How the heck can a homeowners insurance company force you to pay for over twice the value?

Question

I am just venting but I called other companies and they all say the same thing. In 2005 my policy was for $60,000.00 dwelling and today I recieved the policy and it called for over $109,000.00 coverage? I wrote my Senator and filed a complaint with the state's insurance division. Seems like a ripoff to me. I have NEVER had a claim and don't intend to. To me it is just the idea that they can double my house value in two years time........

Thank you all for your answers and i am not very good at ANYTHING when I am flustered. The comment about not intending to have a claim was made because I have alot of friends if I buy the materials they will fix my problems without ever contacting the insurance company.
I guess it was anger that prompted me to even ask. I recently became disabled and set a budget....now this will affect my mortage payment. Oh well...
It just seems everything is going up but my earnings which went down 75%. THAT is my problem and I will deal with it....thanks again.

Also....I may be wrong but the house is in a small midwestern town and frankly I could replace it...or something similar for alot less then what I am covered for.
I am just amazed at what happens to you when you get disabled.....and I wish it to happen to no one. Have a happy new year.

Answer 1

Call up your insurer & find out how they arrived at the value. They should give you a printout of the replacement cost estimate of your home. When you got your 2006 & 2007 renewals, didn't the company increase the dwelling limit to keep up with the local building costs? They should have. In most areas $109,000 will probably only build you an 800 sq ft rectangular ranch house. This is for about $130 per sq ft. $60,000 will only get you about a 460 sq ft home. Sounds like you were VERY underinsured (unless you have a mobilehome & even those have gotten very expensive). This means all lower end stock cabinets, floors, low end vinyl windows, etc. Call a few builders in the area & see what they charge to build an "average" builder's grade home. See what the charge is per sq ft, multiply that by your home's sq footage (measuring the outside length x width). If your house is built before 1940, the cost is higher because to replace with "like kind & quality" it costs more than a modern home. If you have a mobilehome, call the manufacturer & find out what a new mobilehome costs.
Most homeowners policies also include a clause that requires you to insure to at least 80% of the rebuilding value (NOT market value) for a covered partial loss to be paid at "replacement value" up to the dwelling limit. Many companies require 100% to get their most preferred rate.
If you carry less than the required amount (say 50%), you are stating to the insurer that you will cover 50% of any covered loss that you have & also less your deductible. So, if you have a $20,000 covered loss, you pay $10,000 plus your deductible & the company pays $10,000 less your deductible.
If you disagree with the replacement cost, you can certainly get a builders estimate to rebuild your home with like kind & quality & submit it to the insurer. They would be happy to insure for that amount.
Best thing to do, call your agent today & get an explaination.
Remember MOST homeowners are underinsured - some by hundreds of thousands of dollars & they only find out at the time of a loss & find out they cannot replace their home. Good agents review their homeowners policies periodically to find out if the houses are insured to replacement value.
No one intends to have a loss but most people have insurance just in case. Good maintenance will prevent many losses & minimize others but you never know when a tornado will take out your house or when lightning will strike, or when your house will burn (our office had about 6 total fire losses this past year), you just never know. Wouldn't you rather be insured properly, then find out you were underinsured & be out possibly tens of thousands of dollars in the event of a fire or lightning loss? Who would you blame if you were underinsured????

Answer 2

Actual cash value is what a thing is worth today, as a used thing. You would never pay full price for a CD that got destroyed. You'd go to a second hand place and pay 50% of original cost to buy it. Well that is ACV. So if a fire occurred, your insurance company would take an inventory and then say well you can buy a couch at Goodwill for $50, that is what we will pay for your lost couch. The fact that your couch was a designer make with special fabric, might give you arguing room for a similar couch purchased on e-bay for $400, but you will not get it replaced. Replacement cost is you go find your couch, even if it means you have to go the manufacurer and have them make you a couch just like yours, and the insurance company will give you the money to buy it replacement. This would even mean buying those CDs you owned, even if they are not longer in print. If it can be found, with the limitations of the policy, they will pay the replacement cost. (Check the limitations. Sometimes there is fine print which says we will pay no more than $1,000 for any one item or something like that. So if you have collectibles which really can not be replaced, you may be limited to that amount for such an item. Obviously the Replacement policy pays more than ACV in case of loss. Keep in mind the companies place language in their policies to make it easier for them to back out of payment under certain circumstances. Not all losses are covered. In the Katrina disaster it became a question was the loss due to storm damage or water damage. Storm damage gives coverage, water damage does not.

Answer 3

My house is paid for. If it were to burn down I could and would buy a new one cheaper. Why would I want to wait months for it to be rebuilt? It would be much easier to just buy another house. You can be sure though that the insurance company is not gonna just cut you a check for the top insured value. They are going to nickel and dime the rebuild and come out for much less.

Answer 4

$60,000 is incredibly low for a homeowners policy. Odds are - they did an underwriting audit of your file an realized you are under-insured on your property. So they are willing to insure you if you take out the proper amount of coverage.

The amount of coverage is the cost to rebuild your home. Not what you think you can sell it for.

Answer 5

When your house burns down you won't mind getting that $109,000 in coverage will you???

They are probably insuring your house at the cost to REBUILD it. Nothing to do with market value.

Answer 6

I doubt you could rebuild a house anywhere in todays market for 60,000. therefore your insurance company has increase the coverage to meet replacement cost value. its not a rip off, and if your house ever was a total loss, you would ***** if you only had $60,000 coverage for a home that would cost $109,000 to rebuild. also, if you have a mortgage, it may be the mtg company requiring you to carry more coverage to cover their interest in the home.

Answer 7

OK, your agent should be explaining this to you. No doubt, you are talking about MARKET VALUE, what your house can be sold for. The insurance company can't buy your kitchen, if you have a kitchen fire - they have to FIX it. So, they are talking about a cost to rebuild. Two different valuations.

Generally, cost to rebuild these days is about $200 per square foot. So, if you REALLY think the cost to rebuild your house is $60,000, that means your house is one story, 300 square feet - or 10 x 30. I seriously doubt that. Trailer homes are bigger than that. So clearly, you're talking about two different valuations.

Now, insurance company secrets - you CAN buy a policy for "flat" coverage - but it costs about 10X as much as a replacement policy. Also, as most claims are under $100,000, any houses insured for under $100,000 have a MUCH higher overall rate than a house insured for over $100,000.

So the bottom line is, it's cheaper for you to insure their way - replacement cost, and valuation over $100,000. If you insist on doing it your way, you can find a local agent. But it's going to cost you a lot more, for a lot less coverage. I actually charge people to quote out a flat policy, and will refund it if they actually buy the policy from me. But they never do, because it always costs more money.

Bottom line, I've learned - when people are complaining that the insurance company wants them to insure their house for too much, what they're REALLY saying, is they want lower premiums. After all, if I could insure your house for $100, with $1,000,000 of coverage, would you complain? Of course not! You just are under the mistaken impression that a higher limit means higher cost to you. And it doesn't work that way with homeowners insurance.

Answer 8

it's called replacement value. you could never rebuild your house for $60000

Answer 9

The cost of materials and construction has gone way up in the last year or so--- since people can't afford to buy new homes any more, they're renovating and extending the homes they already have. Adding additions and stuff like that. The demand for construction pushes the price up. Your policy value is based on the most recent tax assessment, too, so your home may have been under-assessed depending on how often the assessors come around and how your local real estate market has been doing. If you want to take action, the best thing you can do is ask for a new assessment but realistically you're not going to get much of a change in your situation. The fact is, the bank that holds your mortgage requires you to have enough insurance to pay for rebuilding the house in case there is a fire or other damage, and that's just what it costs today to rebuild your house.

Answer 10

You aren't being ripped off. The problem is that home construction costs have gone up quite a bit it recent years in most places due to the crazy building of new homes. In recent months, however, the pace of construction has dropped so much that costs are coming down in most places so maybe you'll get a break in the future.

Answer 11

Saying you "don't intend to" have a claim is ridiculous. I'm sure nobody else who suffered damages "intended to" either.

As far as the insured value issue, you don't provide enough details. What reason did the insurer provide? What is your loan balance (if any)? What is the value of "comps" in your area? Maybe you were just underinsured.