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Home prices and materials costs have risen so quickly that many existing homeowners’ insurance policies may no longer provide full protection, according to a new study. (Photo by Andrew Gaines via Unsplash)
If your home is destroyed by fire, do you have enough insurance coverage to rebuild it from the ground up? A new study indicates millions of homeowners nationwide could be underinsured in today’s market.
And Oklahoma leads the country in paying the most for home insurance, according to the study.
Home prices and materials costs have risen so rapidly that your existing homeowners’ insurance policy may no longer fully cover the cost of repairing or rebuilding your home, according to the report from QuoteWizard by LendingTree.
On average, it now costs about $36,000 more to rebuild a home than it did just a few years ago, the report notes. Add to that the increased cost of replacing the items in your home and many homeowners may need to recalculate the amount of coverage they have.
The report shows home prices are up 32% since 2020 and homeowners’ insurance is up more than 20%.
The average home price in the U.S. in 2022 is $348,079, according to The Zebra. Oklahoma is the fourth least expensive state at $169,307.
The more expensive your home, the more expensive your home insurance, naturally, but several other factors determine premiums. Insurance companies rate your home based on location, replacement costs, fire protection where you live and your credit history, among other things.
For the report, QuoteWizard analysts used home insurance quotes from every ZIP code in every state for a owner-occupied house built in 2000 with $275,000 of dwelling coverage. The national average premium came out to be $1,766, with states in the Midwest and south paying the most for home insurance.
At $3,735, Oklahoma pays the most, followed closely by Texas, Nebraska and Kansas. Hawaii has the cheapest home insurance by far, with the average price just over $400.
Home insurance in Oklahoma costs so much in large part because of the frequency of extreme weather conditions, Oklahoma Insurance Commissioner Glen Mulready said.
“We get a substantial number of wind and hail claims,” he said.
Some insurance policies now have a separate higher deductible for wind and hail damage, Mulready said. A policy might have a $1,000 deductible for everything else but a 1% deductible for wind and hail claims, which would equal $5,000 on a $500,000 house.
Fire protection ratings – based on things like access to water and fire department staffing – also are a big factor. Mulready said only three cities in Oklahoma had a Class 1 rating when he took office in 2019, but today eight cities do.
“Market value is not related to insurance coverage,” Mulready said. “Insurance is for replacement cost.”
He suggests homeowners talk to their insurance agent to see if their policy includes an inflation guard rider that covers replacement costs regardless of rising materials costs. If it doesn’t, ask if it can be added, he said.
“People need to understand what they’re buying and not buying,” Mulready said.
Homeowners who buy insurance at 50% of the home’s value to save money will be covered for only half the cost of a new roof after a hailstorm.
One easy way to calculate your replacement cost is to find out the average construction costs per square foot in your area, according to the report. (In Oklahoma the average is $111.) Multiply that by your home’s square footage for a rough estimate of your replacement cost and see if your number is in the same ballpark as the insurance company’s calculation.
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