Alright… this is where conversations can get a bit dicey in our world…
We’ve touched on this a couple of times already through videos or blogs, but this is a very important piece of the job. Our #1 priority is to make sure you are completely taken care of in the event of a loss.
Let me give you something to think about for a second. Picture a small seasonal camp on a lake and large Victorian house in town. Which one do you think cost more to build and required more work by a contractor? Definitely the Victorian! The size alone and the unique features all cost more to build. Yet they recently both sold for $350,000.
Here lies the problem with insuring your home based on it's market value. In the camps perspective they have too much coverage as it would likely cost less to rebuild the structure then $350,000 which is driven up due to the lake. With the Victorian they might not have enough due to the size and features!
Here is a recent example:
Ashley bought a house the other day for $200,000. She called in and was looking to get insurance for her new house. We took down all the necessary information for quoting and came back later that day with a quote. Ashley was shocked that we would insure her home for $300,000. There are a few things involved here in this transaction. Let’s go over them!
- Your mortgage lender is requiring you to insure the home for the loan amount which can be above the actual VALUE of the home
- The Market Value of the home can be significantly different then the Replacement Cost, which is what we use to determine the value of the home when insuring it
- We use a replacement cost estimator to help us estimate the replacement cost of the house which includes the following pieces of information:
- Square footage, type of materials used to build the home, siding, roof material, decks or porches
- Number of bedrooms, bathrooms, type of flooring, type of interior walls, type of cabinetry, specialty items such as jacuzzi tubs, crown molding or atrium windows
- Attached garages and basically any other feature of the home.
What exactly is Market Value and why shouldn't I insure my home to this value? Market Value is essentially an opinion on what the property would sell for in a competitive market based on the features and benefits of the property, overall real estate market, supply and demand and what other similar properties have sold for in the same condition. Remember, the key word in this is WHAT THE PROPERTY WOULD SELL FOR. Or stated another way what a willing buyer would pay for the home.
What is Replacement Cost then? Replacement cost is the value of what it would cost should there be a catastrophic loss to your home and we needed to rebuild from the ground up with new materials. As I mentioned in the bulleted section, we use the cost estimator to help us determine what the replacement cost of the home will be. In addition to this, there is usually a co-insurance clause which for most insurance companies and even agencies, they won’t insure the home to less than 80% of the replacement cost. If the replacement cost of the home is $300,000 than we would not be able to insure it to anything less than $240,000.
It is always in your best interest to insure the home to its full replacement cost. We want you to know that your home is taken care of should there be a significant loss. Let us help you make this process as simple as possible… click the link below for more info and Travis will be happy to help you.