured.

Not Updating Coverage After Home Renovations or Additions

As homeowners in Central New York invest in their properties, they often undertake renovations or additions to improve their living spaces and increase their home's value.

However, failing to inform your insurance provider about these changes can leave you underinsured. Whether you've updated your kitchen with custom cabinetry and granite countertops or added a spacious family room, it's crucial to adjust your coverage to reflect these improvements.

Outdated or Insufficient Coverage Limits

Over time, the cost of building materials and labor can increase, making it more expensive to rebuild or repair your home. If you've had the same homeowners insurance policy for many years without reviewing and updating your coverage limits, you may find yourself underinsured.

By understanding these common reasons for underinsurance and taking proactive steps to provide accurate information, account for unique features, and regularly review your coverage, your Central New York home can remain adequately protected.

Explore reasons for an underinsured home in more detail.

Protecting Your Replacement Cost Coverage in Central New York

To safeguard your replacement cost coverage, Central New York homeowners should consider the following:

  1. Ensure accurate valuation from the start by providing detailed information about your home's features and upgrades
  2. Review your policy regularly to ensure your coverage keeps pace with your home's value
  3. Notify your insurer of any significant changes or renovations, such as adding a sunroom or finishing a basement
  4. Understand inflation guard provisions and how they help maintain adequate coverage over time

How Inflation Guard Helps Maintain Adequate Coverage

Many policies include an inflation guard provision that automatically adjusts your coverage to account for inflation. This helps prevent your coverage from falling below the required percentage over time.

If you notice your home's insured value increasing at renewal, this is likely due to your inflation guard.

What is dwelling coverageWhy Communicating Home Changes to Your Insurer Matters

If you make substantial changes to your home, like adding an addition or stepping up to higher-grade materials, it's essential to promptly inform your insurance agent. Failing to do so can quickly push you below the 80% threshold, putting your replacement cost coverage at risk.

For example, if you've added a sizable addition to your Baldwinsville ranch, you'll need to increase your dwelling coverage to account for the added square footage and value. This helps you avoid landing in underinsured territory.

Like many CNY residents, you may eventually decide to invest in renovations and upgrades, but be sure to keep your insurer informed to maintain appropriate coverage.

We Can Help You Maintain Your Replacement Cost Coverage with the Right Homeowners Insurance

Understanding the 80% rule and taking proactive steps to maintain your replacement cost coverage will help you weather any storm. Imagine the confidence you'll feel knowing that your home and finances are properly safeguarded, even in the face of unexpected losses.

Don't let misunderstandings about your policy leave you vulnerable. As your trusted resource and advocate, Horan will put our expertise and relationships with multiple carriers to work for you, ensuring that you have the coverage you need to protect your most valuable asset.

Take the first step toward protecting your home and future.

Click the Get a Quote button below to start your journey with Horan. Our experienced team will work with you to provide the appropriate coverage, giving you the composure and security you deserve.

Get a Quote

Daniel J. Middleton

Daniel is an accomplished content creator. He has been working in publishing for almost two decades. Horan Companies hired Daniel as its content manager in November 2022. The agency entrusted its messaging to him. Since then, Daniel has written insurance articles, service pages, PDF guides, and more. All in an effort to educate CNY readers. He's helping them understand the world of insurance so they can make informed decisions.