“If I could SELL my house for that amount, I’d do it TOMORROW!”
– An insured client that shall remain anonymous
Many Homeowners confuse Market Value, which is what a home is worth based on comparable homes, school district and location, or Assessed Value which is what your local government bases your property taxes on. There is also Actual Cash Value, which is mainly used for very old homes or rental properties, in which you would simply take the payout and not rebuild. Co-insurance penalties may apply.
So…how can homeowners be comfortable that their home has an appropriate replacement cost, and make sure they are not over- or under- insured?
Open your Homeowners Insurance Policy to the Declarations Page and look for the section titled “Dwelling” or “Coverage A”, which applies to the structure of your home including walls, ceilings, floors, doors, windows, cabinets, fixtures, and roof. The best way to explain this is to imagine turning your house upside down, opening the roof and giving it a good shake. Whatever does not fall out, is Coverage A. That listed amount is the most the company will pay to repair or rebuild your home today at the current cost of material and labor in the event that it is damaged or totally destroyed by one of the poicy’s named perils such as fire, wind and hail. (Earthquakes and Floods are NOT covered, but can be purchased separately if needed or desired).
Most Insurance companies have their own Replacement Cost Estimator that we use to determine an accurate value of your home. It factors in the year your home was built, type of construction, room count, number of bathrooms, square footage, quality of building materials, attached decks, and type of roofing and siding. There are many additional costs factored in, such as Fire Department service charges, board up services, water or smoke damage clean up, tearing down of existing structure and debris removal, as well as architectural fees, landscaping and any of your municipal building code required updates.
Most companies offer guaranteed, or extended replacement cost coverage, which will pay 25% above the coverage a dwelling limit to cover cost overruns or price surges that follow natural disasters. Being an Independent Agent, I carry several companies that offer Guaranteed Replacement cost coverage with NO CAP, which will pay whatever it costs to rebuild your home, or Blanket limits, which offer some extra flexibility, as long as you are properly insured to value.
A Marshall & Swift research study updated in 2014 found that 64% of U.S. homes are undervalued by an average of 19%, which could result in the homeowner paying out of pocket costs, or cutting corners on size and quality of the rebuilding process.
You will also notice you have additional coverage, with separate limits for Coverage B: Other Structures, such as a garage or outbuilding, Coverage C: Personal Property, and Coverage D: Loss Of Use if your home becomes uninhabitable. The limit for these three categories of coverage is usually a percentage of your dwelling limit, and I will get into those coverage and details in a later post.
If you are interested in checking into the replacement value of your home, you can check out www.e2value.com, for a replacement cost appraisal on most homes for $25 each.
You can also call me for free advice on all things insurance. We’ve been located in Elm Grove since 1995, and we shop the companies so YOU don’t HAVE to!