I could never sell my home for that much!
That is one of the most common statements we hear at our insurance brokerage about home insurance. “I could never sell my home for that much!” Another common statement is “My tax assessment is not that high”. Many people are very frustrated and upset with the rising cost of house or property insurance and are looking for ways to decrease the cost associated with property insurance protection.
When you look to try to save money on your home policy, the first thing that you see is the limit or amount your building (home) is insured for. Many people again think that this figure is way too high. So you think….I can save money if I reduce the amount of coverage on my building. This is not the case in most situations.
So why are the values or limits that insurance companies place on my home so high? (The common thought is so the insurance company can charge you more money. We hear this all the time.)
First of all. The amount of insurance placed on your home is independent of the market value and of the tax assessment. Insurance companies have to look at the current rebuilding cost of your home. So…., when we explain this to policy holders can you guess what the many of them say? “I could build my home for a lot less than that!” The Insurance companies cannot price the policy premiums to account for you, your friends or family members to help you re-construct your home. They need skilled, licensed people to do this work and do this quickly.
Insurance companies have to price the policy premiums for what would happen in the mass markets. That means using licensed, skilled and reputable contractors. They also have to use reputable and reliable suppliers in order to get you and your family into your home as quickly as possible.
So, imagine the worst…
You have seen it on the news many times. You may even have friends or family that have been in the unfortunate circumstance and suffered a loss from fire, lightening or windstorms. Some lose everything. It can be very devastating to see everything that you have spent your time, energy and money on all of a sudden gone! That would be a nightmare! What happens next…..? You call your insurance broker/company.
The insurance company has a responsibility written into the policy you purchased to have you back into your home as soon as possible. In order to do that there are many processes that have to take place. They have to arrange for someone to come and remove the debris. They need to make sure anything remaining is safe, and up to code. Then the rebuilding phase starts. The insurance company’s responsibility is to put you into the same style, with like kind, quality and construction of home that you had just prior to the loss. As a quick note, when your broker calls to review the details of your home, this is what we are doing. We need to make sure all information is accurate so if you suffer a loss the information on file is correct. (I know some find this annoying, but we want to provide the best protection for you and your family.)
Now the insurance company needs to get started at finding a contractor (s) that can get your home rebuilt. Depending on the situation, this could be easy, or it could be very difficult. When your insurance company has to put your home up quickly, the cost of labor, supplies and materials are not always the least expensive. It is very common insurance companies have to pay more for such things as they do not have the luxury of waiting for building supplies to go on sale or contracting business to slow down. They need to get you back into your home in the shortest time frame possible.
Consider the following factors:
- The Insurance company have to dispose of debris and the area could require extensive clean up
- Foundation may be destroyed and have to be removed and re-poured
- soil could be contaminated
- The roof may need to be removed and rebuilt from the top down; very time consuming and labor intensive
- older homes may contain customized features not commonly found today
- a change in building codes may alter how or where on the lot you can rebuild
- construction costs rise and contractors are in demand after natural disasters
- if it is not a total loss, undamaged areas of the home have to be protected
- the quick time line to get you back home could result in a higher price tags on materials and contractors fees
Insurance companies have to consider all of these factors and many more when determining a rate for your home policy. They also have to consider basic things like the type of home you have, how old it is, the total living area, style, construction type, if the basement is finished, what is on the exterior walls and roof, how many bathrooms, and the list goes on. Consideration has to be given not only your home but about other buildings or property you have, like a garage, shed, or pool. These other buildings and extras need to be factored in when the valuation for your property is done as it could be possible to lose everything in a single incident.
Most companies have a general rule of a dollar value per square foot in order to make sure values are in line but your broker will enter all of the details about your home into an evaluation program and that will give them a good idea of the current rebuilding cost of your home. A more expense route, would be for the homeowner to get a recognized professional appraisal done that calculates rebuilding cost. Many insurance companies would use what the appraisers determined the rebuilding cost should be. Before you go through the expense of this, contact your broker to discuss this option further.
Now, one final common question from our clients…
“Why do they put the value up every year? Well, the answer is simple. If they did not raise the rebuilding cost by the rate of inflation, you could become extremely under-insured within a few years. So what they do is increase the building value a small percentage each year to keep up with increasing costs and inflation.
Sometimes, though, we do notice that either the costs have increased too much or not enough. Many people make changes to their homes that can affect the rebuilding cost. Many people do not call their insurance broker to tell them. It is one thing that many just do not think about. You may finish your basement, add a bathroom, add a deck or build a garage. All these additions will affect rebuilding costs. To be safe, we like to do a new evaluation every 5 years or sooner to make sure you are insured to the proper value. That is why we like to review your insurance with you each year.
Of course, we always welcome your questions and would love to talk to you. Call us at (506) 432-1550 or pop us an email to firstname.lastname@example.org and we will get back to you!
Information Source: Intact Insurance