jjquantz
Full time employment: Posting here.
DW and I recently bought our "retirement home"and today we received the insurance company's estimate of the new homes "replacement cost".
This has got me thinking about the appropriateness of the replacement cost approach to homeowner's insurance.
In our current home, I think that it makes perfect sense. We live in a nice enough tract house built in the 1960's. In this community (DC metro), much of the value lies in the land, so the cost to rebuild the house would be less than the cost to buy an existing, similar home. So, it seems that insuring for replacement cost makes sense. Plus, we have no particular attachment to the house, every 3rd house in the neighborhood has this floor plan.
However, in our soon-to-be new community, we bought a beautiful 110 year old home for about 1/2 the insurance company's estimated replacement cost. If this home were totally lost to fire, for instance, it would be much cheaper to purchase an existing home of equal quality (and there are several that would be available) than to build a replacement.
Plus, even if they built the replacement, would they really replace all the plaster, the inlay parquet floor, fireplaces, etc. with work of equal quality? Even if they did, would this new construction carry the same emotional connection for us that the original home did? The uniqueness and history of the home carries some weight with us.
So, anyway, I'm not totally sure what question I'm asking, but the concept of "replacement cost" seems flawed in this type of environment. At one level, there is the financial question, "What is the appropriate amount of coverage to carry?" But there is also the question of what is the purpose of homeowner's insurance? Is it to provide comparable living quarters? If so, then in some instances replacement cost seems to be an inappropriate measure.
What do you all think?
This has got me thinking about the appropriateness of the replacement cost approach to homeowner's insurance.
In our current home, I think that it makes perfect sense. We live in a nice enough tract house built in the 1960's. In this community (DC metro), much of the value lies in the land, so the cost to rebuild the house would be less than the cost to buy an existing, similar home. So, it seems that insuring for replacement cost makes sense. Plus, we have no particular attachment to the house, every 3rd house in the neighborhood has this floor plan.
However, in our soon-to-be new community, we bought a beautiful 110 year old home for about 1/2 the insurance company's estimated replacement cost. If this home were totally lost to fire, for instance, it would be much cheaper to purchase an existing home of equal quality (and there are several that would be available) than to build a replacement.
Plus, even if they built the replacement, would they really replace all the plaster, the inlay parquet floor, fireplaces, etc. with work of equal quality? Even if they did, would this new construction carry the same emotional connection for us that the original home did? The uniqueness and history of the home carries some weight with us.
So, anyway, I'm not totally sure what question I'm asking, but the concept of "replacement cost" seems flawed in this type of environment. At one level, there is the financial question, "What is the appropriate amount of coverage to carry?" But there is also the question of what is the purpose of homeowner's insurance? Is it to provide comparable living quarters? If so, then in some instances replacement cost seems to be an inappropriate measure.
What do you all think?