Current Home Value is 50% More Than Insured Limit, Any Action Required?

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HappyPappy
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Current Home Value is 50% More Than Insured Limit, Any Action Required?

Post by HappyPappy »

At what point should I contact the insurance company and request an increase to the insured amount?

As far as I understand, it's cheaper to rebuild on an existing lot than to buy anew, so my insured amount doesn't need to equal or exceed the home value. And if the home insurance is intended to pay to rebuild, I don't know how much the home-shortage issue affects that cost. Just because sale prices of existing homes have been rising steeply, I assume that doesn't necessarily mean the cost to build a new home on an existing lot is increasing at the same rate.

On the other hand, inflation and related supply chain issues will, I assume, increase the cost to rebuild. My current policy renewed this past January, so it already takes into account the inflation from last year. But obviously, it takes into account none of the continuing high inflation we've had this year.
Last edited by HappyPappy on Fri May 06, 2022 6:36 pm, edited 1 time in total.
ralph124cf
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Re: Current Home Value is 50% More Then Insured Limit, Any Action Required?

Post by ralph124cf »

It depends very much on your location. In some cases, such as San Francisco, the land value greatly overshadows the value of the building. The property might even sell for more if the lot were bulldozed. In many Chicago suburbs, the rebuilding cost is significantly greater than the home could be sold for.

In any case, the only thing that matters to YOU is the rebuilding cost for insurance purposes. In many cases your insurance company may be happy to send out an appraiser to estimate the current actual rebuilding cost.

It is also worthwhile to look at the guaranteed replacement cost coverage and also code upgrade insurance, especially for an older home.

Ralph
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TJat
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Re: Current Home Value is 50% More Then Insured Limit, Any Action Required?

Post by TJat »

The market value of your home has nothing to do with your insured coverage amount. The insurance company is obligated to give you money to rebuild your home not buy it from you, two things which can have very different costs, especially in VHCOL areas where your market value is influenced largely by the land.
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ResearchMed
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Re: Current Home Value is 50% More Then Insured Limit, Any Action Required?

Post by ResearchMed »

You might want to double check how this works, if the increased value is from inflation alone, rather than a purchase price.

Last I knew (and this may not be the case everywhere), IF your house is insured for less than the replacement value [note: This can be defined in different ways...] then if you have a partial claim, the insurer might only pay the percentage of the "coverage-to-value" amount.
That is, if you have insurance for half the value, and half the house is destroyed (odd, but somehow for this example), they wouldn't use all the insurance money to replace half the house. They'd pay 50% of the cost of the replacement/repair.

Just make sure you aren't exposed to this, if it's still an issue.

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FellsGuy
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Re: Current Home Value is 50% More Then Insured Limit, Any Action Required?

Post by FellsGuy »

Thats the co-insurance clause if you are with a sub par insurer they will find every way possible to get out of paying a claim and the co-insurance clause is a great off ramp for them. Given materials shortages, near impossibility of finding a contractor etc etc it would probably cost a lot more than you think to replace your house. I'd speak with the insurer and ask them for a replacement cost estimate which they can run in 2 minutes so everybody is on the same page.
drk
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Re: Current Home Value is 50% More Then Insured Limit, Any Action Required?

Post by drk »

ralph124cf wrote: Fri May 06, 2022 4:55 pm In many cases your insurance company may be happy to send out an appraiser to estimate the current actual rebuilding cost.
This is surprising to me because the appraisal for my last refi cost a little more than half my insurance premium. Have you had an insurer send out an appraiser before?

My insurer does provide an online tool to estimate the cost to rebuild based on quality, amenities, etc. I'll take a spin through that when my policy comes up for renewal.
nanciT
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Re: Current Home Value is 50% More Then Insured Limit, Any Action Required?

Post by nanciT »

I agree with going over with the insurance company. I do this every year to confirm we could rebuild the house we currently have. I review every detail.

My Mom lost her Home in the Santa Cruz fire, she never upgraded her policy in the 30 years she lived there. It was not possible to rebuild because she was under insured. It was a long a difficult process with the settlement. I sold the land after the settlement.

I learned a great deal during the process of handling this for her. I carefully review my policy each year and take photos and video of the entire house, backyard etc.
afan
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Re: Current Home Value is 50% More Then Insured Limit, Any Action Required?

Post by afan »

Some insurance policies guarantee to pay the replacement cost. This transfers the risk from you to them. It is up to them to keep track of costs and update the premium to reflect the risk they are taking on.

Obviously, you should let them know about improvements that might increase rebuilding costs.

These policies seem to be more expensive, of course. Not all companies will write them.

Worth checking.
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TJat
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Re: Current Home Value is 50% More Then Insured Limit, Any Action Required?

Post by TJat »

afan wrote: Fri May 06, 2022 6:16 pm Some insurance policies guarantee to pay the replacement cost. This transfers the risk from you to them. It is up to them to keep track of costs and update the premium to reflect the risk they are taking on.

Obviously, you should let them know about improvements that might increase rebuilding costs.

These policies seem to be more expensive, of course. Not all companies will write them.

Worth checking.
Most insurance companies also have endorsements that also automatically increase your coverage amount based on inflation.
softwaregeek
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Re: Current Home Value is 50% More Than Insured Limit, Any Action Required?

Post by softwaregeek »

My current insurer values my rebuild at about half of what a high end insurer does. I carry extra. It’s not much more expensive to carry more coverage.
lostcoast
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Re: Current Home Value is 50% More Then Insured Limit, Any Action Required?

Post by lostcoast »

nanciT wrote: Fri May 06, 2022 5:50 pm I agree with going over with the insurance company. I do this every year to confirm we could rebuild the house we currently have. I review every detail.

My Mom lost her Home in the Santa Cruz fire, she never upgraded her policy in the 30 years she lived there. It was not possible to rebuild because she was under insured. It was a long a difficult process with the settlement. I sold the land after the settlement.

I learned a great deal during the process of handling this for her. I carefully review my policy each year and take photos and video of the entire house, backyard etc.
NanciT, I'm sorry for your Mom's house. We have many friends who lost their homes in that fire and the insurance portion has been difficult for many. One in particular had plenty of coverage and still had to fight for over a year with the insurance company to get them to pay full value plus upgrades. The rebuild costs are now running more than $600 per square foot. The value of a home includes the land so a better measure is the square foot plus so many other items including the private water system and contents as well as accessory building and landscaping.
onourway
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Re: Current Home Value is 50% More Than Insured Limit, Any Action Required?

Post by onourway »

I proactively reached out to our independent agent a few months ago with this same concern as it was clear there was no way that our historic home could be rebuilt to the same quality level for the amount of coverage we had (which was close to the assessed value). We were able to nearly double our coverage for only a few hundred dollars per year.
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JoeRetire
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Re: Current Home Value is 50% More Than Insured Limit, Any Action Required?

Post by JoeRetire »

HappyPappy wrote: Fri May 06, 2022 4:32 pm At what point should I contact the insurance company and request an increase to the insured amount?
Since you are concerned, you should contact your agent now.

A good agent understands all these factors, and will help you understand the proper amount of insurance you need.
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HMSVictory
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Re: Current Home Value is 50% More Than Insured Limit, Any Action Required?

Post by HMSVictory »

Market value does not apply to insurance valuation. You insure for what it would cost to rebuild the house if it burnt to the ground (total loss). Normally a foundation does not burn (concrete) so you are looking at rebuilding from the foundation up. Lot value is not insured.

You can have your insurance agent draft up a replacement cost estimate for your home and construction quality (and go a little higher).

Many policies include an automatic increase in costs clause. My policy covers 200% of the insured value which includes rebuilding the property and all contents. I'd hope I can replace everything for 2x my replacement cost!
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MikeG62
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Re: Current Home Value is 50% More Than Insured Limit, Any Action Required?

Post by MikeG62 »

Then insured value of our home (what my insurer calls the dwelling) exceeds what we could sell our home for by roughly 20%. On top of that, there is additional insurance equal to 10% of the value of the dwelling for what they call "other structures". In summary, it doesn't make a lot of sense to me that the cost to rebuild it would exceed the market value of my home including the value of the lot. But it is what it is. My insurers rates are competitive with other insurance companies (I know this from quotes from other insurers I got a few years back).
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ModifiedDuration
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Re: Current Home Value is 50% More Than Insured Limit, Any Action Required?

Post by ModifiedDuration »

The 80% Rule!

Your home (excluding the value of the land) has to be insured for 80% of its replacement cost, otherwise you will only have partial coverage for any claim.

For example, if the replacement cost of your home is $100,000 and you only have $70,000 in coverage, you will only get 87.5% ($70,000/$80,000) of any claim.

If you had a $20,000 claim, you would be paid only $17,500 because you were underinsured.

Your insurance agent has software to develop an estimate of the value of your home, based on square footage,
number of bathrooms, type of flooring, type of roof, etc.

You can then determine the appropriate level of homeowners insurance to have.

https://www.thehortongroup.com/personal ... -insurance
hoofaman
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Re: Current Home Value is 50% More Than Insured Limit, Any Action Required?

Post by hoofaman »

If our house burned down, no way would I want to go through the process of having the home rebuilt, I just want fair market value so that I can go and buy something else that is equivalent. That's how our policy is structured, but to each their own
Agent 99
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Re: Current Home Value is 50% More Then Insured Limit, Any Action Required?

Post by Agent 99 »

drk wrote: Fri May 06, 2022 5:31 pm
ralph124cf wrote: Fri May 06, 2022 4:55 pm In many cases your insurance company may be happy to send out an appraiser to estimate the current actual rebuilding cost.
This is surprising to me because the appraisal for my last refi cost a little more than half my insurance premium. Have you had an insurer send out an appraiser before?

My insurer does provide an online tool to estimate the cost to rebuild based on quality, amenities, etc. I'll take a spin through that when my policy comes up for renewal.
Travelers required me to have a high value house appraisal by one of their appraisers. They didn’t charge me for the appraisal other than adjusting the premium to the appropriate level. I insisted on more coverage than the agents of various insurers were quoting because my house is constructed with building materials not commonly found in the typical home. My home value is less than the cost to rebuild.
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Re: Current Home Value is 50% More Then Insured Limit, Any Action Required?

Post by afan »

TJat wrote: Fri May 06, 2022 7:19 pm
afan wrote: Fri May 06, 2022 6:16 pm Some insurance policies guarantee to pay the replacement cost. This transfers the risk from you to them. It is up to them to keep track of costs and update the premium to reflect the risk they are taking on.

Obviously, you should let them know about improvements that might increase rebuilding costs.

These policies seem to be more expensive, of course. Not all companies will write them.

Worth checking.
Most insurance companies also have endorsements that also automatically increase your coverage amount based on inflation.
Inflation is easy because it is based on readily available national figures. The guaranteed replacement cost policies will cover you if there is, for example, a local spike in building costs due to a storm or other natural disaster. A policy that just increased coverage with inflation would not protect you.
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crazygrow
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Re: Current Home Value is 50% More Then Insured Limit, Any Action Required?

Post by crazygrow »

Agent 99 wrote: Sat May 07, 2022 11:11 am
drk wrote: Fri May 06, 2022 5:31 pm
ralph124cf wrote: Fri May 06, 2022 4:55 pm In many cases your insurance company may be happy to send out an appraiser to estimate the current actual rebuilding cost.
This is surprising to me because the appraisal for my last refi cost a little more than half my insurance premium. Have you had an insurer send out an appraiser before?

My insurer does provide an online tool to estimate the cost to rebuild based on quality, amenities, etc. I'll take a spin through that when my policy comes up for renewal.
Travelers required me to have a high value house appraisal by one of their appraisers. They didn’t charge me for the appraisal other than adjusting the premium to the appropriate level. I insisted on more coverage than the agents of various insurers were quoting because my house is constructed with building materials not commonly found in the typical home. My home value is less than the cost to rebuild.
Farmers did the same to us and raised the rebuild cost by like 40% due to the quality of the house. It bumped us from a level 4 house to a level 5 house on their scale from 1-5 (the scale had different names but that was the example they gave).
talzara
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Re: Current Home Value is 50% More Than Insured Limit, Any Action Required?

Post by talzara »

hoofaman wrote: Sat May 07, 2022 10:54 am If our house burned down, no way would I want to go through the process of having the home rebuilt, I just want fair market value so that I can go and buy something else that is equivalent. That's how our policy is structured, but to each their own
It depends on where you live.

Most homeowners insurance policies pay Actual Cash Value if you walk away. ACV is usually defined as replacement cost minus depreciation, which could be much lower than the fair market value of the house. There are a few states where ACV is fair market value, which gives you the option of walking away without losing any money.
mindbogle
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Re: Current Home Value is 50% More Than Insured Limit, Any Action Required?

Post by mindbogle »

From a close friend of mine that does insurance policyholder advocacy (we recently updated our coverage based on her advice) ...

Unfortunately, most homes today are seriously underinsured. Most “Replacement Cost” homeowners’ property policies only cover an amount up to the stated policy limits. The Dwelling (A) dollar limit being what all other limits are determined from if coverage is a percentage of that (A) limit. Land is not covered, and foundations are often unusable after a total fire loss. Historically, a solid 66%+ of policyholders are underinsured following a catastrophic disaster and the problem is growing dramatically. It can be difficult to even get adequate coverage needed. You can send your agent/broker video, pictures, and house plans to document the level of finish and square footage by email to make sure they know you want full coverage.

Here is solid guidance from a consumer advocacy 501C3 that guides folks through these difficult claims - United Policyholders. There are some different regulations by state, and you can search the site, but most of these for Colorado still apply everywhere:

Shop-smart Colorado tips for insuring your home

Colorado home insurance check-up questions to ask your agent broker

Cheers,

MB
Last edited by mindbogle on Sat May 07, 2022 12:10 pm, edited 1 time in total.
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ResearchMed
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Re: Current Home Value is 50% More Than Insured Limit, Any Action Required?

Post by ResearchMed »

talzara wrote: Sat May 07, 2022 11:51 am
hoofaman wrote: Sat May 07, 2022 10:54 am If our house burned down, no way would I want to go through the process of having the home rebuilt, I just want fair market value so that I can go and buy something else that is equivalent. That's how our policy is structured, but to each their own
It depends on where you live.

Most homeowners insurance policies pay Actual Cash Value if you walk away. ACV is usually defined as replacement cost minus depreciation, which could be much lower than the fair market value of the house. There are a few states where ACV is fair market value, which gives you the option of walking away without losing any money.
IF a house is destroyed (fire, tornado...) and one prefers the money and the policy is written so that if you don't rebuild, you'd only get a heavily depreciated amount of cash, couldn't one just have it rebuilt as quickly as possible (no quibbling over details, etc.), and then sell it and move along with life?
The insurer presumably would pay living expenses during the rebuild. Yes, this drags things along, but it could be a huge amount of money differential, depending upon price point, etc.

And if this were to be the plan (assuming there's nothing prohibiting it), perhaps the insurer would see things differently, so to speak, if one pointed out that there would be the possibility of saving the housing expenses for the family for what could be an extended period of time...? And perhaps a negotiated insurance settlement amount?

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hoofaman
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Re: Current Home Value is 50% More Than Insured Limit, Any Action Required?

Post by hoofaman »

talzara wrote: Sat May 07, 2022 11:51 am
hoofaman wrote: Sat May 07, 2022 10:54 am If our house burned down, no way would I want to go through the process of having the home rebuilt, I just want fair market value so that I can go and buy something else that is equivalent. That's how our policy is structured, but to each their own
It depends on where you live.

Most homeowners insurance policies pay Actual Cash Value if you walk away. ACV is usually defined as replacement cost minus depreciation, which could be much lower than the fair market value of the house. There are a few states where ACV is fair market value, which gives you the option of walking away without losing any money.
My policy is replacement cost policy which I can adjust up or down each year if desired, it's usually about 120% of the homes market value for a given year
Dontridetheindexdown
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Re: Current Home Value is 50% More Than Insured Limit, Any Action Required?

Post by Dontridetheindexdown »

We went through this exercise last year, not because house value increased, but because buildings costs have increased.

We determined that if our house were destroyed, the cost to demolish and dispose of materials, and to construct an equivalent house on the existing foundation, and connect to the existing well and septic system, would exceed the total market value of our house and land.

In other words, it would be cheaper to just buy an existing comparable house and land, than to demolish and re-build.

For perspective, our land is worth approximately 1.5 times the value of our house.

Because we really like our land and location, we insured the house for full replacement value, plus replacement of contents, plus additional living expenses during repair or re-build.

We also increased our deductible from $2,500 to $10,000.

Our annual premium increased by 41%, and this year (first annual renewal) it will increase by 0.8%

The increased insurance coverage provides peace of mind, and the premium is still very affordable.

Also, we have learned from the experience of others, that unless we have a claim for several times the deductible, it is prudent to just pay for the repairs and not make any sort of claim.

From our perspective, it is best to reserve insurance claims for truly catastrophic losses.
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Re: Current Home Value is 50% More Than Insured Limit, Any Action Required?

Post by exodusNH »

HMSVictory wrote: Sat May 07, 2022 6:55 am Market value does not apply to insurance valuation. You insure for what it would cost to rebuild the house if it burnt to the ground (total loss). Normally a foundation does not burn (concrete) so you are looking at rebuilding from the foundation up. Lot value is not insured.

You can have your insurance agent draft up a replacement cost estimate for your home and construction quality (and go a little higher).

Many policies include an automatic increase in costs clause. My policy covers 200% of the insured value which includes rebuilding the property and all contents. I'd hope I can replace everything for 2x my replacement cost!
Depending on how old the house is, an "ordinance or law" rider may be necessary. In a partial covered loss, the city might require more extensive changes to apply with current code. In my 1925 house, I'm sure there are lots of things that would no longer be legal. Having coverage to rebuild as-is does no good if the city is going to fail the inspection.
talzara
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Re: Current Home Value is 50% More Than Insured Limit, Any Action Required?

Post by talzara »

ResearchMed wrote: Sat May 07, 2022 12:08 pm IF a house is destroyed (fire, tornado...) and one prefers the money and the policy is written so that if you don't rebuild, you'd only get a heavily depreciated amount of cash, couldn't one just have it rebuilt as quickly as possible (no quibbling over details, etc.), and then sell it and move along with life?
Yes, but you'd lose the real estate agent's commission.

The standard homeowners insurance policy requires rebuilding to reduce losses from arson. Most arsonists aren't willing to wait a year to get paid. They need the cash now.
ResearchMed wrote: Sat May 07, 2022 12:08 pm And if this were to be the plan (assuming there's nothing prohibiting it), perhaps the insurer would see things differently, so to speak, if one pointed out that there would be the possibility of saving the housing expenses for the family for what could be an extended period of time...? And perhaps a negotiated insurance settlement amount?
There are some threads where Bogleheads negotiated cash settlements. The insurer is more likely to agree to a cash settlement between ACV and RC.
talzara
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Re: Current Home Value is 50% More Than Insured Limit, Any Action Required?

Post by talzara »

hoofaman wrote: Sat May 07, 2022 12:22 pm
talzara wrote: Sat May 07, 2022 11:51 am It depends on where you live.

Most homeowners insurance policies pay Actual Cash Value if you walk away. ACV is usually defined as replacement cost minus depreciation, which could be much lower than the fair market value of the house. There are a few states where ACV is fair market value, which gives you the option of walking away without losing any money.
My policy is replacement cost policy which I can adjust up or down each year if desired, it's usually about 120% of the homes market value for a given year
The standard homeowners insurance policy only pays Replacement Cost if you rebuild. You get Actual Cash Value if you walk away.

To get a cash settlement at Replacement Cost, you'd need an endorsement or a high-value policy.
humblecoder
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Re: Current Home Value is 50% More Than Insured Limit, Any Action Required?

Post by humblecoder »

Talk to your insurance agent. Let them earn their commission!

I know in my case, when I purchased insurance, they went through an appraisal-like process, looking at the number and square feet of the rooms, the materials used, features, etc. The appraisal wasn't to establish the value of the house, but the approximate cost to rebuild a roughly equivalent home.

Every year when my policy renews, my insurance company automatically re-adjusts the replacement value of the home. For last year's renewal, it went up around $50K as I recall. I will be interested to see what the increase is this year with inflation and all.

I assume most people go through a similar process with their agent. If you have questions about how your carrier calculates this, they would be the person to ask.

Note that this is unrelated to the market value of the home. When you are selling a home, you are selling the home AND the land. Obviously, if your house burns down, there is no land to replace, so that COULD explain why the current home value is greater than the insured limit. If you live in a place like the Bay Area, I've got to imagine that the land cost is quite high. You could have a $1M home that would only take a fraction of that to replace because most of the home value is baked into the land.
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JAZZISCOOL
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Re: Current Home Value is 50% More Then Insured Limit, Any Action Required?

Post by JAZZISCOOL »

crazygrow wrote: Sat May 07, 2022 11:37 am
Agent 99 wrote: Sat May 07, 2022 11:11 am
drk wrote: Fri May 06, 2022 5:31 pm
ralph124cf wrote: Fri May 06, 2022 4:55 pm In many cases your insurance company may be happy to send out an appraiser to estimate the current actual rebuilding cost.
This is surprising to me because the appraisal for my last refi cost a little more than half my insurance premium. Have you had an insurer send out an appraiser before?

My insurer does provide an online tool to estimate the cost to rebuild based on quality, amenities, etc. I'll take a spin through that when my policy comes up for renewal.
Travelers required me to have a high value house appraisal by one of their appraisers. They didn’t charge me for the appraisal other than adjusting the premium to the appropriate level. I insisted on more coverage than the agents of various insurers were quoting because my house is constructed with building materials not commonly found in the typical home. My home value is less than the cost to rebuild.
Farmers did the same to us and raised the rebuild cost by like 40% due to the quality of the house. It bumped us from a level 4 house to a level 5 house on their scale from 1-5 (the scale had different names but that was the example they gave).
Are these house "levels" an industry standard or by insurance company? Just curious because I am getting ready to review my policy with my agent soon. There was a wild fire in my state in the last 6 months and I've read some folks are having issues with their insurance companies to rebuild a similar house.

I'm not with Farmers.
remomnyc
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Re: Current Home Value is 50% More Than Insured Limit, Any Action Required?

Post by remomnyc »

Our premiums just went up because they increased replacement value by inflation. We did a gut reno after we purchased, so I now know exactly how much it would cost to replace everything since I did exactly that last year. I decreased the dwelling coverage and reduced my premium. Remember, home value is value of premises and land. In VHCOL areas, the land represents the majority of value and costs virtually nothing to replace. The question I want to know is can I rebuild my home for the insured limit?
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Re: Current Home Value is 50% More Than Insured Limit, Any Action Required?

Post by remomnyc »

Duplicate
Last edited by remomnyc on Sun May 08, 2022 9:18 pm, edited 1 time in total.
remomnyc
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Re: Current Home Value is 50% More Than Insured Limit, Any Action Required?

Post by remomnyc »

Triplicate.
crazygrow
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Re: Current Home Value is 50% More Then Insured Limit, Any Action Required?

Post by crazygrow »

JAZZISCOOL wrote: Sun May 08, 2022 5:23 pm
crazygrow wrote: Sat May 07, 2022 11:37 am
Agent 99 wrote: Sat May 07, 2022 11:11 am
drk wrote: Fri May 06, 2022 5:31 pm
ralph124cf wrote: Fri May 06, 2022 4:55 pm In many cases your insurance company may be happy to send out an appraiser to estimate the current actual rebuilding cost.
This is surprising to me because the appraisal for my last refi cost a little more than half my insurance premium. Have you had an insurer send out an appraiser before?

My insurer does provide an online tool to estimate the cost to rebuild based on quality, amenities, etc. I'll take a spin through that when my policy comes up for renewal.
Travelers required me to have a high value house appraisal by one of their appraisers. They didn’t charge me for the appraisal other than adjusting the premium to the appropriate level. I insisted on more coverage than the agents of various insurers were quoting because my house is constructed with building materials not commonly found in the typical home. My home value is less than the cost to rebuild.
Farmers did the same to us and raised the rebuild cost by like 40% due to the quality of the house. It bumped us from a level 4 house to a level 5 house on their scale from 1-5 (the scale had different names but that was the example they gave).
Are these house "levels" an industry standard or by insurance company? Just curious because I am getting ready to review my policy with my agent soon. There was a wild fire in my state in the last 6 months and I've read some folks are having issues with their insurance companies to rebuild a similar house.

I'm not with Farmers.
Sorry, I have no idea. Their highest level that they stuck us in is a fully custom built home with high end amenities. The switch cost us $1k/year in additional insurance cost.
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JAZZISCOOL
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Re: Current Home Value is 50% More Then Insured Limit, Any Action Required?

Post by JAZZISCOOL »

crazygrow wrote: Mon May 09, 2022 6:47 pm
JAZZISCOOL wrote: Sun May 08, 2022 5:23 pm
crazygrow wrote: Sat May 07, 2022 11:37 am
Agent 99 wrote: Sat May 07, 2022 11:11 am
drk wrote: Fri May 06, 2022 5:31 pm

This is surprising to me because the appraisal for my last refi cost a little more than half my insurance premium. Have you had an insurer send out an appraiser before?

My insurer does provide an online tool to estimate the cost to rebuild based on quality, amenities, etc. I'll take a spin through that when my policy comes up for renewal.
Travelers required me to have a high value house appraisal by one of their appraisers. They didn’t charge me for the appraisal other than adjusting the premium to the appropriate level. I insisted on more coverage than the agents of various insurers were quoting because my house is constructed with building materials not commonly found in the typical home. My home value is less than the cost to rebuild.
Farmers did the same to us and raised the rebuild cost by like 40% due to the quality of the house. It bumped us from a level 4 house to a level 5 house on their scale from 1-5 (the scale had different names but that was the example they gave).
Are these house "levels" an industry standard or by insurance company? Just curious because I am getting ready to review my policy with my agent soon. There was a wild fire in my state in the last 6 months and I've read some folks are having issues with their insurance companies to rebuild a similar house.

I'm not with Farmers.
Sorry, I have no idea. Their highest level that they stuck us in is a fully custom built home with high end amenities. The switch cost us $1k/year in additional insurance cost.
Ok thanks.
JackoC
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Re: Current Home Value is 50% More Than Insured Limit, Any Action Required?

Post by JackoC »

humblecoder wrote: Sat May 07, 2022 1:49 pm Talk to your insurance agent. Let them earn their commission!

I know in my case, when I purchased insurance, they went through an appraisal-like process, looking at the number and square feet of the rooms, the materials used, features, etc. The appraisal wasn't to establish the value of the house, but the approximate cost to rebuild a roughly equivalent home.
....
Note that this is unrelated to the market value of the home. When you are selling a home, you are selling the home AND the land. Obviously, if your house burns down, there is no land to replace, so that COULD explain why the current home value is greater than the insured limit. If you live in a place like the Bay Area, I've got to imagine that the land cost is quite high. You could have a $1M home that would only take a fraction of that to replace because most of the home value is baked into the land.
The last point should be the key. If you knew what the land was worth (plus or minus a foundation that could be reused vs. cost of removing other wreckage) then you should insure for total market value minus land. In theory the details of replacing the exact house shouldn't matter. It should be based on market value, just the market value of the structure not the land.

This comes into focus for our house. It's not replaceable in kind at any feasible cost (1900 stone row house). The insurance coverage we need is to make up the difference between what we could sell the land for to a developer who'd put up (or fill in fire gutted exterior stone/brick walls with) a new 3 condo building with today's lower building quality standards on the same lot (probably deeper and higher building), and the cost of a different similar house/land in the neighborhood. At the level our carrier will insure (I figure ~43% of total market, IOW total market is ~230% of insurance coverage rather than 150% like OP) we probably couldn't do that and would suffer a net financial loss if the house were destroyed, but it's a bounded max loss we could financially survive.
MnD
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Re: Current Home Value is 50% More Than Insured Limit, Any Action Required?

Post by MnD »

https://coloradosun.com/2022/04/29/mars ... erinsured/

As many as two-thirds of those who lost homes in the Marshall fire lack enough insurance to fully cover their rebuilding costs, according to a new analysis by the Colorado Division of Insurance.

The division has been looking at claims from 61 different insurance companies related to the Marshall fire, which destroyed more than 1,000 homes in Superior, Louisville and unincorporated Boulder County late last year, and the high-wind event that accompanied it. More than $1 billion in claims have been filed.

When examining claims filed by people who suffered a total loss, the division found that 92% have insurance without a guaranteed replacement benefit that would have rebuilt their homes no matter the cost. That puts the group at risk of being underinsured.
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JAZZISCOOL
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Re: Current Home Value is 50% More Than Insured Limit, Any Action Required?

Post by JAZZISCOOL »

MnD wrote: Tue May 10, 2022 11:14 am https://coloradosun.com/2022/04/29/mars ... erinsured/

As many as two-thirds of those who lost homes in the Marshall fire lack enough insurance to fully cover their rebuilding costs, according to a new analysis by the Colorado Division of Insurance.

The division has been looking at claims from 61 different insurance companies related to the Marshall fire, which destroyed more than 1,000 homes in Superior, Louisville and unincorporated Boulder County late last year, and the high-wind event that accompanied it. More than $1 billion in claims have been filed.

When examining claims filed by people who suffered a total loss, the division found that 92% have insurance without a guaranteed replacement benefit that would have rebuilt their homes no matter the cost. That puts the group at risk of being underinsured.
Thanks for this post.
talzara
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Re: Current Home Value is 50% More Than Insured Limit, Any Action Required?

Post by talzara »

MnD wrote: Tue May 10, 2022 11:14 am https://coloradosun.com/2022/04/29/mars ... erinsured/

As many as two-thirds of those who lost homes in the Marshall fire lack enough insurance to fully cover their rebuilding costs, according to a new analysis by the Colorado Division of Insurance.
That's because construction costs have gone up so much. Two-thirds are underinsured at an estimated rebuild cost of $350 per square foot.

The photo in the article is a house that was built in 2014 for about $100 per square foot. It was sold 9 months before the wildfire at about $150 per square foot. A rebuild cost of $350 per square foot would be 2.5 times the pre-wildfire market value.

Construction costs also doubled after wildfires in California:
When Sonoma County Supervisor Susan Gorin has talked with contractors about rebuilding her own home in Santa Rosa, she’s been quoted $500 to $600 per square foot, whereas building a custom home before the fires would have cost around half that.

“It’s clear that insurance is really designed for losing a home in a house fire,” said Gorin, who is facing an insurance shortfall of more than $1 million. “It is not intended to cover replacement costs and code upgrades for 5,300 homes all at once.”

https://www.latimes.com/local/lanow/la- ... story.html
Guaranteed replacement cost is a 20th century invention. Fire insurance policies in the 19th century did not pay guaranteed replacement cost.

Wildfires can burn down a whole neighborhood or a whole city, just like building fires in the 19th century. The Great Chicago Fire of 1871 burned down 3 square miles.
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HappyPappy
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Re: Current Home Value is 50% More Than Insured Limit, Any Action Required?

Post by HappyPappy »

I don't have an agent, we use GEICO which subcontracts (if that's the right word) out to Travelers. So when I call them, I talk to someone who's probably pretty far down the totem pole and has little to no buy-in to the company. They probably don't care too much whether the info they're giving me is good or not, and they almost certainly are not thinking too independently about the best way to insure our house. The person on the phone is probably following a set script or flow chart kind of thing, I assume, as directed by their supervisor. But it's cheap.

All that being said, I did just call Travelers and the person with whom I spoke basically said I should be fine and that the company re-evaluates home rebuild costs every year and at that time would take into consideration the inflationary pressures on labor and materials. So he didn't really say anything other than what folks in the thread have said.

He also said I have some kind of rider that increases the main dwelling coverage by 25%. I haven't looked this up in my policy yet, but I was not aware of it and I'm a little skeptical here. I have the main declarations page at my fingertips and don't see anything about this rider.
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