Insurance policies rarely pay full replacement value


My wife and I are on Baby Step 3, and we were talking the other day about how our house, caravan, and cars have been liking each other lately. Everything is paid for except the house, but we were wondering if we should increase the amount of insurance coverage on these assets since they have exploded in value.

A: Yes! And you should get into the habit of reviewing all of your insurance coverage once a year.

With most home insurance policies, you have a set coverage amount. Some policies have a “cheat” that allows you an extra 5% or 10%, maybe even 20% in some cases. But if you have a $300,000 policy on a house you bought five years ago and it has appreciated to $450,000 and then burns down, you’re screwed. The only thing dumber than not having enough insurance to replace things like that is having no insurance at all.

Often times in the past, if you bought a car or home insurance policy, it covered your car or your house, even though they had gone up in value. Then, when some insurance companies were hit hard after events like Hurricane Katrina, they stopped doing it. They stopped covering the actual replacement value and started covering only the amount specified on the policy. Today, it can be difficult to find even replacement value coverage on homes. And if you do, it’s crazy expensive.

For your home specifically, you should have a policy equal to the value of the home, and you should review your coverage and the value of your home every year. You have to be vigilant about things like that, Dale, because your insurance company won’t be!

More from Dave Ramsey:The future mother should continue to work if she wishes. No judgment!

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Dave Ramsey is an eight-time national bestselling author, personal finance expert and host of The Ramsey Show, heard by more than 18 million listeners each week. He has appeared on Good Morning America, CBS This Morning, Today Show, Fox News, CNN, Fox Business and many more. Since 1992, Dave has been helping people take control of their money, build wealth and improve their lives. He is also CEO of Ramsey Solutions.


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