Homeowner's Insurance

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EMDW
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Joined: Thu Jul 04, 2013 11:18 am

Homeowner's Insurance

Post by EMDW » Tue Nov 25, 2014 8:02 am

If one built a custom home and wants to purchase a homeowner's insurance, should you include the total cost of the materials to build the structure and add the architect/builder's fee/furniture etc to estimate the cost to replace the structure? Thanks in advance.

Admiral
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Re: Homeowner's Insurance

Post by Admiral » Tue Nov 25, 2014 9:00 am

Many (most?) policies simply cover replacement value of the home (structure) and then separate contents coverage for lost articles (your clothing and furniture, for example). In essence, what it would cost you to rebuild the home from scratch if it burns down. It's unlikely they would niggle over architects and contractor fees (they don't expect you will re-build it yourself) and if you have high end furnishings, that's what will be replaced (presuming it's not gold plated fixtures etc).

Having said that, if you have SPECIFIC high value items (art/jewelry/furs/antiques/musical instruments and so on) you would need a rider for those, at added cost. And, oftentimes insurers will demand a recent appraisal in order to insure these items to their true value...they won't just take your word for it.

Best advice is talk to your insurance agent for the specifics of your situation.

Edit: remember, you're not estimating the cost of what it took you to build it: You're getting REPLACEMENT value. My house was built in 1850 and probably cost $1000 to build...that's not what you're insuring. A house build today for $175/square foot could cost twice that in 20 years. Also, as another example, I have plaster walls and crown moldings. I would not expect that a re-build would include an old-world plasterer...they would probably just use drywall.

adamthesmythe
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Re: Homeowner's Insurance

Post by adamthesmythe » Tue Nov 25, 2014 9:10 am

Would the architect charge an additional amount to rebuild with exactly the same plans? If not that charge would not need to be insured.

pshonore
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Re: Homeowner's Insurance

Post by pshonore » Tue Nov 25, 2014 9:28 am

Admiral wrote:Many (most?) policies simply cover replacement value of the home (structure) and then separate contents coverage for lost articles (your clothing and furniture, for example). In essence, what it would cost you to rebuild the home from scratch if it burns down. It's unlikely they would niggle over architects and contractor fees (they don't expect you will re-build it yourself) and if you have high end furnishings, that's what will be replaced (presuming it's not gold plated fixtures etc).

Having said that, if you have SPECIFIC high value items (art/jewelry/furs/antiques/musical instruments and so on) you would need a rider for those, at added cost. And, oftentimes insurers will demand a recent appraisal in order to insure these items to their true value...they won't just take your word for it.

Best advice is talk to your insurance agent for the specifics of your situation.

Edit: remember, you're not estimating the cost of what it took you to build it: You're getting REPLACEMENT value. My house was built in 1850 and probably cost $1000 to build...that's not what you're insuring. A house build today for $175/square foot could cost twice that in 20 years. Also, as another example, I have plaster walls and crown moldings. I would not expect that a re-build would include an old-world plasterer...they would probably just use drywall.
I believe replacement cost usually means with like materials so you could ask for plaster. Suppose you had an old Victorian with lots of custom Oak molding. You wouldn't want to replace that with clamshell Pine. (That's one reason why replacement cost gets out of whack with market value). Best to check your policy to be sure though.

Admiral
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Re: Homeowner's Insurance

Post by Admiral » Tue Nov 25, 2014 9:45 am

pshonore wrote:I believe replacement cost usually means with like materials so you could ask for plaster. Suppose you had an old Victorian with lots of custom Oak molding. You wouldn't want to replace that with clamshell Pine. (That's one reason why replacement cost gets out of whack with market value). Best to check your policy to be sure though.
Yes, point taken, I was trying to point out that I would probably use wood moldings for convenience and speed. Another example would be the joists...would I demand solid oak joists a opposed to modern materials? Cast iron waste pipes? I doubt it. Could I? Perhaps. Would I? Doubtful.

G3VALD1G
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Re: Homeowner's Insurance

Post by G3VALD1G » Tue Nov 25, 2014 9:53 am

replacement cost will pay for whatever you have at the time of loss including the price to replace the plaster walls.
But note that most replacement cost policies only par the actual cash value upfront and hold back the rest until the house is rebuilt and the money was spent.
Also note you have to be insured for the amount "they value" the property will cost to replace. If you are insured for less than 80% of the replacement cost value most policies in a time of loss will only be obligated to pay the actual cash value and you loose the replacement cost.
At a time of claim they value the loss using their tools, data, and so on.
The best answer for the OP I would say is to insure at about 175 a Square foot. But is still depends in the location type and quality of the house.

eucalyptus
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Re: Homeowner's Insurance

Post by eucalyptus » Tue Nov 25, 2014 9:56 am

Won't the insurer require an appraisal? Ours did, and took into account many factors, including the cost of rebuilding to current code.

G3VALD1G
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Re: Homeowner's Insurance

Post by G3VALD1G » Tue Nov 25, 2014 9:58 am

Admiral wrote:Yes, point taken, I was trying to point out that I would probably use wood moldings for convenience and speed. Another example would be the joists...would I demand solid oak joists a opposed to modern materials? Cast iron waste pipes? I doubt it. Could I? Perhaps. Would I? Doubtful.
Why not? You paid a premium. You had the value. After loosing it if they pay to replace with lower quality you and up after all with a loss. Insurance is supposed to indemnify you to the same value as before the loss.
While they will pay for the expensive plaster, joists, woodwork you are not obligated to replace it. You can keep the difference. But most policies do not pay the full replacement cost upfront anyway. They hold back depreciation up until it's really replaced.

pshonore
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Re: Homeowner's Insurance

Post by pshonore » Tue Nov 25, 2014 10:09 am

In the case of joists, modern materials are probably better. (Oak was very seldom used for frames, etc because it is way too heavy and not terribly easy to work with hand tools). Rather a lot of Chestnut, pine, hemlock, etc was used. I'd go with modern lumber and LVLs as necessary

Zecht
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Re: Homeowner's Insurance

Post by Zecht » Tue Nov 25, 2014 10:11 am

If anyone works out of the home, you should discuss with your insurance company what the protocol is for that, since some policies will be more/less depending on how that particular company handles offices. In the case of mine, they have two separate policies so that the business side can be updated periodically as the business needs change. While this doesn't matter for some people, it could for others.

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deanbrew
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Re: Homeowner's Insurance

Post by deanbrew » Tue Nov 25, 2014 11:13 am

In the appraisal world, the cost approach can be prepared based on either "replacement cost" or "reproduction cost" Replacement cost is the cost to replace the improvements at current prices with one of equal utility and desirability with modern materials and in conformity with the current standards. This is by far the most common definition when preparing appraisals, as it is rare to consider or estimate uncommon and outdated materials and techniques. Reproduction cost is the cost to produce the improvements at current prices using the same materials, construction standards, layout and quality of workmanship as found in the subject improvements. In other words, it is the cost to create a replica of the improvements.

I don't know if the insurance industry uses these terms, but the policy should specify how the insurable value is determined. If a certain material or design is important (to a typical buyer or generally recognized as a quality enhancing feature), make sure it's included. In most markets, the use of pex vs. copper pipes or drywall vs. plaster, for example, isn't generally recognized by the market as important. That's not to say with certain historic homes, plaster wouldn't be expected, but your typical 100 year old farmhouse would be replaced using drywall and pex. A 100 year old home will have oak rafters and an attic, whereas a new home will likely have roof trusses, with or without an attic. You might be able to have an attic rebuilt, but I doubt you would get oak rafters, for example. Frankly, there are too many details to consider and nail down (pun intended) in advance.
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