Insurance - Replacement Cost

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RMO87
Posts: 137
Joined: Fri Jan 18, 2008 9:11 am
Location: Kansas City, MO

Insurance - Replacement Cost

Post by RMO87 » Sun Jan 21, 2018 7:37 am

My home insurance dwelling coverage is currently at $270,600 (replacement cost). We are with State Farm (in Missouri) and have had this policy since we moved into the house 10 years ago, when it was first built.

I was just wondering whether the replacement cost may be overstated. We purchased for $230K, and it appraised for $210K a year or two ago. The replacement cost increases with an inflation index each year. State Farm offers a free cost replacement calculation, whereby your agent comes to your house. Do you think that this is a worthwhile service?

Is the current coverage likely in the ballpark, or might there be an opportunity to save a little on the premium?

Thanks in advance!
Ryan

Benton Bair
Posts: 135
Joined: Mon Apr 21, 2014 8:06 am

Re: Insurance - Replacement Cost

Post by Benton Bair » Sun Jan 21, 2018 7:48 am

RMO87 wrote:
Sun Jan 21, 2018 7:37 am
My home insurance dwelling coverage is currently at $270,600 (replacement cost). We are with State Farm (in Missouri) and have had this policy since we moved into the house 10 years ago, when it was first built.

I was just wondering whether the replacement cost may be overstated. We purchased for $230K, and it appraised for $210K a year or two ago. The replacement cost increases with an inflation index each year. State Farm offers a free cost replacement calculation, whereby your agent comes to your house. Do you think that this is a worthwhile service?

Is the current coverage likely in the ballpark, or might there be an opportunity to save a little on the premium?

Thanks in advance!
Ryan
Accept State Farm offer to send an agent to calculate replacement cost.

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plannerman
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Location: NC Mountains

Re: Insurance - Replacement Cost

Post by plannerman » Sun Jan 21, 2018 8:31 am

Just keep in mind, that if a State Farm agent comes out, his or her primary mission will not be the calculate the replacement cost of your house but rather to sell you something you probably don't need.

planneman

furwut
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Re: Insurance - Replacement Cost

Post by furwut » Sun Jan 21, 2018 9:20 am

Typically home insurance policies don’t insure the land on which the house sits as it is assumed to be indestructible. So yeah, you maybe over insured.

On the other hand replacement cost is the cost to rebuild new. For example a new 3 bedroom 2 bath house is going to be worth more (and cost to build) than a buying a similar 40 year old one.

sport
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Location: Cleveland, OH

Re: Insurance - Replacement Cost

Post by sport » Sun Jan 21, 2018 10:32 am

If the house is a total loss, insurance will pay for demolition, removal of the wreckage, and the cost to completely rebuild. This is a different calculation than buying the house in the first place.

ralph124cf
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Re: Insurance - Replacement Cost

Post by ralph124cf » Sun Jan 21, 2018 11:33 am

Home prices can go up or down. Replacement cost only goes up.

Ralph

ResearchMed
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Re: Insurance - Replacement Cost

Post by ResearchMed » Sun Jan 21, 2018 1:51 pm

sport wrote:
Sun Jan 21, 2018 10:32 am
If the house is a total loss, insurance will pay for demolition, removal of the wreckage, and the cost to completely rebuild. This is a different calculation than buying the house in the first place.
This might not be the case with your house, built relatively recently (but it *might* be relevant), but with some older homes, there can be special details, like an antique carved fireplace or fancy moldings outlining all of the walls (which may be real plaster).
If there is custom, expensive marble or granite, that could be very expensive to replace.

"Full replacement value" in such cases could be MUCH more than it might appear from the general size of the home.
In such cases, photos would be essential, so that "replacement" could be accurate.

And even without these special details, building a single house in a specified location could cost far more than the same house if it was in a "development", where crews of electricians, plumbers, etc., are already "on hand", and could rotate among several/many different homes being built at about the same time. And supplies/equipment could be purchased and transported in bulk, etc.

But as mentioned above, make sure that the value of the land itself isn't included in the replacement cost.

RM
This signature is a placebo. You are in the control group.

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dm200
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Re: Insurance - Replacement Cost

Post by dm200 » Sun Jan 21, 2018 1:52 pm

Benton Bair wrote:
Sun Jan 21, 2018 7:48 am
RMO87 wrote:
Sun Jan 21, 2018 7:37 am
My home insurance dwelling coverage is currently at $270,600 (replacement cost). We are with State Farm (in Missouri) and have had this policy since we moved into the house 10 years ago, when it was first built.

I was just wondering whether the replacement cost may be overstated. We purchased for $230K, and it appraised for $210K a year or two ago. The replacement cost increases with an inflation index each year. State Farm offers a free cost replacement calculation, whereby your agent comes to your house. Do you think that this is a worthwhile service?

Is the current coverage likely in the ballpark, or might there be an opportunity to save a little on the premium?

Thanks in advance!
Ryan
Accept State Farm offer to send an agent to calculate replacement cost.
yes..

RMO87
Posts: 137
Joined: Fri Jan 18, 2008 9:11 am
Location: Kansas City, MO

Re: Insurance - Replacement Cost

Post by RMO87 » Mon Jan 22, 2018 9:56 pm

Just heard back from State Farm...the replacement cost does NOT include the value of the land.

redditpeke
Posts: 3
Joined: Mon Jan 22, 2018 11:24 pm

Re: Insurance - Replacement Cost

Post by redditpeke » Mon Jan 22, 2018 11:47 pm

This is a common misunderstanding for homeowners. The insurance replacement cost has nothing to do with market value. They are independent values.

The replacement cost is for debris removal and replacing the home back to the original state. I do not know your area and their state laws, but you can ask around the local insurance brokers to ask what the going replacement cost per sqft rate is.

For my area, it is 200 per sqft at the minimal for a brick house and around 150 per sqft for a frame house.

So for a 1 family brick house that is 2000 sqft, it would be in a ball park of 400,000 replacement cost. Even though the house was purchased for $750,000 (In your case it was less than replacement cost, which always causes concern).

You should ask your Statefarm agent to provide you with a replacement cost estimator report to show you how they came up with this number.

It is very important for you to have an accurate replacement cost coverage because there is a penalty involved with your insurance policy for being underinsured at the time of loss. Every policy is different and every state is different, but almost every policy i've seen requires you to have ALEAST 80% of the replacement cost otherwise they will either pay you the cost to replace minus depreciate or penalize the reimbursement amount by a certain percent that is calculated by percentage you are underinsured by.

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