John has a workshop on his property that he uses for odds and ends type repairs. He is retired and does household repairs from his workshop. During the night a burglar broke into the barn and stole several tools. Upon leaving the thief spilled liquid onto an electrical outlet causing a major fire. The workshop is completely destroyed and John lost all of his tools. John’s policy is a replacement cost policy totaling $300,000. He never made any changes to his additional coverage’s. So he has the standard 10% ($30,000) of the dwelling coverage to go toward his other structures and 60% ($180,000) towards personal property.
John’s workshop cost $45,000 to replace and he had $25,000 of contents lost. The loss was caused by a covered peril. His insurance company covered the building up to $30,000 and the full amount of the $25,000 of personal property.
When John took out his home policy he should have reviewed his coverage’s. It is a minimal cost to increase additional coverage’s such as the ‘Other Structures Coverage’. In some cases it could only cost $25 to $50 annually to have the appropriate amount of coverage. Because he was under insured John now has to pay for the rest of the damages out of pocket. When reviewing this coverage with your agent this can also be referred to as Coverage B.