Is Your Home Underinsured? The 80 Percent Rule: the facts

1. Most homeowners policies require dwelling coverage of at least 80% of the cost to rebuild the house. Carry that much and a partial loss is paid in full less the deductible. Carry less and every claim is paid in proportion, not only a total loss.
2. The proportion is coverage carried over coverage required. A house that costs $400,000 to rebuild needs $320,000 of coverage under an 80 percent clause; a policy carrying $240,000 is three quarters of the way there, so a claim is paid at 75 cents on the dollar.
3. The textbook case: on that policy a $100,000 loss with a $1,000 deductible pays $74,000, and $25,000 of the loss falls on the owner beyond the deductible.
4. Example on this tool's defaults: $480,000 to rebuild, $350,000 of coverage, and a $100,000 loss with a $2,500 deductible. The policy requires $384,000, the claim is paid at 91.1%, and about $8,854 of the loss goes unpaid beyond the deductible.
5. Rebuild cost is not market value. The land is not rebuilt, and a house in a cheap neighborhood can cost more to rebuild than it would sell for. The coverage is measured against the builder's number, which the agent's replacement-cost estimator produces.
6. Extended replacement cost endorsements, an inflation guard, ordinance-or-law coverage, and actual-cash-value policies all change the arithmetic. The rule as stated here is the plain form, and the policy's own wording governs.

Educational only, not investment, tax, or legal advice. Results are hypothetical estimates that vary with each use and over time and are not guaranteed accurate or complete. Using this tool creates no client relationship with Considerate Capital, and the site that linked here is not affiliated with it. By using it you agree to the tool terms.