Homeowner’s Insurance: Determining Property Coverage

Filing a homeowner’s insurance claim can be stressful, but there are things you can do to make the process easier. First, get a full copy of your policy from your insurance agent, then read it cover-to-cover. As you read, note any questions and concerns that you have. Anytime you speak with a representative from your insurance company, also take notes on the “when, who, and what” of your conversations. Keep organized in a way that works for you, such as a folder just for your claim.

It can also be helpful to estimate your property coverage before scheduling a follow-up call with your agent. This will allow you to ask more specific questions during the conversation, as well as help you manage your expectations and plan accordingly.

The first thing to note as you read your policy is the value of your homeowner’s policy. If your home is insured at 80% or more, your claim will likely be paid in full after you pay your deductible. However, if your coverage is less than 80%, calculating the reduced or prorated amount you will receive for a claim can be confusing. The following example and step-by-step instructions should help you determine the amount you can anticipate receiving from your insurance claim.

Example Scenario: Assume the current replacement cost of your house is $100,000. Based on the insurance adjuster’s estimate, you suffered $50,000 in losses. If your home was insured for $80,000 or more (the standard policy amount of 80%), your claim would be paid in full after you paid your deductible. However, if your home was only insured for $50,000, the amount you will receive will be reduced because your house is only insured at 50% of the replacement value. To calculate this amount, follow the steps outlined below using these hypothetical numbers.

First, divide the amount of your coverage by the standard 80% coverage. In this example, the amount of coverage is 50%. [50 divided by 80 is .625, or 62.5%.] Therefore, you would receive 62.5% of your “claim reimbursement request,” or the amount of the losses you claim. In this example, your claim reimbursement request is $50,000. To estimate your property coverage, multiply losses ($50,000) by coverage (62.5%). [50,000 x .625 = $31,250] In this scenario, you can estimate receiving $31,250 from your insurance company (minus your deductible). If your deductible is $500, you can anticipate receiving $30,750 to cover your damaged property.

Remember, if there is a difference between the cost of repairs for your damages and the amount you receive from the insurance company, it will be an out-of-pocket expense. If your home is insured for less than 80% of replacement cost, the following step-by-step example may be helpful in determining your insurance claim reimbursement. Numbers from the scenario above have been used for illustration to better walk you through the formula for determining property coverage.

 

  1. Value of homeowner’s policy?                                           $50,000_________________
  2. Estimated current replacement cost of home?                  $100,000________________
  3. Divide Step 1 by Step 2                                                     .5______________________
  4. Multiply result of Step 3 by 100 to determine %                50 (or 50%)______________

Note, if Step 4 is 80% or greater, you should anticipate your insurance claim to be paid in full after your deductible is paid. If Step 4 is less than 80%, continue to Step 5 below.

  1. Divide result of Step 4 by 80                                              .625____________________
  2. Multiply result of Step 5 by 100 to determine %                 62.5 (or 62.5%)___________
  3. Estimated losses/claim reimbursement request?               $50,000_________________
  4. Multiply Step 5 by Step 7                                                    $31,250_________________
  5. Deductible amount?                                                            $500___________________
  6. Subtract Step 9 from Step 8                                               $30,750_________________

Finally, Step 10 represents the prorated or reduced amount of your homeowner’s insurance claim that you should anticipate receiving.

If you need to file a homeowner’s insurance claim, you can complete the step-by-step instructions above using your information. Always verify your estimations with a representative from your insurance company.

Sources: Nichole Huff, Ph.D., Assistant Extension Professor, Family Finance and Resource Management; Jennifer Hunter, Ph.D., Assistant Director of Family and Consumer Sciences Extension; and Miranda Bejda, doctoral student, Family Sciences

Social Media: Looking to file a homeowner’s insurance claim and not sure where to start? Look over your policy, stay organized, and calculate your expected claim amount.