One of the easiest ways to determine the incorrect replacement cost of your home, to see how insurance companies would do it, is to request a real estate agent to assess the resale value of your house. In most cases, the figure given will be based on the sale of your neighbor’s homes that are similar in size to yours. In other words, they base their figure on comparable value. Insurance companies do not work on the same principle.
You might be shocked to find out that improvements inside your home are often taken into consideration. The true market value of any home is normally around 35% higher than the comparable value given by your Realtor. This figure will actually fluctuate even more when it comes to the determination of replacement cost by the insurance company.
The replacement cost of the house simply means the cost to replace or rebuild the home or property on the same premises with other property of comparable material and quality used for the same purpose whether it be residential or commercial.
As insurance companies do not only cover the house but the contents as well, you would need to be aware of the terms cash value and replacement costs. It is best to ensure you are covered by “The Replacement Cost Endorsement” as the “Actual Cash Value” will make use of depreciation to determine the amount you will receive, which will make it almost impossible to replace your home or belongings.
Just in the U.S alone, nearly 64 percent of American homes are not valued correctly.
There are millions of homeowners who are at risk of facing major financial losses should a natural disaster destroy their homes. Due to being under-insured.
One fact often overlooked by homeowners is what is actually covered by their home insurance company. It is a case of reading the fine print to determine what is not covered. The facts show that most standard homeowner insurers do not cover damages caused by floods, earthquakes, acts of war, terrorism, and nuclear accidents. There might be a chance to obtain special coverage in certain cases.
Would it be wise then to increase the coverage of your home excessively to get the most out of your homeowners insurance policy in the event of a claim? Not necessarily. It is a case of understanding the value of your home and ensuring your house is insured for at least 100% of its estimated replacement cost is vital. You do not want to be subject to a possible coinsurance penalty given when your home is under insured at the time of a loss which can be devastating.
To help you determine your home’s replacement cost, you need to;
1) Obtain an estimate of the replacement cost (appraisal, inspection with MSB or underwritten homeowner quote and
2) go on to select the actual coverage amount that would be best suited to your specific needs.
Further to this, as a homeowner you need to understand the difference between replacement cost and market value. Replacement costs would be the rebuilding cost to replace your home, whereas market value would be the amount a buyer would pay for you home should your property was sold on the market.
In our opinion, it would be in your best interest to use MSB (Marshall & Swift/Boeckh) as it is the standard way of determining replacement cost in the insurance and related industries others include 360 E2Value . Information from the insured or homeowner is transferred to MSB includes the following:
l Primary Insured’s full name (First, middle, and last)
l Co-insured full name (First, middle, and last)
l Property address
l Zip code (5-digit only)
l Year built
l Construction type
l Foundation type
l Total square footage
l Number of stories
l Number of families
l Exterior Walls
l Garage or carport
l Garage/Carport type
l Number of cars (for garage or carport)
l Roof type
l Additional attached structures (i.e. pool, screen enclosure, patio)
l Interior materials( i.e. Hardwood, Marble, Granite)
l Quality Grade (i.e. Builder’s Grade, Semi-Custom or Custom)
As you can see it is an extensive list. By using this method for determining your home’s replacement cost there will be no guessing work, and you will be able to rest in peace knowing that you will not lose out should there will be a need to replace your home due to some unforeseen circumstances in the future.
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