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How to determine homeowners insured value
Old 06-10-2014, 09:02 AM   #1
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How to determine homeowners insured value

I recently changed homeowners insurance and once again had to determine how much coverage we need. The agent gave me some tips but was vague, and I am left with the feeling I don't really know if our coverage is too much or too little. I've checked online but only find generic advice. Wondering how others determine this number and if there are any online tools that are useful.
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Old 06-10-2014, 09:13 AM   #2
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My experience has been you don't have much say in the matter. A lot of the value of our home is that it sits on a lake; I have no doubt that if it burned to the ground we could rebuild it for, ummm, not much more than $200k. However, when I've tried to go less than market they balk. It's in their interest to have it insured for as much as possible in my opinion.
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Old 06-10-2014, 09:42 AM   #3
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USAA offers an online calculator to estimate the cost to rebuild but it isn't available to non-USAA insured. I found this one online: Building-Cost.net -- free residential building cost calculator

Looks like it is very thorough, but that doesn't mean it is accurate...
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Old 06-10-2014, 09:51 AM   #4
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I used AccuCoverage a few years ago to get a replacement cost estimate to check if my insurance coverage was adequate. You do have to fill out a form providing a lot of details about your house. The result seemed fairly accurate. There is a cost for it, $7-8 as I recall.
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Old 06-10-2014, 09:57 AM   #5
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I questioned a home replacement valuation once and the company sent out an in - house appraiser. There was no charge.
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Old 06-10-2014, 10:04 AM   #6
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Yikes. I ran my numbers through the calculator I linked above (Cost.net -- free residential building cost calculator) and the end result was 3X what I believe to be the cost to rebuild my house. Maybe I did something wrong...

Edit: I ran the numbers again and came up with an even higher cost! The numbers it is giving me are way off.
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Old 06-10-2014, 10:21 AM   #7
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Building costs per square foot are easy to obtain for your local area. Once you know how big and what quality you're after you can easily determine how much insurance you need. Of course the insurance company wants you to over insure, but you can tell them how much coverage you want.

They'll also want to give you 50% of house value to replace contents. Once you get to a 300K home value, it's unlikely you'll 150K worth of contents in the home. That's a lot of furniture and nick nacks. If I gave my DW 4K to spend on each room in the house, she'd have a field day and practically everything in the house would be replaced. For an 8 room home that's 32K. A far cry from 150K replacement cost.

I went through this exercise last year and on a $350K purchase got 280K home replacement with 140K contents. Much of our purchase price was location premium and that doesn't need to be insured. Just need a new house built in the case of disaster.

Also, consider the deductible as this could save you a considerable amount. Most don't think about this, but I went with a 1% deductible so I'll have to pay the first $2800 of any claim. This helps prevent us from making small, often frivolous, claims which would raise our insurance any way and stay in the insurance database for years. I had a $1400 claim for water in the basement back in 2004 and according to my insurance company it was still affecting my home rates 2 years ago. I'm cautious about making smaller claims on both auto and home insurance as they just get the money back via raising your rates as a result.

FWIW
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Old 06-10-2014, 10:53 AM   #8
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Yikes. I ran my numbers through the calculator I linked above (Cost.net -- free residential building cost calculator) and the end result was 3X what I believe to be the cost to rebuild my house. Maybe I did something wrong...

Edit: I ran the numbers again and came up with an even higher cost! The numbers it is giving me are way off.
Yes this is ridiculous. The value given is 2 times what the house appraised for 18 months ago.

That said, it is more expensive to build than buy. When almost built a house before we bought this one and got fairly far in the design process. The cost to build a house -- similar size to the one we bought -- was about the same as what we paid for our house and our house is on a fairly expensive acre of land. So, I do think people underestimate the cost of building. That said - the price of that calculator was about twice what I think it should have been.
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Old 06-10-2014, 11:06 AM   #9
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My experience has been you don't have much say in the matter.
I agree- you can give the insurance company a number but they can change it. I got burned once when I switched companies for a lower offer, then they revised my face amount to something crazy (replacement value on a 25-year old house) and the new premium was just about what the old company charged.

Last month I got the bill for our homeowners coverage and called the agent. We paid $242K for this house in 2003, made some improvements and market value looks to be about $300K. "Replacement value" was $707K! There's nothing special about this place: standard McMansion in standard suburban neighborhood. He re-estimated and our renewal premium dropped by $300. Well worth the call.
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Old 06-10-2014, 11:20 AM   #10
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Call a local builder and see what they get per sqft for new construction.

I have had them adjust the house value a couple of times because the inflation index they use far exceeds the home values in my area.

The part C coverage ( contents ) is typically given as a percent of home value. At one time I was told this could not be reduced as it standard to do it this way. I would like to reduce it as it is far more than I need. I could replace everything I own for less than $50K.
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Old 06-10-2014, 11:45 AM   #11
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Originally Posted by MichaelB View Post
I recently changed homeowners insurance and once again had to determine how much coverage we need. The agent gave me some tips but was vague, and I am left with the feeling I don't really know if our coverage is too much or too little. I've checked online but only find generic advice. Wondering how others determine this number and if there are any online tools that are useful.
Pretty much appraised value less land value? That's what our agent suggested last year, and it seemed reasonable. It's actually insured for a little more than that, but close enough.
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Old 06-10-2014, 02:08 PM   #12
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Pretty much appraised value less land value? That's what our agent suggested last year, and it seemed reasonable. It's actually insured for a little more than that, but close enough.
Umm...no. It isn't reasonable. Let's say you have a 30 year old house. Part of the appraised value of the house is based upon (1) the components of that 30 year old house as they then exist and (2) the fact that it is a thirty year old house.

When you rebuild a house you will build a new house. You won't build a 30 year old house. It will have new components and will meet current building standards.
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Old 06-10-2014, 02:56 PM   #13
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If you are really concerned get ahold of one of a number of construction cost estimator books, or try some of the online versions, As I recall they include some area cost factors as well (in terms of construction cost). These tools are what builders use to make their bids.
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Old 06-10-2014, 04:15 PM   #14
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If you are really concerned get ahold of one of a number of construction cost estimator books, or try some of the online versions, As I recall they include some area cost factors as well (in terms of construction cost). These tools are what builders use to make their bids.
Builders worthy of the name do their own estimating, based largely on historical cost records for similar projects. In cases where they are proposing on a projects containing pieces with which they have no experience, they poll local subs and suppliers who have that expertise. Only in very odd cases would they use something like Means or other publication, and then only if risk-protected in some manner.
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Old 06-10-2014, 04:50 PM   #15
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Umm...no. It isn't reasonable. Let's say you have a 30 year old house. Part of the appraised value of the house is based upon (1) the components of that 30 year old house as they then exist and (2) the fact that it is a thirty year old house.

When you rebuild a house you will build a new house. You won't build a 30 year old house. It will have new components and will meet current building standards.
Our house is quite new and was built for us.
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Old 06-10-2014, 05:21 PM   #16
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Our house is quite new and was built for us.
Then it will be more reasonable for you, than for someone with an older home. Still, I think using appraised value is problematical. Many times people find that the cost to build a house is less than the appraised value of the building. So, even with a brand new house, the cost to replace it may be more than the appraised value (less land value).

And, of course, even for newer houses, there is inflation in the cost of construction.
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Old 06-10-2014, 07:33 PM   #17
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I agree- you can give the insurance company a number but they can change it. I got burned once when I switched companies for a lower offer, then they revised my face amount to something crazy (replacement value on a 25-year old house) and the new premium was just about what the old company charged.

Last month I got the bill for our homeowners coverage and called the agent. We paid $242K for this house in 2003, made some improvements and market value looks to be about $300K. "Replacement value" was $707K! There's nothing special about this place: standard McMansion in standard suburban neighborhood. He re-estimated and our renewal premium dropped by $300. Well worth the call.

I am with you and H2O. Every year they wanna slap an increased value on the home. It is like legal stealing and stealth inflation. I know for a fact my house could burn to the ground, haul it all off and rebuild for way less than what I have to insure for. I once was able to jaw them down a bit, but not much. I still have not figured out why I can't insure the amount I want to. What is it to them? If I can pay the mortgage company off it should be no concern to them.


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Old 06-10-2014, 08:31 PM   #18
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I still have not figured out why I can't insure the amount I want to. What is it to them? If I can pay the mortgage company off it should be no concern to them.
From what I've read more homeowners are under-insured than over-insured. Some insurance companies seem to take the opposite approach that you experience and leave it up to the homeowner to increase it after the initial value is determined. I've had to ask my insurance company to increase my coverage over the years to keep up with increases in construction cost.
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Old 06-10-2014, 10:16 PM   #19
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Yikes. I ran my numbers through the calculator I linked above (Cost.net -- free residential building cost calculator) and the end result was 3X what I believe to be the cost to rebuild my house. Maybe I did something wrong...

Edit: I ran the numbers again and came up with an even higher cost! The numbers it is giving me are way off.
I ran my numbers and they seem pretty high.

If the home is overinsured the insurer won't pay more than the actual cost to rebuild and the excess premium is money wasted. If the home is underinsured the loss can be crippling. I've asked neighbors, their response is to confirm they've used average building costs referenced by the insurer. My guess is that leads to underinsurance.

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I used AccuCoverage a few years ago to get a replacement cost estimate to check if my insurance coverage was adequate. You do have to fill out a form providing a lot of details about your house. The result seemed fairly accurate. There is a cost for it, $7-8 as I recall.
I say this referenced by a couple of insurance companies. They don't share much for free. It might be worth the $8 if insurers use it. I wonder if this is the same tool USAA uses..
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Old 06-10-2014, 11:13 PM   #20
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Originally Posted by MichaelB View Post
I recently changed homeowners insurance and once again had to determine how much coverage we need. The agent gave me some tips but was vague, and I am left with the feeling I don't really know if our coverage is too much or too little. I've checked online but only find generic advice. Wondering how others determine this number and if there are any online tools that are useful.
Part of the issue is that most insurers have clauses which say that if you don't have at least 80% of your 'replacement' coverage in-force, then they can slash any and all payments to partially repair your home in the event of a covered incident.

A $300,000 (or any value) home isn't truly going to cost $300k to rebuild in the event of a total loss since part of the value is ground, which won't drop, and it's VERY unlikely you would ever need to redo your foundation- which is another significant cost of construction (for those with basements).

So then you're at the mercy of your insurer to not play games and claim that the cost to rebuild would skyrocket, and 80% of that number is more than what your coverage is for. I think you can make a valid claim if you bring up the land and foundation items as not really being likely to need repair. But they likely won't back down easily.

For back-of-the-envelope estimates, try looking at a few new subdivisions that are being built in your city, to see what floor plans might roughly approximate your house, and see what the basic model costs on a $/sq ft basis. That will include all new everything (including the land value, a new foundation, and road improvements and sales commission), so it'll be a bit over on a $/sq ft basis...but will at least give you an absolute maximum idea of what it might run for you.
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