41% of Homeowners Haven't Reviewed Insurance in a Year

A significant portion of homeowners, specifically 41%, have not reviewed or updated their homeowners insurance policies in over a year, according to a new VIU by HUB survey. An additional 20% of policyholders have not made any changes since their initial purchase. This lack of policy review becomes critical when a claim needs to be filed, as one in three policyholders who had previously filed a claim reported that their coverage did not meet their expectations. Alarmingly, 14% of these claimants stated that none of their losses were covered by their insurance.

Homeowners insurance policies often renew annually with minimal homeowner intervention, typically involving an email notification and potential premium adjustments. While many modern policies include an "inflation guard" feature that automatically increases coverage limits by an estimated 4% to 8% annually to account for rising construction costs, this automatic adjustment is not always sufficient. Home improvements such as kitchen remodels, basement finishing, upgrades to higher-end materials, or the addition of outdoor structures like decks can significantly increase the dwelling's value, potentially exceeding the automatically adjusted coverage limits. William Lemmon, a licensed insurance broker and owner of Broadway Insurance Services in Los Angeles, highlights the importance of these automatic increases but cautions that they are not a foolproof solution.

Chip Merlin, founder and CEO of Merlin Law Group, a national insurance recovery law firm, emphasizes that focusing solely on the dwelling coverage limit on the declarations page is a common and significant mistake. He explains that even with substantial stated coverage, homeowners can face inadequate insurance for crucial aspects of their losses following a catastrophe. For instance, a policy might cover the actual cash value of damaged property rather than the replacement cost, leading to a substantial out-of-pocket expense for the homeowner to restore their property to its pre-loss condition. This distinction between actual cash value, which depreciates over time, and replacement cost, which covers the expense of buying new items, is a critical detail that policyholders often overlook during annual renewals or when making significant home improvements.

The VIU by HUB survey underscores the potential financial vulnerability of homeowners who neglect to periodically audit their insurance policies. The findings suggest a widespread complacency regarding insurance coverage, which can have severe consequences when unexpected events like natural disasters or property damage occur. The survey's data points to a critical need for homeowners to proactively engage with their insurance providers to ensure their policies adequately reflect their current home value and potential risks, especially after undertaking renovations or experiencing changes in their property. The current renewal process, often automated and requiring minimal homeowner input, may inadvertently perpetuate coverage gaps that only become apparent during a claim. Therefore, a deliberate review of policy details, beyond just the premium amount, is recommended to maintain appropriate protection.