Meeting next week with our insurance agent: question about replacement cost

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daheld
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Meeting next week with our insurance agent: question about replacement cost

Post by daheld » Thu Feb 13, 2020 3:23 pm

A couple weeks ago, I got a call from our State Farm office. They were looking to schedule a meeting with us as a part of their "audit" they do every few years to review our homeowners coverages. I know what this meeting will consist of: them trying to convince us we need higher replacement cost coverage for our homeowners policy. I went ahead and took the meeting, but I'm looking for some guidance. My main question is if our current replacement cost coverage is for $X, and they suggest $X + $100,000, can I just say "nah, we're fine with the coverage we have now"? Can State Farm just raise the coverage amount without my consent?

We've had State Farm for about five years and have had good luck. We had a roof claim on a prior home and they were helpful, diligent, and paid quickly. We've been in our current home for about two years. When we first purchased, I was able to get them to lower the replacement cost coverage amount because it was laughably, insanely high. Yes, I understand replacement cost does not equal the home value. Their recommendation was something crazy like twice the going rate of new construction. I understand all the costs associated with a total loss plus rebuild, but I did the math at the time and their recommendation was far too high.

Thanks for any help.

lessismore22
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Re: Meeting next week with our insurance agent: question about replacement cost

Post by lessismore22 » Thu Feb 13, 2020 3:40 pm

daheld wrote:
Thu Feb 13, 2020 3:23 pm
My main question is if our current replacement cost coverage is for $X, and they suggest $X + $100,000, can I just say "nah, we're fine with the coverage we have now"? Yes
Can State Farm just raise the coverage amount without my consent?
No. But most insurance policies will have an inflation factor built in to automatically adjust your replacement cost each year to keep up with increased building costs. Makes sense to review this periodically with your agent.

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daheld
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Re: Meeting next week with our insurance agent: question about replacement cost

Post by daheld » Thu Feb 13, 2020 3:42 pm

lessismore22 wrote:
Thu Feb 13, 2020 3:40 pm
daheld wrote:
Thu Feb 13, 2020 3:23 pm
My main question is if our current replacement cost coverage is for $X, and they suggest $X + $100,000, can I just say "nah, we're fine with the coverage we have now"? Yes
Can State Farm just raise the coverage amount without my consent?
No. But most insurance policies will have an inflation factor built in to automatically adjust your replacement cost each year to keep up with increased building costs. Makes sense to review this periodically with your agent.
Right. I think that's what they were getting at. The policy is two years old so I understand the point. I will listen to what they have to say and decide.

Thanks for your help.

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ResearchMed
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Re: Meeting next week with our insurance agent: question about replacement cost

Post by ResearchMed » Thu Feb 13, 2020 4:16 pm

You should check carefully here.

Our understanding, of our policy at least, is that IF we were to insure home and contents for less than full value, then IF there were to be a loss, we'd only get back the same proportion (e.g., 80%) of *each* loss, rather than have a cap at 80% of the total value.

But check your own choices.

We have "full replacement value", not depreciated, so IF we need to replace something, we'd get the money for a "new widget", not the money for the depreciated value of, say, an old sofa or fridge or whatever. Likewise, we'd get the full replacement cost of a hew home. There is also an automatic X% "extra" if costs exceed the stated value. (We don't quite understand why that total value isn't the "full replacement value", but as long as we understand the coverage, we care less about how it's labelled.

We've had a few claims (e.g., a tree came crashing down on the back of the house), but never needed to replace furnishings.
We have the same on our valuable items rider, and on that, we have had a few claims over the years.

RM
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daheld
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Re: Meeting next week with our insurance agent: question about replacement cost

Post by daheld » Thu Feb 13, 2020 4:38 pm

ResearchMed wrote:
Thu Feb 13, 2020 4:16 pm
You should check carefully here.

Our understanding, of our policy at least, is that IF we were to insure home and contents for less than full value, then IF there were to be a loss, we'd only get back the same proportion (e.g., 80%) of *each* loss, rather than have a cap at 80% of the total value.

But check your own choices.

We have "full replacement value", not depreciated, so IF we need to replace something, we'd get the money for a "new widget", not the money for the depreciated value of, say, an old sofa or fridge or whatever. Likewise, we'd get the full replacement cost of a hew home. There is also an automatic X% "extra" if costs exceed the stated value. (We don't quite understand why that total value isn't the "full replacement value", but as long as we understand the coverage, we care less about how it's labelled.

We've had a few claims (e.g., a tree came crashing down on the back of the house), but never needed to replace furnishings.
We have the same on our valuable items rider, and on that, we have had a few claims over the years.

RM
We have full replacement value also. Here's basically what I'm saying, with real numbers: we bought our home for $294k. I feel confident we could rebuild a similar home (including preparing the lot) in the event of a TOTAL LOSS for $400k or less. We have full replacement value coverage of $402k. When we bought the home, the recommendation from the agent was somewhere around $500k of replacement coverage. That is, frankly, an insane amount of money to build a home similar to ours in our area. I had them reduce the replacement value coverage when we purchased the home.

Now they want to review our policy and adjust for inflation, which is fine. But I have an idea they'll try to get us to pay for coverage at an amount higher than what they originally suggested a couple years ago.

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ResearchMed
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Re: Meeting next week with our insurance agent: question about replacement cost

Post by ResearchMed » Thu Feb 13, 2020 4:51 pm

daheld wrote:
Thu Feb 13, 2020 4:38 pm
ResearchMed wrote:
Thu Feb 13, 2020 4:16 pm
You should check carefully here.

Our understanding, of our policy at least, is that IF we were to insure home and contents for less than full value, then IF there were to be a loss, we'd only get back the same proportion (e.g., 80%) of *each* loss, rather than have a cap at 80% of the total value.

But check your own choices.

We have "full replacement value", not depreciated, so IF we need to replace something, we'd get the money for a "new widget", not the money for the depreciated value of, say, an old sofa or fridge or whatever. Likewise, we'd get the full replacement cost of a hew home. There is also an automatic X% "extra" if costs exceed the stated value. (We don't quite understand why that total value isn't the "full replacement value", but as long as we understand the coverage, we care less about how it's labelled.

We've had a few claims (e.g., a tree came crashing down on the back of the house), but never needed to replace furnishings.
We have the same on our valuable items rider, and on that, we have had a few claims over the years.

RM
We have full replacement value also. Here's basically what I'm saying, with real numbers: we bought our home for $294k. I feel confident we could rebuild a similar home (including preparing the lot) in the event of a TOTAL LOSS for $400k or less. We have full replacement value coverage of $402k. When we bought the home, the recommendation from the agent was somewhere around $500k of replacement coverage. That is, frankly, an insane amount of money to build a home similar to ours in our area. I had them reduce the replacement value coverage when we purchased the home.

Now they want to review our policy and adjust for inflation, which is fine. But I have an idea they'll try to get us to pay for coverage at an amount higher than what they originally suggested a couple years ago.
Yeah, this is tricky.
Is your home relatively new? That is, would a current builder be able to build it? Maybe you could get a quote for something similar? Are there any "similars" for sale new, now?
Ours is antique, so we have coverage for "same type" of construction, which is not what a current builder would do. (Ours would cost far more, due to quality of materials - real plaster walls, lots of "details", etc. - and workmanship.)
So we really have no way to know what the "real cost would be", unfortunately.
Tricky...

RM
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dm200
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Re: Meeting next week with our insurance agent: question about replacement cost

Post by dm200 » Thu Feb 13, 2020 6:15 pm

daheld wrote:
Thu Feb 13, 2020 3:23 pm
A couple weeks ago, I got a call from our State Farm office. They were looking to schedule a meeting with us as a part of their "audit" they do every few years to review our homeowners coverages. I know what this meeting will consist of: them trying to convince us we need higher replacement cost coverage for our homeowners policy. I went ahead and took the meeting, but I'm looking for some guidance. My main question is if our current replacement cost coverage is for $X, and they suggest $X + $100,000, can I just say "nah, we're fine with the coverage we have now"? Can State Farm just raise the coverage amount without my consent?
We've had State Farm for about five years and have had good luck. We had a roof claim on a prior home and they were helpful, diligent, and paid quickly. We've been in our current home for about two years. When we first purchased, I was able to get them to lower the replacement cost coverage amount because it was laughably, insanely high. Yes, I understand replacement cost does not equal the home value. Their recommendation was something crazy like twice the going rate of new construction. I understand all the costs associated with a total loss plus rebuild, but I did the math at the time and their recommendation was far too high.
Thanks for any help.
This may not be true at all.

We have carried State Farm for Homeowners for 41 years (same house) and for auto several years before that.

Our State Farm Homeowners coverage includes an automatic annual inflation adjustment upward. In our case, as well, about 2/3 of the value of our home is the land value (HCOL jurisdiction). Ever few years, I look at and evaluate our Homeowners coverage. We have our deductible for most of things covered at 1% of the insured "value".

It was 2 or 3 years ago that I thought we were over insured, in that the replacement value of our actual house was less than our insured value. On the other hand, I wanted to make 100% sure we had adequate coverage.

So, I sat down with our State Farm agent and used an online State Farm tool/calculator to determine "Replacement Value". There were three choice/levels of "Quality" for replacement value. I chose the middle one. This calculator/tool took into account this middle quality, square footage, house construction and layout details, and so on. It did indeed turn out that we were somewhat over insured. I then changed our coverage to match the calculated "replacement value". It sure seems possible that this "replacement value" can easily get out of whack in either direction in just a few years. By reducing the insured replacement value, we had a win-win. Our annual Homeowners Premium went down and our deductible went down as well, since our deductible if 1% of the insured replacement value. Our State Farm agent was very pleased to lower ur coverage limit - given these details.

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daheld
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Re: Meeting next week with our insurance agent: question about replacement cost

Post by daheld » Fri Feb 14, 2020 8:07 am

dm200 wrote:
Thu Feb 13, 2020 6:15 pm
daheld wrote:
Thu Feb 13, 2020 3:23 pm
A couple weeks ago, I got a call from our State Farm office. They were looking to schedule a meeting with us as a part of their "audit" they do every few years to review our homeowners coverages. I know what this meeting will consist of: them trying to convince us we need higher replacement cost coverage for our homeowners policy. I went ahead and took the meeting, but I'm looking for some guidance. My main question is if our current replacement cost coverage is for $X, and they suggest $X + $100,000, can I just say "nah, we're fine with the coverage we have now"? Can State Farm just raise the coverage amount without my consent?
We've had State Farm for about five years and have had good luck. We had a roof claim on a prior home and they were helpful, diligent, and paid quickly. We've been in our current home for about two years. When we first purchased, I was able to get them to lower the replacement cost coverage amount because it was laughably, insanely high. Yes, I understand replacement cost does not equal the home value. Their recommendation was something crazy like twice the going rate of new construction. I understand all the costs associated with a total loss plus rebuild, but I did the math at the time and their recommendation was far too high.
Thanks for any help.
This may not be true at all.

We have carried State Farm for Homeowners for 41 years (same house) and for auto several years before that.

Our State Farm Homeowners coverage includes an automatic annual inflation adjustment upward. In our case, as well, about 2/3 of the value of our home is the land value (HCOL jurisdiction). Ever few years, I look at and evaluate our Homeowners coverage. We have our deductible for most of things covered at 1% of the insured "value".

It was 2 or 3 years ago that I thought we were over insured, in that the replacement value of our actual house was less than our insured value. On the other hand, I wanted to make 100% sure we had adequate coverage.

So, I sat down with our State Farm agent and used an online State Farm tool/calculator to determine "Replacement Value". There were three choice/levels of "Quality" for replacement value. I chose the middle one. This calculator/tool took into account this middle quality, square footage, house construction and layout details, and so on. It did indeed turn out that we were somewhat over insured. I then changed our coverage to match the calculated "replacement value". It sure seems possible that this "replacement value" can easily get out of whack in either direction in just a few years. By reducing the insured replacement value, we had a win-win. Our annual Homeowners Premium went down and our deductible went down as well, since our deductible if 1% of the insured replacement value. Our State Farm agent was very pleased to lower ur coverage limit - given these details.
Our deductible is also 1% of the insured replacement value. I will be shocked if they're willing to have a conversation about actually lowering our coverage amount.

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dm200
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Re: Meeting next week with our insurance agent: question about replacement cost

Post by dm200 » Fri Feb 14, 2020 8:48 am

Our deductible is also 1% of the insured replacement value. I will be shocked if they're willing to have a conversation about actually lowering our coverage amount.
I don't know in your case, but, as I posted, we have reduced the replacement value several times over the years -- when the automatic inflation adjustment increased it too much.

Before you have this conversation, I suggest you have all of the relevant details about your house, such as square footage, when it was built, number of bedrooms and bathrooms, etc. Also, think about the "quality level" needed for replacement. As I posted, I used the middle quality level.

This is a bit of a balancing act - you want to have the replacement value high enough to actually replace the house and cover 100% of partial damage. On the other hand, you don't want the replacement value too high because then you would be paying an insurance premium for a value that you could never collect on.

As I also said, I recommend reviewing this "replacement value" of your insurance every few years - so that it is neither too high or too low.

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daheld
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Re: Meeting next week with our insurance agent: question about replacement cost

Post by daheld » Fri Feb 14, 2020 8:55 am

dm200 wrote:
Fri Feb 14, 2020 8:48 am
Our deductible is also 1% of the insured replacement value. I will be shocked if they're willing to have a conversation about actually lowering our coverage amount.
I don't know in your case, but, as I posted, we have reduced the replacement value several times over the years -- when the automatic inflation adjustment increased it too much.

Before you have this conversation, I suggest you have all of the relevant details about your house, such as square footage, when it was built, number of bedrooms and bathrooms, etc. Also, think about the "quality level" needed for replacement. As I posted, I used the middle quality level.

This is a bit of a balancing act - you want to have the replacement value high enough to actually replace the house and cover 100% of partial damage. On the other hand, you don't want the replacement value too high because then you would be paying an insurance premium for a value that you could never collect on.

As I also said, I recommend reviewing this "replacement value" of your insurance every few years - so that it is neither too high or too low.
Yeah, agreed. I am planning on being prepared with those details. Thanks!

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dm200
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Re: Meeting next week with our insurance agent: question about replacement cost

Post by dm200 » Fri Feb 14, 2020 9:07 am

When we first purchased our house 40+ years ago, the Homeowners insurance "challenge" we faced back then was being required by our mortgage lender to have the insured value at least as high as the mortgage balance. We had a VA loan and only a very small down payment. A good part of our purchase price (and mortgage balance) was for the land value -- and made no sense to be insured for a value we could never collect.

I finally decided this was not worth the battle -- so I set the insured replacement value at the mortgage amount. Then, each year, as the mortgage balance went down, I lowered the insured value. Over time, as well, the house appreciated in value. So, with both factors, in only a few years, our replacement value became more than the outstanding mortgage balance.

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daheld
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Re: Meeting next week with our insurance agent: question about replacement cost

Post by daheld » Thu Feb 20, 2020 8:22 am

daheld wrote:
Thu Feb 13, 2020 3:23 pm
A couple weeks ago, I got a call from our State Farm office. They were looking to schedule a meeting with us as a part of their "audit" they do every few years to review our homeowners coverages. I know what this meeting will consist of: them trying to convince us we need higher replacement cost coverage for our homeowners policy. I went ahead and took the meeting, but I'm looking for some guidance. My main question is if our current replacement cost coverage is for $X, and they suggest $X + $100,000, can I just say "nah, we're fine with the coverage we have now"? Can State Farm just raise the coverage amount without my consent?

We've had State Farm for about five years and have had good luck. We had a roof claim on a prior home and they were helpful, diligent, and paid quickly. We've been in our current home for about two years. When we first purchased, I was able to get them to lower the replacement cost coverage amount because it was laughably, insanely high. Yes, I understand replacement cost does not equal the home value. Their recommendation was something crazy like twice the going rate of new construction. I understand all the costs associated with a total loss plus rebuild, but I did the math at the time and their recommendation was far too high.

Thanks for any help.
Just an update on this. We met last night with our State Farm rep. The amount of coverage for the homeowners policy was barely a topic of discussion. She asked if we were comfortable with the current coverage, I said we were, and that was that. It was a really good review of all our coverages and any changes we needed to make. We did bump our auto liability coverage from $50k to $100k, which, given the small premium increase, was a good thing. That was the only real change we made. I had some pressing questions to ask and they were answered to my satisfaction.

I have a tendency to be skeptical of stuff like this, and last night was a good reminder that I need to hear people out before just assuming it's a sales pitch.

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