Red Flag: Report $5K to get 25%
Many home insurance policies grant a "cushion" of insurance over-and-above the Dwelling limit. This extra amount is usually defined as a percentage of the Dwelling limit, like 25%. So if your client has a Dwelling limit on their home insurance policy of $100, the extra cushion might actually provide up to $125 after a loss even though the stated limit is $100.
It's really hard to pinpoint what the post-loss reconstruction cost of a house might be without actually having a loss, so the added cushion is a blessed "fudge factor" in the event that construction costs creep over the limit on the policy. These common endorsements are called different things by different insurance companies, but most do not charge any premium for them if the client and their home qualify.
But like with most insurance-policy coverages there are conditions and exclusions. One of the least-known conditions of these extended dwelling cost "cushions" is a requirement that the client notify their insurance company before they begin any project which adds $5,000 or more to the projected reconstruction cost of the home. If the project is not reported, the entire "cushion" may be voided after a loss and then your client better hope that they picked the right Dwelling limit on their home or they will be underinsured!
Each insurance company has different coverages and conditions, but keep "Report $5K to Get 25%" in mind whenever your client talks to you about a remodeling project and involve their insurance agent right away.
Mechelsen, Inc. Darren McGraw, MBA, CIC mechelseninc.com
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