Last Feb. 27, Jack Kestell was spending a casual Sunday afternoon shopping at an Ace Hardware store in his T-shirt and jeans when he got the frantic call from his wife, Denise: A fire had started in the basement of the familys South Hill home.


Kestells wife and three kids who still live at home were safe, but four hours after the fire started, the familys 11-year-old homeits dream homewas destroyed.


I had a pair of jeans, tennis shoes, and a T-shirt, and that was about it, he says.


While the home and all of its contents were gone in a matter of hours, the losses the family would sustain continued over the following months. The Kestells had what was called a replacement-cost coverage homeowners insurance policy, and while Kestell assumed that meant the insurer would pay what it cost to replace the home, that wasnt the case.


The policy only covered up to an estimated replacement cost that was pre-determined by the insurance company, plus 20 percent. In the end, the coverage would pay $444,000 toward replacement of the home, about $80,000 less than the insurer estimated it would cost to rebuild the house and $90,000 less than what it would cost according the research done by Kestell, a longtime real estate broker who owns Kestell Co. Realtors here.


The Kestells also had coverage for lost possessions and for temporary housing, but neither was enough to cover their full costs in those areas either.


All said and done, weve sustained close to a $200,000 loss between contents and structure, he says.


Four months after the fire, the family bought and moved into a home south of Spokane that Kestell describes as nice and spacious. He says, though, It isnt what we had.


With building-material prices continuing to increase and other construction costs on the rise, Spokane-area insurance professionals say that some homeowners are underinsured and would be unable to rebuild their homes if theyre lost to fire or another catastrophic event.


Especially vulnerable, they say, are people who have made substantial improvements to their homes over the years and havent made their insurance agents aware of the improvements.


People are shocked at the cost of rebuilding their homes, says David Christy, president and designated agent of David Christy Insurance Agency Inc., a Spokane Valley-based agency that carries State Farm Insurance lines. In a surging market, even though we apply an inflation-based increase, sometimes it wont be enough.


Marshall & Swift/Boeckh, a Los Angeles-based company that provides cost-estimating systems for the insurance industry, says it completed a nationwide study late last year and found that 64 percent of the homes it surveyed were underinsured by an average of 27 percent below what it would cost to replace them.


Michael Moore, Eastern Washington market development manager for MetLife Auto & Home, says most homeowners insurance policies typically cover between 100 percent and 125 percent of a predetermined, estimated reconstruction cost.


While many policies are called cost-replacement coverage policies, few actually guarantee to pay full replacement costs, Moore says. He says hes aware of only two companies that offer policies with replacement-cost guarantees. One is the company he works for, MetLife, and the other is the Chubb Group of Insurance Cos., which a handful of insurance brokerages here carry.


Thomas Porter, owner of the Thomas S. Porter Inc. insurance agency here, says many large insurers used to pay full replacement costs when a customer lost a home, but most stopped doing that about five years ago.


Im speaking about ancient history, insurance wise, Porter says.


Christy says the main reason for the disparity in coverage and construction cost in some cases is the volatile building-materials market, in which many types of building materials have increased in price sharply in recent years, with some even being in short supply.


Another recent Marshall & Swift study shows that the cost of panel wood products has surged 85 percent, compared with a year earlier. Cement shortages in the Inland Northwest and elsewhere in the U.S. also are well-documented.


Kestell says the cost of construction increased between 10 percent and 15 percent between the date of the fire at his home and when he could have started construction on a new house a few months later.


On top of material-cost increases, Christy says, home builders have seen increased costs in regards to fuel, equipment, labor, and liability insurance.


To try and keep up with cost increases, insurance companies make inflation adjustments annually to estimated home-replacement costs. Moore says those adjustments have increased more aggressively in recent years at annual rates of roughly 10 percent compared with a more normal 2 percent or 3 percent inflation rate.


Beyond that, Christy says State Farm makes inflation adjustments monthly. He says he invites policyholders to the office once a year for an annual review, but only about half take him up on his offer.


Most people assume thats just a way to sell them more insurance, he says.


Moore says most insurance companies hire an outside company, like Marshall & Swift, to determine construction costs, and that information typically is specific to a county or in some cases, a ZIP code.


When initially assessing coverage for individual homes, insurance companies are as specific as possible, Moore says, noting details such as how many skylights a home has or whether rooms are wallpapered.


Christy says, however, replacement costs can be off the mark if an initial estimate was in error, or if a homeowner has made additions or improvements that an insurer doesnt know about.


To make sure a home is adequately covered, insurance veterans here recommend that all homeowners review their policies annually and make their agents aware of any changes to the house.


Kestell says he hopes to participate in some seminars in the future, possibly through the Spokane Area Association of Realtors, to make more people aware of the pitfalls of being underinsured. He hopes that by hearing of his experience, others wont have the same disheartening experience that his family has endured.


He says that in addition to meeting with an insurance agent, he suggests that homeowners independently assess whether home-replacement costs are covered adequately and insist on raising coverage accordingly. He also says the insurance industry needs to be held accountable for keeping coverage at levels where costs will be covered.


If they sell a replacement-cost policy, it by God should be able to do that, Kestell says.