Home prices in Elko, NV have soared over the past several years.
According to Zillow Home Value Index, the average price of a home increased in Elko County by 15% from October 2021 to October 2022. This is in line with the estimated increase in building and labor costs projected by CBRE of 14% for 2022.
One concern we have with these large increases is that the coverage amounts on homeowners insurance policies in the Elko, NV area may not be adequate to deal with the rapid increase in building values.
This can affect a homeowner in a variety of ways. One of the most concerning is the Coinsurance Clause included in most Homeowners Insurance Policies.
This clause states that the homeowner will carry an amount of insurance for their home that is within a certain percentage of the actual cost to rebuild it. If they don’t then they are penalized at the time of the loss with a lower claim payment.
If I had a home that would cost $100,000 to rebuild, and my policy had an 80% Coinsurance Clause I would be required to have the home insured for at least $80,000 to not get penalized when there is a loss.
The penalty is calculated by dividing what was carried by what should have been carried and then multiplying that by the amount of the loss.
What Was Carried
Should Have Carried X Amount of the loss = The payout amount.
Let’s say that we carried $60,000 on our house and the replacement cost was $100,000. With an 80% Coinsurance Clause, we should carry at least $80,000. We have a loss where there was a complete loss to the house.
$80,000 X $60,000 = $45,000
So instead of getting the $60,000 of coverage that was paid for, they only end up getting $45,000 because of the Coinsurance Clause.
This can be devastating in the event of a loss. Even if the loss was only a partial loss. They will still apply the Coinsurance Penalty if the home is not insured within that 80%.
When a Homeowners Insurance Policy is written, the insurance company will generally run what is called a Replacement Cost Estimator to help determine what the value of the home should be.
When they renew, most Homeowners Policies will automatically increase the value by 4% to help keep that insured amount within that 80%.
But when we have large increases in building costs, 4% is not enough.
As Elko’s economy grows and the supply crisis we are experiencing continues, we can expect building materials and costs to increase.
As you are reviewing your Homeowners Insurance, you may want to ask your agent to run a Replacement Cost Estimator.
If you would like a Quote, or if you have any questions about your Homeowners Insurance Policy, please feel free to Contact Us.