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“but my home isn’t worth that much”

By October 28, 2014No Comments


Welcome to my first blog! Whether you are a current member of the Baker Insurance Family, exploring our website for a quote or our current offerings, or simply want to better educate yourself when it comes to insurance, my goal is that the information, stories, and details I share will make insurance an interesting subject, answer long-standing questions you may have, and provide insight and ideas on how to improve (what questions should you be asking to improve) your current coverage.

“But my home isn’t worth that much” …

I thought it fitting the first subject covered is a general overview of the amount your home is / will be insured for. I can tell you that I am often faced with a client who will tell me “my house isn’t worth that much” when I explain the replacement cost of the home. The first step is understanding the terminology used to describe the different valuations for homes:

  • Replacement Cost – what you would have to pay a contractor to build the home with brand new materials and current labor rates. This is the figure we use for insurance.
  • Appraised or Market Value – What homes like yours, similar in size and features are selling for in your neighborhood.
  • Tax Assessed value – what the county is determining as the value of the property, including land, and what is used to calculate your property taxes.

Often, the replacement cost will be higher than the cost of building it brand new due to several influences. First, chances are likely with a fire or tornado, some walls or portions of those walls will still be standing, requiring demolition. Second, there will likely be a substantial amount of debris to be cleaned up, hauled away and disposed of. Insurance companies do provide additional money for these expenses, most of which are an additional 20-25% of the dwelling coverage amount.

Replacement cost is calculated based on things like the style of the home, square footage and types of amenities. For example, two story homes are less expensive to build than a rambler because it’s cheaper to go up than out. Granite counters are more expensive than Formica. I utilize leading-edge programs to help calculate that cost, taking into account the current price for the location of the home.

Since 2008, when the housing market bottomed out and homes were being sold at 50-75% of their pre-2008 values, there has been a very dramatic difference between the “market value” and “replacement cost”. Even now existing homes are being sold at a fraction of what it costs to build a brand new home in the same neighborhood, with a similar size and style. Granted the discrepancy between those figures is getting smaller but the questions still arises.

Most preferred insurance companies will require you to insure the home for replacement cost due to the guarantees they provide to you as their insured. One way to ensure your agent has properly calculated the replacement cost for you is to call your agent and request a meeting to reevaluate your replacement cost or, call me, I would be happy to help determine if you have the right coverages. I’m not only an agent but also an insurance-purchasing customer just like you, and I want to know that I have enough money available to rebuild my home if it’s destroyed.

The moral of this story is don’t be surprised when your insurance agent tells you what the replacement cost should be when insuring your home, as it is potentially different than what you are expecting, and will vary from the amount you paid / currently owe. Ask for the details of how they came to that calculation, and don’t be afraid to ask questions, or even get a second opinion; let no question go unanswered when it comes to understanding your insurance coverage!

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