We review a lot of existing policies when new clients come to us. And one of the most consistent findings — across price points, neighborhoods, and carriers — is that the dwelling coverage on the policy does not reflect what it would actually cost to rebuild the home today.
This is not a small discrepancy. In many cases it is $75,000 to $200,000 or more. On a coastal South Carolina home, that gap is not hypothetical. It is the difference between being made whole after a total loss and being left with a check that does not come close to rebuilding what you had.
How This Happens
Policies set years ago and never updated: The most common cause of underinsurance is simple — the dwelling coverage was set when the policy was first written, and no one has adjusted it since. Construction costs, labor rates, and material prices have changed dramatically — particularly since 2020, when supply chain disruptions and labor shortages drove building costs up 30 to 50 percent in many coastal markets. A dwelling limit that was adequate in 2018 may be significantly short of what rebuilding would cost today.
Insuring for market value instead of replacement cost: Market value and replacement cost are not the same thing, and confusing them is a significant source of underinsurance. Market value includes the land, location, and market conditions — factors that have nothing to do with what it costs to rebuild the structure. Your homeowners policy should cover the replacement cost of the structure — what it costs to rebuild — not its market value.
Renovations and improvements not reported: Every significant improvement to your home increases its replacement cost. A kitchen remodel, a bathroom addition, a new deck or screened porch — all of these add to what it would cost to replace your home after a total loss. If you completed a $60,000 kitchen renovation and never called your insurance agent to update your dwelling coverage, you are underinsured by at least that amount.
Inflation and carrier inaction: Many carriers apply an annual inflation guard endorsement that automatically adjusts dwelling coverage by a fixed percentage each year. However, the percentage applied — often 2 to 4 percent — has not kept pace with actual construction cost inflation in recent years. Even homeowners with inflation guards may have fallen behind.
The Real-World Consequence: Coinsurance and Partial Losses
Underinsurance is not just a problem if your home burns to the ground. It affects partial loss claims as well. Most homeowners policies include a coinsurance provision — sometimes called the 80 percent rule — which requires your dwelling coverage to equal at least 80 percent of the home’s full replacement cost. If your coverage falls below that threshold, your claim payment on even a partial loss can be proportionally reduced.
If your home would cost $500,000 to rebuild but you carry $300,000 in dwelling coverage, you are not just underinsured on a total loss. You may receive reduced claim payments on every partial loss claim — including roof damage, fire damage, or water damage — because you have not maintained the required coverage threshold.
The Coastal Construction Premium
Rebuilding on the South Carolina coast is more expensive than rebuilding inland — sometimes significantly so. Coastal construction requires wind-resistant materials and building techniques, elevated foundations in flood zones, and specific fastener and connection requirements. The labor market for qualified coastal contractors tightens dramatically after a major storm event when everyone is competing for the same crews.
A generic replacement cost estimator tool that does not account for coastal construction premiums will consistently understate what rebuilding your Grand Strand home would actually cost.
How to Find Out If You Are Underinsured
The most reliable way is a proper replacement cost estimator run by your agent using a tool that accounts for your specific home’s characteristics. If you want a rough self-check: take your current dwelling coverage limit and divide it by your home’s finished square footage. If the result is below $180 to $220 per square foot for a standard coastal South Carolina home, your coverage limit may be inadequate. Coastal construction costs in the Grand Strand market have been running $200 to $280 per square foot for new construction in recent years.
What to Do
Call your agent and ask for a replacement cost analysis. Ask specifically whether your current dwelling limit reflects current coastal construction costs. Ask about an extended replacement cost endorsement, which provides a buffer — typically 20 to 50 percent above your policy limit — to cover situations where actual rebuild costs exceed the estimate. This endorsement is inexpensive relative to the protection it provides.
Do not wait for a claim to find out your coverage was not enough.
Perry Insurance Group | 843-663-4440 | PerryInsuranceGroup.com | North Myrtle Beach | Surfside Beach | Little River | The Entire Grand Strand
