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Home Insurance

Why You Need An Independent Home Replacement Cost Estimate

You need an inspection from the experts who provide services to the home insurance industry, and have NO VESTED INTEREST in your home. Here's why:

In too many instances, your agent, or broker, makes an educated guess at how much coverage is needed to insure your home. Sometimes they use a figure that coincides with your mortgage. If the amount on your home is too high, then you are paying insurance premiums on coverage that you will never use. If your house burns to the ground and you have $250,000 worth of coverage, but its rebuilding only costs $200,000, then you're paying premiums on the extra $50,000 for which you will never collect. The premiums you pay for higher coverage have completely gone to waste. And, more important, if you never have a total loss you will be paying for the extra $50,000 worth of useless coverage for many years to come. Your agent/broker gets a commission on the premiums you pay. If your home is over-insured, especially if you don't have a claim, do you think your extra premiums are going to be returned to you?

If rebuilding your home costs $300,000 then, using the above figures, you're home is underinsured and you're insuring yourself for the remaining $50,000. In other words, your home's replacement cost was under-estimated, and you will not have enough money coming from your insurance to pay for replacement of your home and its contents. This may cause problems if you have a mortgage for a higher amount than your home is insured for. If your home is under-insured, do you think your agent/broker will contribute towards the extra $50,000 you need to restore what you lost or to help pay the mortgage?

Over time, the cost of materials and labor changes, usually spiraling upwards. The longer you wait to determine how much coverage your home should have, the greater the difference between your coverage and what it truly costs to rebuild. Remember, your home is your most important asset. Call upon us to put your mind at ease.

Don't confuse replacement cost with market value.

First, a home worth $400,000 in the current real estate market does not cost $400,000 to build. Second, even if your home is destroyed the land is still there. Land has value. Probably more than you realize. So, your $400,000 home may be comprised of $100,000 worth of land, $200,000 worth of construction materials and labor, and an additional $100,000 because there is that much demand in your neighborhood for homes. Never buy insurance for the market price of your home. Get in touch with home Insurance experts.

Frequently Asked Questions

Most people know their home is the most expensive and important asset they will ever own. As such, it should be properly insured. I’m sure you know that. Let me explain why you would benefit from a replacement cost by answering in advance a few questions you're probably waiting to ask.

Q. After inspecting my home, my insurance company increases the amount of coverage for the Dwelling. This amount also increases slightly every year. Why does this coverage increase (along with my premium) every year?

A. Comprehensive homeowners policies include provisions for "Replacement Cost" for your dwelling and personal property. This means the insurance company is contractually obligated to replace the structure and your possessions with "like and kind quality" materials at today's cost, not a depreciated value.

Most homeowners policies include an inflation factor for your dwelling, assigned by the company based on the location and construction of your home. Applying this factor annually increases the insured value of your property and assures the company that you are "insured to value".
Do not equate the replacement cost of your home with market value. The insurance company is strictly interested in the type of construction, square footage, additional features and design of your home, not its market appeal.

Homeowners/Business In The Home

Q. Does my homeowners policy automatically cover my small office or business that I conduct in my home and my office equipment?

A. NO. The type of business you operate and how extensively the home is used will determine the changes needed to your insurance portfolio. A one room incidental office with no client visitors may simply require a "Business Pursuits on Premises" endorsement to your homeowners policy. This alerts the carrier to the business being conducted and will prompt your insurance counselor to explore what other coverages that may be required.

Equipment owned under a corporate name will typically require a separate Businessowners Policy (BOP). The BOP includes business personal property coverage and business liability and supplements your homeowners insurance.
Computer equipment must also be valued on either your homeowners or BOP policy. A separate endorsement to these policies will expand your coverage to include hardware, software, and data reconstruction expenses.

What if I have too much coverage?

Too much insurance and you’re wasting your money because your agent may never know you’re over insured and you will not be the first person to lose their hard earned money. If your house costs $250,000 to rebuild and it’s insured for $300,000, you’re paying premium on $50,000, for which your agent enjoys a commission. If you never have a catastrophic total loss, you’ll be paying that extra premium for many years, if not decades.

What if I have too little coverage?

Too little insurance and you’re the one who helps insure your own home. Using a similar example, let’s say it would take $250,000 to rebuild your home but you’re only insured for $200,000. If you have a total insurable loss, the company will only pay $200,000 and you’re out $50,000. Do you think your agent will pay you the difference? Not in this lifetime.

Doesn’t my agent have my best interests in mind?

In most cases they surely do. But, unless they actually visit your home or send someone there to determine the replacement cost, your agent will be guessing, just as you are, how much coverage to provide. Most agents will not take the time to come to your home and many insurance companies rely on the agent to provide the right figure.
My mortgage company says I need coverage in the amount of the mortgage.
To an extent, that’s true, as long as the mortgage happens to equal the replacement cost. The bank is only interested in insuring the amount of money they’ve loaned, not whether you lose money after you’ve filed a claim.

Doesn’t my insurance company check up on their agents?

Sometimes an insurance carrier will hire a company so they know their new policies are properly written. But we know that most companies do not inspect and others do it randomly. Most of the time they look to see how many claims their agents have filed over the years. They compare the claims submitted to the amount of premium they’ve collected to determine the loss ratio. If it’s a good ratio they assume the agent knows what he’s doing. If it’s a poor ratio they cancel the agent. Either way, they don’t care whether your individual home has been under-insured or over-insured each year.

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