Homes in Illinois can be excellent investments, provided they’re protected by the right insurance. Many homeowners unknowingly subject themselves to unnecessary financial risk by maintaining policies with insufficient coverage, only realizing their mistake after a claim is reduced or denied. This article identifies common coverage gaps in home insurance, outlining how homeowners in Illinois can address them before they become costly.
Opting for Actual Cash Value Coverage
Insuring a home and its assets for their market value may seem like a sound strategy, assuming the insurance company will reimburse the value of the items. However, many homeowners misunderstand the concept of actual cash value and its relationship to replacement cost.
When insuring for market value, which is typically the lower premium of the available options, providers are only obligated to reimburse homeowners for the current predicted value of the items that are lost or damaged. This means that depreciation and other factors will likely reduce the value of the claim below the real-world cost of replacing the property.
Consider the common example of a roof that becomes damaged in one of Illinois’ seasonal snowstorms. Market value coverage would only pay for the roof’s theoretical worth after many years of wear and tear, which will nearly always be less than the actual cost of the labor and materials required to replace it. By contrast, a replacement cost policy would pay for the new roof and its installation in the event of a covered loss.
Underestimating Replacement Costs
Even if the policy addresses replacement costs, homeowners must accurately predict the liability coverage they would need if their home were to be damaged or destroyed. Underestimating these costs based on current market prices can result in significant coverage gaps.
For example, many homeowners only buy liability coverage up to the amount that it would cost to replace damaged materials. Yet, material costs rise consistently year after year as inflation and fuel prices increase. Additionally, higher wages lead to more expensive labor, and homeowners need to consider these dynamics when choosing their coverage limits. Focusing only on materials could leave a gap of hundreds or even thousands of dollars when replacing an asset.
Insufficient Storm Coverage
According to FEMA’s National Risk Index, Illinois is one of the top six most impacted states in terms of wind-related property damage. Wind-related events, including tornadoes and windstorms, cost the citizens of Illinois approximately $57.3 million every year. The state also experiences yearly hail, ice storms, and heavy rains.
Standard insurance policies often handle wind and hail, but the deductible structures can vary. In many cases, homeowners believe their policies address these common weather events when in reality they have exclusions that can lead to costly out-of-pocket repairs after storm season.
For example, many policies apply a separate deductible for wind and hail damage, compared to the primary deductible. They may also limit ice damage coverage for older homes, which are more susceptible due to the age and vulnerability of the materials. Homeowners should review weather-specific deductibles and any necessary riders for more comprehensive coverage before storm season.
No Flood Coverage
Many individuals mistakenly assume their policy covers flood damage, but standard policies rarely include flood insurance. Federally-regulated lenders require you to carry a flood insurance policy if your house is in a high-risk flood zone; however, floods outside of these areas frequently surprise underinsured homeowners with devastating out-of-pocket expenses.
According to FEMA, 25% of flood-related insurance claims involve homes that are in lower-risk flood zones. Consequently, all homeowners in Illinois should review their policies to make sure they have the necessary protection, especially in homes with basements.
Ignoring Sublimits
Many homeowners focus on deductibles without also examining the sublimits of their potential payouts. Many standard policies cap the limit on personal property reimbursements, sometimes as low as $1,500, making it difficult to replace valuable items in the event of a flood, theft, or fire. Separate riders should be explored for items that warrant extra protection.
Neglecting Risk Exposure
Any change in the home can impact its risk exposure, and the current insurance policy may not be sufficient for new situations. For example, buying a certain breed of dog, hosting meetings, installing a pool, or starting a home business can affect the type and amount of insurance the home needs.
Contact an Experienced Local Insurance Group to Close Coverage Gaps
At Pro Insurance Group, our experienced team of agents helps homeowners in Illinois close coverage gaps. Insufficient coverage, unexamined exclusions, or various changes to the home can result in homeowners having to pay out-of-pocket for damages they thought were covered.
Contact our team today for a personalized insurance assessment that identifies potential coverage gaps in your policy and creates an insurance plan that closes them.