insurance question?

Question

Is it necessary to get full replacement insurance for a home or is this the more expensive level needed for home ownership. example, we are being insured for what it would cost to replace the home 254,000 not its appraised value 90,000 at about 600 a year. I've been told we're paying too much by others.

Answer 1

Appraised value should not be used to determine Replacement Value, although they can be related in a very rudimentary sense (a house with a high replacement value should have a high appraisal value, unless the house was built on a recently used landfill). Ask the person who arranged the insurance how they came to the value they did. All Brokers and Agents should have access to Replacement Cost Estimating software or worksheets. Ask them for a copy of it and make sure they description (house square footage, basement area size, quality of materials used, etc.) and features (no. of bathrooms/kitchens/fireplaces, size and type of garage, etc) that they used to calculate the replacement cost are correct. You'd be surprised how adding a few hundred square feet to your house incorrectly will affect the replacement cost estimation. If the calculation is correct, then you will have to accept the figure, as no broker who has even a shred of ethics or morals will accept a client who will not insure their house for 100% of the Replacement Cost, I know I wouldn't (the Errors & Omissions exposure is huge).

Answer 2

Replacement cost is what it would cost to rebuild the house. So, to answer your question, yes, you would want replacement value on the house.

There is about a 164,000 difference here between your appraised value and what you're insuring it for though and that seems a bit too much.

Does the appraised value also include the land? If so, you don't really need to insure the land as it's value is not going to depreciate. (unless you live in Florida and happened to buy a sink hole or something). The land can't burn up in a fire. Is this appraisal a tax appraisal or an actual appraisal of what the land and house are worth if you were to sell it?

I would check with a contractor and see if you can get a better idea of what it would cost to rebuild your house. 254,000 seems high to me when your appraised value is 90,000, unless that 90,000 is the tax appraisal.

Answer 3

You CAN buy a "cafeteria" style policy, where you pick and choose EXACTLY what coverages you want, but it's vastly more expensive than a traditional homeowners policy, which DOES require you to insure for replacement value.

If you have a $50,000 kitchen fire, The insurance company doesn't have the option of saying, ok, your house is 20% damaged, we'll pay you 20% of the value - they have to pay to FIX it. So that's why your rates are based on how much it costs to FIX your house.

Whoever the "others" are that are telling you you're paying too much . . .there are two options. If they think your PREMIUM is too high, ask who they insure their house with, and get quotes from THEM. If they think your INSURANCE limit is too high, have your agent come out and do a cost estimator (free!) to see where it is. And if it's accurate, then just ignore them - because they don't know what they're talking about.

Answer 4

You absolutely need to have your house insured for its full replacement cost. It is very possible that the tax value is significantly less than the replacement cost. You can always ask your agent to run a replacement cost estimator on your home. Depending on where you live $600 is probably about right for your homeowners coverage.

You can always increase your deductible to try to lower the cost. Some companies rate based on your credit so that can help you. Having an alarm system will help lower your premium as well. You can package your home with your auto coverage and receive a multiple policy discount.

Answer 5

I would definately get replacement value insurance. The 90K appraised value is used for taxes and the town may not have reappraised in years. My town has not reappraised in atleast 15 years. My insurance company sent out an appraiser to make sure we had enough coverage to replace our house (and to verify I put the alarm in for the 10% discount)

Answer 6

don't forget household and personal items. i would go with 10-15% of the replacement value of the home for those.

for example appraised value 200,000
Replacement Value 150,000
Household items 150,000x10% = 15,000

Total Insurance Policy 165,000

Answer 7

appraised value for real estate taxes often has nothing to do with real market value of house. if you have a mortgage, bank usually requires amount at least equal to mortgage amount. replacement coverage not that much more expensive than a fixed amount that is a reasonable amount. why would you want to be underinsured for something like this???

Answer 8

Yes, Do not pick Nationwide. They Suck and wont pay for your losses.