chisueAugust 3, 2010

Our home insurance bill just arrived. I think they've over-valued the replacement cost for our house. I'm also reminded that I really don't know what protection I'm buying here.

One nearby home is my only comparison. It's new construction and sold in February. It is twice as large as our house but the lot is only slightly larger than ours. It sold for "X" -- including of course its foundation and lot.

Could I assume that our house should be insured for about half of "X"? (Our 10-year-old house and our lot are assessed nearly equally.)

It's unlikely our house would be totally destroyed by fire or whatever. How is *partial* damage assessed by the insurance company? Surely it would cost more to rebuild the kitchen than a bedroom -- or would settlement somehow relate back to the valuation on which we'd insured the entire house?

The company must realize these premiums are high -- or that times are hard. They are promoting a plan to lower the premiums if the homeowner assumes a one or two percent risk. It seems to me I'd be ahead to have 100% coverage, but on a lower amount.

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My insurance company did the same thing this year but in looking at what it would cost to rebuild my house using the same quality construction, if I could find a company that does quality work, the estimate is about right. House is a 50s brick ranch rambler that although I could sell it for about $100K now to rebuild it would take 3 to 4 times that much.

Even though your house may not be totally destroyed in order to rebuild to current code the whole thing may need to be rebuilt including the foundation.

One thing that many are not aware of is that most policies do not pay for runoff from heavy rains entering your house is not covered unless you have flood insurance.

    Bookmark   August 3, 2010 at 9:14PM
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Take value out of the equation. Your homeowner's policy is designed to cover the actual replacement of your home. If there is a total you want to be sure that the home can be rebuilt with the amount of coverage you have. The easiest way for the average homeowner to understand/know what is enough is to pull a recent appraisal and check to see if the appraiser did the cost estimator. That number and the dwelling coverage on your policy are generally very close. If you don't have an appraisal, ask a contractor in your area the average cost per square foot to build your home. You do need to take into consideration the type of construction. If you don't know your square footage, check your tax assessors office - see what they use, multiply square foot by local cost of construction per square foot. Another thing to consider in your coverage is building code coverage. If you don't have it and you suffer a loss that can be allot of out of pocket expense. In our area the average deductible is $1,000. As a homeowner you shouldn't be putting claims in for anything less, it's generally not worth losing a claim free discount. If there's anything about your policy that you don't understand, you should be making an appointment with your agent to go over it. Too many people do not take advantage of this service.

    Bookmark   August 4, 2010 at 10:08AM
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Thank you both for your replies.

We do have 'rebuild to code' (Ordinance) coverage. We have Back-Up coverage (should a sump fail or sewer back up).

I know I am looking at what it would cost to replace the structure and our furnishings, not market value. That's why I cited the sale of the neighboring house that IS new construction -- deducting their lot from the calculations. (I see a flaw in dividing by two: Their house is twice the size of ours.)

I know the square footage at which we are appraised, and I know there's more cost involved than that number covers: full height attic, terraces, garage, etc.

If I liked our agent, I would start by asking him. LOL He bought the business after our original agent died. He's lazy and not very bright. (Or bright enough to dodge questions.) That's why I'm asking here.

I will also ask our contractor what he estimates he could rebuild the house for today. In the past his estimate was lower than the insurance company's.

Can anyone answer the question about how *partial damage* is figured and awarded? I don't want to lower the total coverage amount if it will limit coverage for the more likely event of partial damage.

Our 2001 build is brick and genuine stucco on a poured concrete foundation on 1.3 acres. We are one mile from a fire station. There is one six-year-old brick home upwind of ours that is near enough for fire to spread to us. A neighbor who has lived here for 50 years has never seen the creek to our east rise above its banks, nor seen the street remain flooded for more than an hour.

    Bookmark   August 4, 2010 at 11:07AM
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You have to read your policy to be sure...

but it is not unusual for insurers to prorate all claims for underinsured properties.

By that I mean the following. Suppose your house is valued at a replacement cost of $300,000 and you have insured it for $200,000. Now you have a minor fire, and the damage costs $10,000 to repair.

I would not be surprised if the insurance company were to say: Your repair costs $10,000, and you have a $1,000 deductible. That leaves $9,000. You're insured for 2/3 of your value. 2/3 of $9,000 is $6,000. So we'll pay $6,000 and you can pick up the remaining $4,000.

    Bookmark   August 4, 2010 at 11:51AM
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I see I need to check on the rebuild to code part.

The reason I mentioned flood is not because of any creek overflow but rain runoff. I have friends all over the country that have mentioned the monsoon like rains that over the last several years have become more common. Also parts of the country had major snow issues last year. Most homeowners insurance does not cover damage caused by melting of snow or runoff from your yard or your neighbors. It is good that so far you have not had the problem but I tossed it in as a thing to think about. Others reading this may want to check their coverage.

Back up coverage will not cover flooding caused by weather.

    Bookmark   August 4, 2010 at 1:16PM
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Every state is different but most policies follow the same principles. In order to have a contract most require that you insure it to actual replacement, if you don't then you can have problems and at claim time, you don't want to find that you have inadequate coverage. If you have an agent that your not satisfied with, simply call another agent until you find one you like and request that they be your agent. You may have to make that request to their corporate offices otherwise it can look as though agents are trying to steal clients. Just because an agent retires, dies etc. doesn't mean you have to stay with the one that buys his book of business. It's not always a good fit.
Every company that offers water sewer back up coverage has different coverage amounts and requirements. Some offer it as long as there is a sump pump, some aren't concerned about that. Some offer full replacement, others limit it to a dollar amount. All the more reason to go sit with a licensed professional that you are comfortable with. Your home is your second greatest assest, it is not the place to scrimp on coverage/cost.
I'm not sure what you mean by partial damage, just remember an insurance company like you and I doesn't want to pay more than they have to but they do want to make you whole again.

    Bookmark   August 4, 2010 at 1:50PM
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I appreciate the time and concern, folks!

Maifleur -- We've had some wowser rains in 10 years. My main concern was that our sump would quit or the electricity would go out, with the same result. We are supposedly covered for those eventualities. (When I dump the jerk, I'll make sure about this with the new agent. LOL)

Two.25acres -- Thanks for the encouragement to find a new agent. I plan to do so. Actually there are many SF agents within a few miles if we want to stay with the company.

It isn't a matter of scrimping. I just don't want to buy blindly. I've had some disappointing surprises with health and life insurance -- the eventual benefits were not as represented due to some clever loop-holes.

    Bookmark   August 4, 2010 at 3:12PM
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Yeah, shop around. My Mom gets upset with me because I tend to over-insure. Through her experiences (and let's face it, i'm 26, and she's 50, she has more experience!), insurance companies always try to nickel and dime you and pay as little as humanly or contractually possible, so she says, why bother paying any more than you have to for insurance. It's all a ponzi scheme, she says.

Well, I don't totally agree with her, but there is some truth in that. They want to sell you what seem like awesome policies, then when the time comes to make a claim, things are different. They reduced the value of my Mom's minivan when I totalled it back in the day by 300 dollars for a small pre-existing scratch on the steering wheel ::rolls eyes::

    Bookmark   August 13, 2010 at 11:15AM
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two acres is correct. replacement cost is strictly the cost to rebuild using materials that make up your current home. if not the cost to bring up to current code. Market value has no bearing, thats why you never use comps. Agents use rebuilding estimates such as Mitchell and other books. Most of this is automated now based on sq footage, materials, enhancements, etc.

you must insure at least 80% of the rebuild value in order to get the full policy, however some companies are not doing that anymore given you are paying less premium for the same amount of coverage.

Your personal property coverage is a separate amount ususally a % of the total policy value. you should always check that because it is an estimate. for $300k policy you will probably get $160-180k for property replacement.

flood is never covered and the easiest way to know is if the water comes from the ground (excluding sump losses) it is a flood.

there is no such thing as "partial coverage" the company will simply pay for the amount of damage sustained up to the policy limits.

for example you have $300k total coverage; a fire burns down the kitchen but not the house. the kitchen to repair is $60k you will get $60k no more or less. most losses are small. total losses (house wiped out) are rarer.

disclosure: i am an insurance adjuster

hope this helps

    Bookmark   September 14, 2010 at 5:14PM
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Interesting that this is coming up now as I re-evaluate my insurance.

Anyone want to tell me what insurance company they use and why they like them? I have 2 new quotes, but don't know how to evaluate the actual companies.

    Bookmark   September 15, 2010 at 10:07AM
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I have my insurance through AAA but I will tell you ones that I would not use. Number one on my do not ever is American Family. Then State Farm. Both were slow when we had a tornado on the ground for a mile. when driving through the area these were the two companies that people put nasty signs up.

American Family was already on my do not list because I was called for jury duty on a car accident. The prospective jurors were asked first if they had accidents then if they had problems with the insurance company. Those with problems filled the entire front row of the chamber only one had a company other than American Family and that one was a State Farm client.

State Farm is one of two companies that do flood insurance in this area so if you think you may have flood problems check on those companies that issue that type of policy in your area as combined policies often reduce your rate.

    Bookmark   September 16, 2010 at 9:12PM
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HO insurance companies usually very by state. I can recommend a company but it may not write in your state.
maifleur - depending on your area, your jury pool may be skewed by one insurance company. I wouldn't put much merit in that tiny example.
FTR my HO is with Safeco. I've never had a claim so I can't vouch for their claim service.

    Bookmark   September 17, 2010 at 8:40PM
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However the jury pool mimicked the signs of people waiting for the insurance companies contact after the various tornado's etc we have in this area. Until the jury service I had never paid attention. If the tarps are still on the roof and no repairs have been done 6 months later either you have a problem with the company or the home owner.

In this area of the midwest we have annual storms with resulting damage so there is a tendency to talk about what problem's people have had getting claims handled and what companies are good and which to be cautious with. Most of the claims are natural hazards so if you have never had a claim you are quite lucky. Since AAA pools their insurance I do not know what company actually I am with.

    Bookmark   September 17, 2010 at 10:29PM
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I shopped last year for a new insurance company, and spent the time (a couple of weeks) to get many quotes from many companies. This was useful as I finally got a good understanding of what the coverage was and how it would work--I asked the agents to explain it all to me as we went over their quotes. I particularly found useful to learn how the different companies figured replacement cost/value. Price per square foot really varied, and some seemed quite low in comparison to others (and that resulted in a lower premium, imagine that !) Especially needed help understanding the guaranteed replacement, riders that kicked in, max out of pocket stuff.

I went with Cincinnati insurance because of a good package with my car, but was impressed with the agent for Amica as well. I've not filed a claim for this house so have no actual experience with that. It's been over 20 years since I had to deal with a claim, and that was a bad experience, but I don't remember anymore the company.

    Bookmark   September 19, 2010 at 9:33PM
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We had that problem last year. (It actually took a couple of years for me to notice it). Apparently our insurance kept going up with the market value. When last years bill arrive it had REALLY jumped - so noticeably that I called the agent. She had the insurance company come out and re-evaluate our house back to full replacement value which in our area is $150 sq ft. That dropped the bill down $150.
It wasn't a problem.
Then this year we had the bonus of another dip with DH being home all of the time being retired we got another $25-$50 back. I don't care what it was - but I'll take it!

    Bookmark   September 20, 2010 at 3:50PM
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Thanks ... I did find some sites that have reviews for insurance companies. Have asked my current agent to see what's the best she can come up with considering the quotes I've gotten are over $200 less a year than I am currently paying, comparing apples to apples.

    Bookmark   September 21, 2010 at 2:14PM
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Just an fyi, a quote is only as good as the information given. I can quote till the cows come home but unless I am using the same information than the guy down the street, it won't be accurate. Another thing, most of your preferred companies are using credit to determine rates. If your not allowing the companies your quoting with to pull your credit and obtain their insurance scores, the final numbers can change. They need to run loss reports for claim history and driving records for tickets etc.

    Bookmark   September 22, 2010 at 10:34AM
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Used the same info that I had for my current policy ... and always have them pull my credit since I then get a preferred rate.

I actually gave my current policy information to the company I ended up going with to make sure the new coverage compared, we tweaked one item, and my new coverage is better and cheaper than the old coverage.

    Bookmark   September 28, 2010 at 1:07PM
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