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sarah314 | Homeowners insurance question re: insured value of house...? |
Homeowner's insurance is definitely not my area of expertise. :)
I think that my house may be over-insured, but I want some opinions to be sure.
We currently have homeowners insurance through the same company since our house was built in 2005. The home was insured for slightly over our total purchase price (house + lot).
When I called to get a quote from another group, the agent told me that we were over-insured because the insured value of our home doesn't need to include the value of the lot itself. That since we already own the lot outright, the insured value of the house should just be for the cost of the house itself, because we wouldn't be re-buying the lot. Just re-building the house.
(I'm not even taking into consideration the decrease in home/property values, yet. Just whether the value of the lot needs to be included or not.)
When I called my current agent to ask her whether she thought the value of my home was too high on the policy, I don't feel like she really gave me a straight answer. She talked about how "even though property values are down, materials costs are up" yada, yada, yada, and she pretty much side-stepped the whole question about whether the cost of the lot itself should be included in the value.
So, here's the question: what should be taken into consideration when determining the value you are going to insure your house for?
(Here are some real numbers, if it helps...home built in 2005, total cost of home + lot was $240K. Currently insured for $255K. The other company says that we only need to insure for $210K. Comparable homes in my subdivision right now are selling in the neighborhood of $200-$215K, if that. Live in Ohio, so very few homes are selling period right now. lol)
Thanks in advance for the help!
Additional Details
Thanks for the answers so far. I do know that it doesn't go by current market value, as far as what it could be sold for.
But it does seem logical that if we're talking about rebuild value, it should only include the materials/labor versus the piece of land the house sits on. (Which we already own outright.) Or is there some key factor I'm overlooking? |
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Kristofer O
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Home insurance is actually very flexible. I don't understand all the details of my home policy, but my homeowners insurance agent is always a phone call away. Try visting your agent or a agent in your town. http://www.americaschoicetoday.com/Home-Insurance.html They should be able to assist you. |
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bud68
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Your agent has a point. The issue isn't current market value. It's reconstruction cost. Speak to your agent about rebuild cost (reconstruction coverage). That is what you need to make sure you have. |
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mbrcatz
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From an INSURANCE point of view, most homeowners policies are written on a REPLACEMENT value - that is, cost to rebuild. Some are written on a MARKET value, mostly really older homes in bad neighborhoods, where the cost to rebuild the house would be many, many times the market value. And a very, very few are written on a "flat" basis.
So, assuming your policy is standard, replacement basis, the value of the home should be calculated at COST TO REBUILD. Not the land, which can't burn down, not the digout of the basement, not the leveling the lot. Generally, cost to rebuild an average home in most parts of the country, runs $250 to $275 per square foot of living space. You don't give ANY indication of the square footage of your house, which is the MOST important.
Keep in mind, some agents are better than others at their estimates, and there is some variation from one company to another. For example, my house. I have a house, with a breezeway, and a garage. The only thing connecting the garage to the house, is the roof over the breezeway. One company considers the garage attached, and adds it to the square footage of the house. Another does not. |
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paul
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My insurance company-Allstate-specifically lists my insured value at the price it would cost to build my house on the same lot. So I would say the 210K would actually be higher than it needs to be. But the cost to rebuild may still be at about the price you paid( I have not heard that construction cost have come down that much). So I would go with the 210K. I also increased my deductible which dropped my premium further. |
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MSAD
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What your house could sell for has nothing to do with how much it should be insured for.
Your house should be insured for the amount that it would take a contractor to come in and build your house exactly as it is from scratch. Often this is more than the what you could sell the home for.
Your agent is correct - the price of building materials is through the roof right now. Concrete is going up 25% this month in my area and there is a shortage of nails so that cost has shot up. The price of all building materials is up.
Building materials are linked to the cost of petroleum. Shingles are made of petroleum. Non petroleum based materials still require gas to help run the manufacturing facilities, transport raw materials to the plant for processing and gas to transport the finished product. Then the cost to builders has gone up. They need gas to transport their equipment etc out to the job site. As the price of gas has gone up - so has the cost of building materials.
Here's an example of what I'm talking about - You have a 70's era all brick split level home. It's in an older part of town and has not been updated much since the 70's. So you still have the shag carpet and harvest gold counter tops. The market value of this home will be affected by the fact that it has never been updated.
However, the cost to build an all brick split level home with carpet and laminate counter tops from scratch is much more than what you could sell the above home for. The price of brick is very high. That's why there are very few new construction brick homes (in my area any way). It's common now to see homes with brick on the front and vinyl siding on the remaining 3 sides. That's because the price of brick is so high.
Your insurance company has a program that estimates the cost to rebuild your home. It takes no consideration of the price of the land.
If you think your house is over insured - have a general contractor come in and write an estimate to rebuild your home with the same finishes it has now. If that is lower than your coverage level - take that written estimate to your agent. They may be able to submit it to their underwriting department for review. |
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primericaisbad
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In my market, my company is happy with approximately $100/sq ft for dwelling coverage. |
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