What is the 80/20 Rule in Home Insurance

In insurance, there is a rule of thumb called the 80/20 Rule. It is a way that insurers guide people on how much home insurance they need. If you haven’t heard of it, or if it confuses you, we at Compass Insurance in Centennial, CO are here to help. Give our office a call at 303-996-9000 today.

The 80/20 Rule

Most insurance companies want you to have at least 80% of your home’s replacement value insured. This is the 80/20 rule, and it is a standard belief that anything under this amount is under-insuring your home.

It works because if your home is insured for less than 80% of the replacement cost, your insurance will only cover up to that percentage and not the complete 80%. If you have 80%, the insurance company will fully cover the cost of the damage. However, inflation and capital improvements can alter the property’s value and affect the 80/20 rule.

Capital Improvements and Inflation

If you make improvements to your home, such as an addition that increases the home’s value, you will need to adjust the home insurance amount as well. Inflation is another way that the value of your home can creep up without you realizing it.

To offset any potential rise in home value that puts you at risk of being underinsured, have a home insurance representative review your coverage every so often. This can make a big difference and keep you adequately covered for potential loss.

If you need insurance help in Centennial, CO, our Compass Insurance office staff is here. We are insurance experts and can help you get what you need. Call 303-996-9000 today.