Q: Financial advisors are once again talking about how consumers should check their home insurance policies to make sure the coverage they’ve bought is adequate.

After the 2004 hurricane season and the devastation wrought on Florida, I checked into my home insurance policy and saw that the coverage needed to be increased by a lot.

The basis of my calculation was an estimate that I received from a general contractor to build a 300 square foot addition to my house five years ago. The estimate was $100,000 – for just the basics such as foundation, exterior walls, roof and windows.

My house is 1,400 square feet and the insurance policy offered about $70,000 in replacement costs. I immediately contacted my insurance company to update the policy and they were very receptive to the request – or so I thought. I gave information to the insurer and they said they would have to obtain separate calculations about the rebuilding costs and they would get back to me with the information.

Three weeks later, I received an updated policy with the replacement cost increased to about $85,000.

Ilyce, if my house were ever destroyed, I would not be able to replace the same size house I am now living in. What do you suggest that I should do?

A: You’re trying to do the right thing, which is to purchase an adequate amount of replacement cost insurance coverage. You need to contact your insurance company and tell them that you want to purchase a policy for at least $150,000, guaranteed replacement coverage. If they won’t sell you the coverage that you need, you will need to find a company that will.

While the industry average cost to build a production house is about $80 to $90 per square foot, most contractors charge between $150 to $200 per square foot, or more. At $200 per square foot, it would cost $280,000 to rebuild your home. And in a situation where entire neighborhoods are destroyed, like with Hurricane Katrina, Hurricane Andrew, or any of the 2004 hurricanes, the cost to rebuild tends to skyrocket due to increased demand and the scarcity of lumber, drywall, paint and other building materials – not to mention competent contractors.

You can ask the company to send out someone to inspect your home and give you an estimated cost for rebuilding it. Obviously, doing it over the telephone didn’t work.

Start working your way up the food chain at your current insurance company. Ask to speak to a supervisor. But ultimately, if your insurance company won’t sell you the policy you need, then you need to find a highly-rated company that will sell it to you. Be sure to read the fine print to know how much the company will pay out in the event of a disaster. Make sure the policy is one that will guarantee the replacement cost of your home. A guaranteed replacement policy will pay the cost to rebuild the home up to the value of the policy and in some cases even more. You will need to shop around and make sure that your policy would cover you to a sufficient degree in the event of a disaster.

Also, if you live in an area where flooding may be an issue, you may wish to consider purchasing separate flood insurance from FEMA. It costs about $400 per year for every $100,000 worth of coverage up to $250,000. It will help you with the rebuilding costs should your home be flooded. For more information, check out floodsmart.gov.

Published: Sep 18, 2005