Homeowner Insurance and replacement cost estimate

[MichaelB]

Well, my insurer sent the renewal notice for our homeowner policy, and the premium increase is 40%, on top of last year’s 15%. Even by South Florida standards this policy is now expensive. The lack of highly rated national insurers makes it worse.

My bigger concern, however, is I think the coverage is too low. The insurer increased the replacement value by 10% this year and <20% in aggregate for the past 5 years. I think it’s still low, but I can’t find a credible source to help generate a better estimate. Home prices and contractor costs are up far more over the same period, at least 50%.

Any suggestions on how to develop a realistic estimate of the rebuild / replacement value of a house?

 

[braumeister]

When I was going through that drill in 2008 I found the estimates from AccuCoverage to be really good, and very realistic in terms of what I already knew.

Here's one place you can use it (there is a small cost):
https://remlandinsurance.com/blog/accucoverage_is_your_home_covered/

 

[street]

That is something I need to take a look myself. The one thing is to see what the local contractors are price a new build per square foot. After that is confirmed then pricing for appliances, flooring, cupboards, plumbing, heating etc..

I wouldn't see any other way to find what it would actually cost for replacement. But then again what do I know. Good luck will be watching the thread.

 

[braumeister]

One thing that AccuCoverage deals with is something I had never considered: the demolition/removal of whatever is left of your previous house. That can be a considerable expense.

 

[VanWinkle]

Currently new construction in the Midwest is at 250-275 per square foot for new construction a step above builder grade. I am sure that is location dependent and changes based on HCOL areas. That is for a ranch with full unfinished basement.

 

[Stormy Kromer]

A factor that people don't consider is that construction costs increase dramatically after a natural disaster. For example, the poor folks in Colorado's wildfires aren't going to get to negotiate with a contractor on how much it is going to cost to rebuild.

i can't tell you how to put a figure on your house except to have a contractor tell you. Then add 25%.

Get a policy that includes "Expanded Replacement Value". This will pay you an agreed percentage above and beyond the coverage A amount that your house is insured for if you need more to rebuild it.

There is inflation like you won't believe in the construction business right now. It's nobody's fault, its just a perfect storm of increased material and labor costs combined with increased demand.

 

[Luvtoride]

Get a policy that includes "Expanded Replacement Value". This will pay you an agreed percentage above and beyond the coverage A amount that your house is insured for if you need more to rebuild it.
.

I have had this(or something like it) on my Homeowners policy with Allstate for many years. The incremental cost is small vs the basic coverage A.
I’m sure insurance costs in Florida continue to increase and be high due to Windstorm (and surge if your near the cost) exposure.

 

[MrsHaloFIRE]

Interesting. I always have them opposite issue with USAA well overinflating the value of our homes. They say they use software and have no flexibility on it. But I insisted so much that we have a waiver saying thatcwe are insured at less than their estimate and we acknowledge that. So we are essentially self insuring the difference and Im ok with that. Otherwise our premiuns would be outrageous. On the outside chance we have a catastrophic loss I will pony up the last 100k or so but they will be in the hook for the majority.

 

[FANOFJESUS]

Can you buy another house with the money instead of rebuilding if buying is cheaper than building where you live? Or would you take a cut in the payout?

 

[euro]

Interesting. I always have them opposite issue with USAA well overinflating the value of our homes. They say they use software and have no flexibility on it. But I insisted so much that we have a waiver saying thatcwe are insured at less than their estimate and we acknowledge that. So we are essentially self insuring the difference and Im ok with that. Otherwise our premiuns would be outrageous. On the outside chance we have a catastrophic loss I will pony up the last 100k or so but they will be in the hook for the majority.

I think that is a reasonable approach and I suspect it is going to the norm in the future. Think about how home (and for that matter car) insurance has already changed. Used to be that people would file tons of smaller claims. Now, many of us carry high deductibles and won’t even consider filing smallish claims for (real) fear of the insurer jacking up rates or dropping you altogether.
Home insurance will get to where those who can afford to self-insure will increasingly do so (assuming no mortgage), just like long term care insurance. Especially in natural disaster prone areas (hurricane and tornado, etc).

 

[VanWinkle]

Most companies only pay the replacement cost after the house is actually rebuilt or in the process of being rebuilt. I always felt that if I came away with market value, I would be very happy. They will not adjust the coverage to market value without a change away from an "all risk" policy to a named peril policy. This is how they increase their bottom line and people are willing to pay it out of the fear of a catastrophic loss. I would actually like to just insure for liability on the property and leave the physical losses to my reserves.

 

[Gotadimple]

Most companies only pay the replacement cost after the house is actually rebuilt or in the process of being rebuilt. I always felt that if I came away with market value, I would be very happy. They will not adjust the coverage to market value without a change away from an "all risk" policy to a named peril policy. .

Market value is not replacement cost. No insurer will pay you market value because they cannot replace the 'market value' but they can replace the physical home. In some places market value will be less than the cost to replace a home due to the location: local market conditions, local infrastructure, and enforcement.

This is how they increase their bottom line and people are willing to pay it out of the fear of a catastrophic loss. I would actually like to just insure for liability on the property and leave the physical losses to my reserves.

You can do that now - assuming you have no mortgage! Simply have your agent quote you a liability policy. However, if you have a mortgage, your lender is likely to have a named peril policy issued to cover their interests which comes from a specialty insurer and which is not competitive with what you have now.

 

[VanWinkle]

Market value is not replacement cost. No insurer will pay you market value because they cannot replace the 'market value' but they can replace the physical home. In some places market value will be less than the cost to replace a home due to the location: local market conditions, local infrastructure, and enforcement.




You can do that now - assuming you have no mortgage! Simply have your agent quote you a liability policy. However, if you have a mortgage, your lender is likely to have a named peril policy issued to cover their interests which comes from a specialty insurer and which is not competitive with what you have now.

Market value is likely less than replacement cost in most cases, and they will only pay you that if you do not rebuild the home. Contents replacement coverage works the same way- ACV until you actually replace it. They don't just cut you a payment for your coverage amount.

 

[MichaelB]

Thanks for the responses so far.

I’ll look into AccuCoverage. My policy now covers debris removal. Florida policies have separate coverage for usual things fire and such) and wind (hurricane) and neither cover water surge, so we also have flood.

One problem with inadequate replacement coverage is, it the total amount is less than 80% of the “real replacement amount” the insurer pays less than 80% of assessed claims. If rebuilding cost is $200 per sq ft, the suggested coverage is already below the 80% level. I don’t know how the number proposed by the insurer was developed, and this week I’m going to reach out to the agent with questions. I’m not happy with the agent, they should have been proactive on this.

This is a real dilemma, because if more coverage is needed, the price will jump even more. I wouldn’t consider not insuring. Even if a total catastrophe is a low probability event, major costly damage is more common in this area. Time to read the policy fine details once again.

I have a feeling much of Florida property is underinsured.

 

[zinger1457]

State Farm uses 360Value to determine your home replacement cost during their online quote process. In my case the 360Value replacement cost estimate seemed to be on the high side but it did show that my current coverage was probably way too low.

 

[WhenIsItTime]

This is a real issue to think about. I have limited liability policy. Easily 25% below builders grade replacement value and likely 50% below finishes I'd want to use to match current designer trends.

My buddy was in similar situation and his house recently burnt down. Fortunately, family safe. Now he is facing being under insured for desired replacement and having to go to a down market to get the remaining funds. Ouch. Ouch. Ouch. I don't blame him as I'd be in the exact same place. Do I want to increase insurance? Probably should. Puts the premium in an entirely different light. Few hundred dollars a year to close the gap.