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Homeowners Come Up Short on Insurance
08-31-2004, 08:07 AM
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#1
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Thinks s/he gets paid by the post
Join Date: Feb 2003
Location: Mesa
Posts: 3,588
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Homeowners Come Up Short on Insurance
After reading some of the posts about dramatic real estate run-ups, this article seemed like it might be pertinent. Of course, most of you who live in areas where real estate runs up rapidly are probably already aware of this.
http://www.nytimes.com/2004/08/31/bu...insure.html?th
"Homeowners Come Up Short on Insurance
By JOSEPH B. TREASTER
Published: August 31, 2004
. . . In a move to cut costs from claims, insurance companies began in the late 1990's to phase out coverage that guaranteed the replacement of a destroyed home, regardless of the expense to the insurer. In place of that unlimited coverage, which had become nearly universal, insurers substituted a similar-sounding policy with a crucial difference: it pays only the amount stated on the policy plus, typically, an additional 20 percent to 25 percent.
For their part, insurers insist that it is the consumer's responsibility to acquire adequate coverage.
The old policy was called a guaranteed replacement policy. The new one, which most Americans now have, is called an extended replacement policy. . . . "
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Re: Homeowners Come Up Short on Insurance
08-31-2004, 09:37 AM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,708
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Re: Homeowners Come Up Short on Insurance
Since I just did an insurance overhaul due to marriage...
Although we had the same insurer, my policy was still for guaranteed replacement while my wifes agent had indeed changed her to cash value without building code upgrades. What's really funny is my house is bigger and had a higher dollar value of more expensive coverage type, yet her policy was 20% more expensive than mine!
As far as the real estate 'run up', i'm not sure you need to carry more insurance. Just because my house is worth more this year than last doesnt mean it would cost more to rebuild it after a fire. That increase is speculative in nature, not physical.
Check new construction costs in your area, per square foot. Add about 10-20k for demolition and removal of whats left of your old house. That should be approximately what your worst case scenario is for replacement cost of the home.
I wouldnt carry a lot more than that.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
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Re: Homeowners Come Up Short on Insurance
08-31-2004, 09:41 AM
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#3
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Thinks s/he gets paid by the post
Join Date: Dec 2003
Posts: 4,459
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Re: Homeowners Come Up Short on Insurance
What I didn't see in the article was the fact that these homeowners are suing the insurance companies for letting them underinsure themselves. Only in America...
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Re: Homeowners Come Up Short on Insurance
08-31-2004, 09:54 AM
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#4
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2003
Posts: 18,085
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Re: Homeowners Come Up Short on Insurance
Actually, some of the run-up isn't speculative. Prices for the basic materials of home building (OSB, plywood, lumber, etc.) have shot up in the last few years, no doubt due to the RE market frenzy and the resurgence in demand from the rest of the world. This is probably one of those things that is well worth discussing with your agent every 5 years or so.
__________________
"All animals are equal, but some animals are more equal than others."
- George Orwell
Ezekiel 23:20
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Re: Homeowners Come Up Short on Insurance
08-31-2004, 09:57 AM
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#5
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Thinks s/he gets paid by the post
Join Date: Feb 2003
Location: Mesa
Posts: 3,588
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Re: Homeowners Come Up Short on Insurance
Quote:
. . .
As far as the real estate 'run up', i'm not sure you need to carry more insurance. *Just because my house is worth more this year than last doesnt mean it would cost more to rebuild it after a fire. *That increase is speculative in nature, not physical.
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That's a good point. The drivers for new building costs are probably related in some ways to housing purchase costs, but not correlated completely.
As a side note concerning demolition. A friend of mine just had his house demolished so he could build a new one. He found that the local fire department was willing to do this for much less than he could get anyone else to bid provided they could burn it down and use it to practice. Of course, that requires that your house is not already burned to the ground.
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Re: Homeowners Come Up Short on Insurance
08-31-2004, 10:01 AM
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#6
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,708
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Re: Homeowners Come Up Short on Insurance
The drivers for the *profitability* of new home building are related to local cost runups.
There is some connection to construction costs over time though. As an area becomes more profitable to sell in, more builders move in, fewer tradesmen become available, and their prices go up accordingly.
Nowhere near the rate that homes have shot up here though. What I've seen is fewer guys returning phone calls or wanting to take on remodelling work as opposed to easier new construction work.
Of course it doesnt hurt that my new brother in law is a new home construction general contractor...
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
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Re: Homeowners Come Up Short on Insurance
08-31-2004, 01:55 PM
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#7
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Full time employment: Posting here.
Join Date: Apr 2004
Posts: 802
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Re: Homeowners Come Up Short on Insurance
You need to get the softwood construction lumber lobby off your back.
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Re: Homeowners Come Up Short on Insurance
08-31-2004, 04:55 PM
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#8
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Dryer sheet aficionado
Join Date: Sep 2003
Posts: 35
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Re: Homeowners Come Up Short on Insurance
Some insurance companies offer an "inflation guard" service that automatically increases the coverage on your dwelling by a certain percentage each year.
This also has the effect of increasing your premiums each year :-)
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