Home Insurance Policy/Deductable Questions

[rstove02]

Why is it that companies that write home insurance policies get to dictate the "replacement amount" of the house and its contents with no recourse from the policy holder?

Why would a market value house of 74k with 20k (generous) of belongings inside require a $188k policy with $94k belongings (50% of house coverage)? Now I understand market value != replacement and that after a 'state-of-emergency' level event will cause localized price increases of replacement materials. I just can not see it resulting in this much padding. Also considering that these same companies seldom pay out near this amount even on full loss claims.

Why can I just dictate dollar limits and the company is only responsible up to that amount? If there is a shortfall, it's my problem not theirs?

At the end of the day I just see it as a way to pad premiums and hurricane base deductible value (which is usually a percentage of main policy coverage).

Am I am missing anything here?

 

[OCGuy]

A lender cannot require your dwelling coverage ( "A" ) to be higher than either the appraised value, or what is known as the "cost to rebuild", which either an appraiser includes on page 3 in a report if you are buying or refinancing, or the insurance company uses a "cost estimator" if you are just switching policies with no financing transaction involved. They use a handbook to estimate labor and materials.

The cost to rebuild is generally lower than the value of the home, because the value of the home also includes the land, which would not be effected if the house burnt down.

Lenders don't care about your belongings coverage, that is between you and the insurance company.

Insurance is so cheap that there is no reason not to have it, though.


What you may be seeing is "guaranteed replacement coverage" which is usually an extra 50% on top of the base dwelling coverage. This is usually a bonus amount, which allows you to actually pay for a lower base dwelling, but still have the coverage necessary to satisfy the lender and get your home rebuilt.

 

[DeviousTrap]

Your insurance company is responsible for "making you whole" in the event that some disaster strikes your house.

Your house might only be worth 74k, but should it be destroyed, could you rebuild an exact replica for the same amount of money? It's irrelevant that the market value is less than the cost of building a new house. The insurance company can't tell you here's the 75k you paid, go and buy a completely different house in the same neighborhood.

Imagine someone in the exact opposite of your scenario, living in an expensive house in an expensive community where a house is worth more than the sum of it's material cost. You could own a $2m house, based on comparables, but if it's destroyed and you need to rebuild it, it would only cost you $1.2m to do it. In that case, your replacement value policy would be for less money than the market value of your house.

 

[etrigan420]

A lender cannot require your dwelling coverage ( "A" ) to be higher than either the appraised value, or what is known as the "cost to rebuild", which either an appraiser includes on page 3 in a report if you are buying or refinancing, or the insurance company uses a "cost estimator" if you are just switching policies with no financing transaction involved. They use a handbook to estimate labor and materials.

The cost to rebuild is generally lower than the value of the home, because the value of the home also includes the land, which would not be effected if the house burnt down.

Lenders don't care about your belongings coverage, that is between you and the insurance company.

Insurance is so cheap that there is no reason not to have it, though.


What you may be seeing is "guaranteed replacement coverage" which is usually an extra 50% on top of the base dwelling coverage. This is usually a bonus amount, which allows you to actually pay for a lower base dwelling, but still have the coverage necessary to satisfy the lender and get your home rebuilt.

How often does the insurance company re-evaluate the property value? Or is that up to the homeowner to bring attention to?

Not that I'm complaining...we currently pay USAA $808/yr...

Just curious.

 

[OCGuy]

How often does the insurance company re-evaluate the property value? Or is that up to the homeowner to bring attention to?

Not that I'm complaining...we currently pay USAA $808/yr...

Just curious.

When your policy is renewed, they use an estimator based on the address. the year your home was built and the square footage to determine if any adjustments should be made.

 

[fstime]

$188K is nothing, you are free to get a quote from another insurance company that may give you more or less coverage. You can also look at a higher deductible if you want to lower your policy premium.

I'm guessing this is a very small and basic house. You would be surprised how expensive material is in today's world. Go into your local Home Depot, building materials are probably double what they were 10-15 years ago.

 

[rstove02]

$188K is nothing, you are free to get a quote from another insurance company that may give you more or less coverage. You can also look at a higher deductible if you want to lower your policy premium.

I'm guessing this is a very small and basic house. You would be surprised how expensive material is in today's world. Go into your local Home Depot, building materials are probably double what they were 10-15 years ago.

Well this is Florida, so housing values and materials are not too bad in general. As for competition, well there is none. It usually is a minor miracle to find one company to write a policy let alone two different ones. Plus they seem to all using the same 'replacement-value' estimator software system to pick the coverage amount and none seem to accept independent (i.e. third party estimators) when you try to plead your case.

So it usually follows is:
1) Here is your policy the computer spit out
2) Do no like the coverage amount, well you can pay us $350 for our estimator guy/gal
3) Estimator sides with their employeer

 

[Jimzz]

A lender cannot require your dwelling coverage ( "A" ) to be higher than either the appraised value, or what is known as the "cost to rebuild", which either an appraiser includes on page 3 in a report if you are buying or refinancing, or the insurance company uses a "cost estimator" if you are just switching policies with no financing transaction involved. They use a handbook to estimate labor and materials.

The cost to rebuild is generally lower than the value of the home, because the value of the home also includes the land, which would not be effected if the house burnt down.

Lenders don't care about your belongings coverage, that is between you and the insurance company.

Insurance is so cheap that there is no reason not to have it, though.


What you may be seeing is "guaranteed replacement coverage" which is usually an extra 50% on top of the base dwelling coverage. This is usually a bonus amount, which allows you to actually pay for a lower base dwelling, but still have the coverage necessary to satisfy the lender and get your home rebuilt.

Yea I'm guessing the market where the op lives is depressed and cost to rebuild is higher than the sell value.

Many places now a house can cost more to rebuild then what it will sell for. An extreme case would be a $1000 house in detroit. One story the guy auctioning the house said "the wood cost more than the bid people...".

 

[OCGuy]

Yea I'm guessing the market where the op lives is depressed and cost to rebuild is higher than the sell value.

Many places now a house can cost more to rebuild then what it will sell for. An extreme case would be a $1000 house in detroit. One story the guy auctioning the house said "the wood cost more than the bid people...".

Haha...that is why I included the "generally" qualifier.


Housing has recovered immensely in many parts of the US in the last 5 months.....some places close to the pre-bust levels.

Home Sales up 6.5 Percent; Prices Nearing Pre-Crash Peak

Aug 21 2013, 11:07AM


Sales of existing home increased strongly in July and median home prices are now nearing their pre-crash peak National Association of Realtors® (NAR) said today

http://www.mortgagenewsdaily.com/08212013_existing_home_sales.asp

 

[Jimzz]

Haha...that is why I included the "generally" qualifier.


Housing has recovered immensely in many parts of the US in the last 5 months.....some places close to the pre-bust levels.

Home Sales up 6.5 Percent; Prices Nearing Pre-Crash Peak

Aug 21 2013, 11:07AM


Sales of existing home increased strongly in July and median home prices are now nearing their pre-crash peak National Association of Realtors® (NAR) said today

http://www.mortgagenewsdaily.com/08212013_existing_home_sales.asp

I see he is in FL so that explains it a LOT. The prices there are still low, sink holes, hurricanes, many insurance companies left FL, etc... so insurance covers more than the sell price.

I've been looking in the Orlando area, want to leave NoVA, and the house prices are awesome... for someone buying that lives in NoVA.

My policy is more than it cost to rebuild as prices here, like you link backs up, have been going up very well but still many out of work labors.

 

[rstove02]

Yea I'm guessing the market where the op lives is depressed and cost to rebuild is higher than the sell value.

Many places now a house can cost more to rebuild then what it will sell for. An extreme case would be a $1000 house in detroit. One story the guy auctioning the house said "the wood cost more than the bid people...".

I would admit that is generally true for the area since prices went nutty in the 2007 area. In my case I bought the house for 84k in 2004 (was not needing a house immediatly but saw writing on wall) and according to "experts" it appreciated up to $166k during the craze. Now it is back to high 70s low 80s by the same "experts".

Ever since buying the house 2004, the homeowner insurance companies have raised coverage amount on the home (even in the one year there was an average 24% drop in home value for the county) and provided little explanation or recourse.

 

[bignateyk]

I wondered this too. Our house is appraised at 365K, but we have 5 acres of land, which makes up a large portion of that. In reality, it might cost 150-200K to rebuild the house if it burned to the ground.

Then they base your replacement belongings on a percentage of the property, which is like 200K or something ridiculous. At most I have 30K worth of belongings.

There's no reason I should have more than 200K homeowners + 50K belongings, but yet I'm forced to carry 365K+200K or something outrageous.

 

[drebo]

I had USAA play around with the numbers a bit when I just bought my house. Changing the rebuild cost and personal belongings coverage resulted in like 2-3% adjustments in the yearly premium (which is like $600/yr). What really helped is changing the $500 suggested deductible to a $1000 deductible.

 

[bignateyk]

I had USAA play around with the numbers a bit when I just bought my house. Changing the rebuild cost and personal belongings coverage resulted in like 2-3% adjustments in the yearly premium (which is like $600/yr). What really helped is changing the $500 suggested deductible to a $1000 deductible.

I changed my $500 deductible to $10,000 deductible. It dropped my insurance from about $1500 a year to $600. Even still, I'm paying for twice as much insurance as I really need

 

[MrDudeMan]

You can ask for whatever replacement value you want as long as it's within the range of the price of the home and it's justifiable. State Farm initially wanted to cover my house for 530K, but the house isn't even worth that much. I lowered it to 420K. Our last house had the opposite situation: they wanted to cover it for 210K, but it was worth nearly 300K. I increased the policy to 240K as that was the likely replacement cost.

 

[weadjust]

I wondered this too. Our house is appraised at 365K, but we have 5 acres of land, which makes up a large portion of that. In reality, it might cost 150-200K to rebuild the house if it burned to the ground.

Then they base your replacement belongings on a percentage of the property, which is like 200K or something ridiculous. At most I have 30K worth of belongings.

There's no reason I should have more than 200K homeowners + 50K belongings, but yet I'm forced to carry 365K+200K or something outrageous.

Some states requires the insurance co. to pay policy limits on the dwelling coverage in the event of a total loss. If your house burned to the ground in a valued policy state you would receive a check for 365K.

Definition of 'Valued Policy Law - VPL'
A statute that requires insurance companies to pay the full value of the insurance to an insured entity in the event of a total loss. The Valued Policy Law does not consider the actual value of the insured property at the time of the loss; instead, the total loss mandates the total payment.

Not all states within the United States have these laws. States that do have Valued Policy Laws include Arkansas, California, Florida, Georgia, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Ohio, South Carolina, South Dakota, Tennessee, Texas, West Virginia and Wisconsin.

 

[boomhower]

My insurance company insures my house for replacement cost at about 120% of what I paid for it. My guestimation is that's about right, market around here is in the complete dumps and I bought for an incredibly cheap price. I checked with several companies and they were all quoting very very similar coverage amounts, just at vastly different prices. I'm OK with this. If my house burns down I want to be able to rebuild it without worry. If it was insured for what I paid I'd be screwed.

 

[alkemyst]

I buy replacement value. For Real Estate that doesn't work, everything else you better make sure you have it.

I had a $30k+ loss a few years ago.

Also don't believe your insurance company when they say you only need some pictures.

Keep all receipts, make video and pictures with dates in them.

My loss took almost a year to get paid out.

 

[Jimzz]

You can ask for whatever replacement value you want as long as it's within the range of the price of the home and it's justifiable. State Farm initially wanted to cover my house for 530K, but the house isn't even worth that much. I lowered it to 420K. Our last house had the opposite situation: they wanted to cover it for 210K, but it was worth nearly 300K. I increased the policy to 240K as that was the likely replacement cost.

I think it also depends on who services the mortgage as well. Some are more picky with replacement cost if I remember correct.

But if you don't have a mortgage then its a lot more open. Me and my wife are paying down as quickly as well can. Less than $150k to go on a 500-550k house, or about 2 years to go.