Over the years we’ve talked to thousands of people who have lost their homes to natural disasters. We have found that over 90% of the people we talk to are grossly underinsured.
Insurance companies are able to determine exact dwelling coverage amounts with sophisticated computer programs that they pay a lot of money for. One company called Marshall & Swift, who makes such software, claims “...more than 70 years of experience [with] over 100,000 individual users, including underwriters, claims adjusters, inspectors, and agents.”
Within days, if not hours, following a wildfire, adjusters, agents and insurance contractors inform dazed fire victims, “You are underinsured!” Usually, this is the first time the homeowner has even considered that they might be underinsured.
Through interviews, we’ve found that only 8% of the people we’ve talked to who lost their houses in the 2007 wildfires were insured to at least 80% of their loss. Only 2% were insured to 90% of their loss. On average, their dwellings were only covered for 55% of their replacement value.
Also, even though insurance companies new that reconstruction costs exceeded $200/SF after the 2003 wildfires, 85% of the people interviewed were insured at less than $200/SF.
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