How to determine homeowners insured value

[MichaelB]

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.

 

[H2ODude]

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.

 

[REWahoo]

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...

 

[zinger1457]

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.

 

[bld999]

I questioned a home replacement valuation once and the company sent out an in - house appraiser. There was no charge.

 

[REWahoo]

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.

 

[NanoSour]

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

 

[Katsmeow]

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.

 

[athena53]

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.

 

[rbmrtn]

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.

 

[audreyh1]

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.

 

[Katsmeow]

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.

 

[meierlde]

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.

 

[bld999]

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.

 

[audreyh1]

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.

 

[Katsmeow]

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.

 

[Mulligan]

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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[zinger1457]

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.

 

[MichaelB]

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.

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..

 

[MooreBonds]

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.

 

[Htown Harry]

Earlier this year I did a mortgage refinancing. The mortgage company got hung up on insured value for the dwelling, despite the fact that the mortgage amount was actually less than the land value.

We went several rounds back and forth with the mortgage company insisting they needed to see the insurance company's estimating data. This finally worked:

My agent has confirmed [Insurance Company] replacement cost data is proprietary and not available for release to me or [Mortgage Company].

On page 1 of the declarations page I previously provided, my base dwelling coverage is $322,000. I have attached rider HO-420 to my policy, which is referenced as “30% specified additional amount of coverage – dwelling” on page 2 of the declarations page. Multiplying $322,000 by 1.3 yields $418,000 in dwelling coverage available in the event of a catastrophic loss.

My house is 2100 square feet of livable area. Thus I am covered for a replacement dwelling at a cost of $200 per square foot.

[Insurance Company] and I agree this is sufficient coverage protecting me (and the mortgage holder) from a total loss of the dwelling.

I haven’t received my [Mortgage Company] appraisal report yet, but I know from County records the land value of my lot is some $300,000. You have reported a total appraisal value of some $650,000.

The difference is an appraisal-based dwelling value of $350,000 (or $167 / sq.ft. ). This is far less than my $418,000 in coverage.

I will also point out that I have had my [Insurance Company] policy since shortly after my wife and I built the current dwelling in 1999. [Insurance Company] was provided with my builder contract at that time. The current coverage amount therefore is the inflation-adjusted actual construction cost of my home, not a cookbook calculation.

Finally, listed below are links to three current listings for homes under construction within four blocks of my house, along with links to the County records showing lot values. By taking the builder’s list price, subtracting lot value and dividing by square footage (same method as above), the actual cost per square foot to build a new dwelling in my neighborhood ranges from $150 to $180 per square foot. Once again, this is significantly less than my replacement coverage.

I trust this data will satisfy [Mortgage Company]’s questions. If not, please provide an explanation for why you believe $418,000 in dwelling replacement coverage is insufficient.

 

[RE2Boys]

To rebuild my house would cost way more that the market value. Attribute it to the quality and type of construction that would be involved. Such as 90% of the area is finished with 100% oak flooring (no laminates or veneers). And, except for the added-on family room, it is entirely plaster walls (only family room is drywall).

Back on 2007, the house was hit by lightning over the kitchen. Fire was contained to the attic (about 1/3 roofing system was replaced) and kitchen. Cost to restore house to original condition was about $110,000. But the market value of the house with land was about $170,000. Restoration is not cheap!

 

[ABQ2015]

To rebuild my house would cost way more that the market value. Attribute it to the quality and type of construction that would be involved. Such as 90% of the area is finished with 100% oak flooring (no laminates or veneers). And, except for the added-on family room, it is entirely plaster walls (only family room is drywall).

This is my concern. While my oak hardwood floors are 60 years old and not pristine, I still want to replace them if needed. My insurance agent sends out a letter about every two years on the importance of replacement costs. But when I met with one of his employee's to review my home insurance, I had to argue to increase the coverage to ensure that I would get actual replacement costs and would be able to afford to rebuild up to code.

I'm probably overpaying but I want to be able to sleep at night, especially given the ongoing drought and my close proximity to the dry river bosque and the extreme fire danger. I was never able to get a definitive answer from the agent's employee on their replacement policy, e.g., I have read on the internet that insurance companies will argue that drywall is equivalent to plaster as the plaster is cost prohibitive to replace.

 

[marko]

. 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.

We had an interesting problem.

Twenty five years ago, we acquired my grandfather's property upon his passing.

We found that he had it insured for only $15,000 "because that's what I paid for it back in 1923" (don't even ask)

The property is fairly large, oceanfront and, even though DW and I are not big on insurance, we were horrified at the coverage. Let's just say it was worth.....a whole lot more....( we were already in the process of putting a few $100K into upgrades etc.)

When we went to the current insurer, they outright refused to insure it for more than $25K, saying "you cannot make such a big increase all at once!". They were more focused on the the percent of increase than the property's actual value!

We brought in appraisals, photos etc directly to the company (not an agent) and were told "no".

We went out and found someone who took us in with open arms!

Twenty five years later, for the life of me, I cannot understand their thought process........

 

[athena53]

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.

It's a matter of everyone paying a fair premium in relation to their expected losses. Because of smoke detectors and access to local fire departments, total losses are rare. Typically it's a kitchen fire or a lightning strike. Let's say your house is worth $200K but you want to insure it for only $100K because it's paid off and you figure that's the worst loss you'll ever have. Should you pay the same premium as the person down the street who really does have a $100K house and insures it for that? You've got a much bigger probability of a $100K loss than they do. (Trust me, I'm a retired property/casualty actuary. )

And I like the tactic suggested earlier of subtracting a reasonable value for the land, backing into cost per square foot, and comparing it to new construction. I'll have to remember that.

The story of the company willing to insure an oceanfront house for $15K floored me- then I realized the insurer was probably happy to be on the hook for only that much if it washed away in a hurricane. My parents have a house a mile away from the beach, fully paid for, and just decided to go bare. They said the land is worth more than the house, anyway.