Monthly Archives: June 2015

Dwelling Replacement Coverage Truths

One of the most popular topics of conversation between homeowners and insurance agents is replacement cost value on their home. If you are a homeowner or are planning to become one in the near future, continue reading to see what replacement cost is and why it differs so much from what you think it should be.

The most important thing to remember about dwelling replacement cost coverage is factoring in the cost to replace your home in its entirety. In essence, if your home were to be deemed a total loss due to a claim such as a fire, then you would need enough coverage to re-build it from scratch. Here is the honest truth about homeowners replacement coverage:::

The most common misconception: My house isn’t nearly worth that!

In actuality, yes it is. The cost to replace your home has absolutely nothing to do with:

How much you paid for it.

How much you still owe on your mortgage.

How much you could sell it for in today’s market.

What you think YOU could build it for.

What your neighbor’s house value is estimated to be.

We have heard the above statements more times than we could possibly count, but we always have the same answers. Now I know what you may be thinking, this seems unfair or misconstrued; however we can assure you that the insurance industry has calculated an appropriate method to determine how much coverage each individual house needs.

Each and every single home is evaluated in great detail by the insurance company. (There should be little variation between companies if all of the information each has when running a quote is the same, due to the fact that the overwhelming majority of insurance companies use the same approved system or a similar one to come up with a replacement value.) An insurance company also has the right to visit the property and make an assessment based upon the inspection completed by a professional. An inspection is the most accurate way for you to obtain a truly accurate replacement cost estimate; however the cost estimators have been proven to be quite accurate as well.

Replacement Cost Coverage comprises of many factors. The premise behind this coverage is to completely cover the cost it would take to: finish demolition, remove debris, and re-level the surface so that new building can take place safely. Then you must now buy everything new: the lumber, plumbing, electrical wiring, flooring, paint, windows, roofing, and siding. Now account for the costs of all the different contractors hired: architect, general contractor, plumber, electrician, roofers, sheetrockers, etc. Not only are the costs of products increasing, but so are the contractor’s prices. Many contractors have said to us, “well I know I can build it for less because…” In actuality, could they probably build their own house for less, yes they probably could. They wouldn’t have to pay themselves or their friends or employees, or perhaps they have arrangements with local companies to purchase cheaper products in bulk. Unfortunately, an insurance company cannot rely upon on this. Every insured is treated in the same, fair manner by the company, where the prices are fueled by today’s general marketplace.

Many of our companies also offer what is referred to as extended replacement cost coverage. For example, let’s say your raised ranch is valued at $290,000 replacement cost coverage and your policy period runs from December 2013 to December 2014. Prior to your renewal in December 2013, the insurance company will impose an automatic inflation increase on your dwelling cost coverage (this is done every year, by every insurance company). It is done to protect the homeowner from price variations in the market. If an unforeseen event causes a price surge of a specific product needed for replacement such as sheetrock or 4×4 wood, bringing the total replacement to $310,000 then extended replacement cost coverage will cover the difference. Typically, an additional 25% may be added to your policy, while some companies offer up to 50%. Several of our companies have this feature built-into the policy.

Another key factor to take into consideration is the fact that your house is truly one of a kind. For example, an insurance company takes no consideration on what your neighbor Bob’s house is valued at 2 houses down, despite the fact that they may have similarities. We have run into some frustrated homeowners who feel that their homes are over insured based solely upon what Bob is paying and we do our best to educate them and advise that we cannot knowingly underinsure their home and would not even if we could, as it is unethical. Also keep in mind that insurance prices have many built-in factors, particularly based upon your specific credit history, claims history, bundling of policies, amount of insurance, type of insurance, and other such factors. Just because your neighbor seems like he is getting a better deal on the ‘same’ house doesn’t necessarily mean he is. Consider this, what if his insurance agent did not do as thorough of a job as one of our qualified agents and he is underinsured or has a more bare-bones policy with no added endorsements or coverages. Many big-name insurance agents see a customer as a sale and commission. If getting the cheapest price is going to win the customer then they will offer more of a bare-bones policy that has no added coverages, such as water back of sewers and drains.

At Joy Insurance Agency, we take immense pride in providing your family and your business with the amount of insurance that suits your needs at a fair, reasonable, and competitive price. Our customers are always our number one priority. We believe in fair business practice and avoid over and under selling simply to make a sale. We will take the time to go over each and every detail of your home, auto, and business policies to make sure the coverage we offer you is the absolute best fit. Contact an agent today to learn more!