What Does Being Underinsured Mean and How Will it Affect the Average Homeowner?
The state of Massachusetts has one of the highest populations in the New England region. While people from outside the state might not be familiar with Massachusetts, they would recognize its famous destinations right away, such as Boston, Cape Cod, Martha’s Vineyard, or ivy league schools like Cambridge or Harvard.
According to government data, 42 million people were renting their homes in the US in 2017. Boston had 392,000 household renters, translating to nearly 97% of the total occupancy rate. The residential vacancy ratio of 3.87 percent for Boston was lower compared to the mean US figure of 6.18 percent.
However, in Massachusetts, more than 6 in 10 of the population own their homes, although the total number is lower than the US average. But there are other worrying statistics you need to be aware of, such as those with no homeowners insurance in Massachusetts.
How Many Homeowners Are Underinsured?
For example, a good number of Massachusetts homeowners, or about 6 in 10, are actually underinsured. Yet, more than 4 in 10 believe that their insurance is enough to cover water damage. Nevertheless, people are at least covering the basics when it comes to protection, which includes structure or dwelling damage, theft, other structures, personal property, liability, and medical payments.
A 2016 study by Marshall & Swift/Boeckh LLC showed that homeowners are rolling the dice because they get the minimum coverage allowed by Boston law. When tragedy strikes, they are at risk of spending money they do not have.
For instance, during the study, the median value for a single-family home was $227,500. However, about 6 in 10 homeowners’ insurance in Massachusetts could only cover 78% of their total replacement value. Under those conditions, they stood to risk between $30,000 and $50,000 because they were not amply protected.
What Does Being Underinsured Mean?
Being underinsured works exactly as it sounds. Essentially, it means that your insurance coverage is not sufficient to cover the costs in case of damage to your dwelling or properties. For instance, when a fire gobbles your home, you can find experts to assume a significant portion of the construction cost, but the reimbursement amount will not be enough to rebuild your home.
Not a lot of Massachusetts homeowners are aware that they are underinsured. So, they continue to live, not knowing that they are setting themselves up for a financial catastrophe. For instance, if you are underinsured by 30% and fire to your home caused $300,000 in damage, you are likely to shoulder $90,000. Of course, it is a simple computation, and there are several factors to consider when computing costs, but you get the idea.
Can the Problem be Fixed?
Fortunately, underinsurance is an easy fix. For instance, updating your homeowner’s insurance in Massachusetts policy every year would address the problem. Watch out for the minimum liability coverage, which would be the standard rate of $100,000. However, as a rule of thumb, it is recommended that you increase your policy to three times the base liability rate.
You might save $100 from your annual insurance premium by skimping on some of the coverages. But what are a hundred bucks compared to the financial risks that you expose yourself to? A hundred bucks would be equivalent to an extra eight dollars each month. In return, you cross the threshold from being underinsured to enjoying full protection. Still confused? Your insurance agent will provide you with a quotation and the list of inclusions when you update your policy.