One particularly important aspect of home insurance is what’s known as the 80% rule. This guideline is enforced by home insurance carriers and generally exists to ensure you’re maintaining certain coverage limits relative to the estimated cost of a complete home rebuild.
The 80% rule states that your home insurance policy must have coverage limits of at least 80% of the estimated cost for the total replacement of your home. For example, if your home is worth $500,000, you must carry $400,000 in coverage.
If you fail to abide by this rule, you may receive lesser payouts for covered losses based on how much you’re underinsured by. For instance, in the aforementioned example, if you’re carrying only $300,000 in coverage for your $500,000 home, you’re only insured for 75% of what the 80% rule says you should be.
In this scenario, your carrier would issue a payout for only 75% of your losses. As such, if you experienced $100,000 in losses, you would only receive $75,000 in aid, minus your deductible, and be saddled with handling the remaining $25,000 yourself.
Are You Covered?
As you can see, abiding by the 80% rule is critical in ensuring sufficient coverage. That’s why it’s essential to periodically review and update your home insurance policy after repairs, additions or other property changes.
It’s important to note that the market value of your home does not necessarily affect your home’s replacement cost. As such, things like curb appeal, the condition of your home and the value of comparable homes in your area may not affect your replacement cost value. Be sure to talk to your Deeley advisor so you can understand what may affect the replacement cost value of your home under your policy.
For more information about home insurance, contact Delmarva’s local insurance experts at Deeley Insurance Group today. Call or text 410.213.5600
