Insuring To Value
When you shop for a Homeowners Insurance Policy one of the first things an agent will do before a quotation is given is try to determine the accurate building replacement cost of your home. This is not an easy task as the cost of building materials, the quality of construction and the cost of labor can vary greatly depending upon the location of your home and the year it was constructed in. Houses in Agoura Hills are mostly newer than houses in Woodland Hills. Houses in Thousand Oaks can be brand new or have been built in the 1960’s. Building codes can vary between L.A. county and Ventura county. While there are computer programs that help the agent determine the building replacement cost, these can be off as some of the questions are subjective, agent interpretation of an insured’s answer can vary (from what the insured intended) or the insured is clueless about the features of their home (year of construction, square footage, type of roof, etc.). And trust me, many are.
The building replacement cost of a home will determine the amount of coverage the insured should purchase to adequately insure their home. If the determined replacement cost is too low there may not be enough coverage to rebuild the house. If the determined replacement cost is too high, the insured will be paying for coverage that can never be realized. Though myself, I would prefer to be too high rather than too low and have to explain to my client why there is not enough coverage to rebuild their house.
Often the building replacement cost of a house does not match the current market value of the house. The market value of a house is how much a house can be sold for, while the replacement cost of a house is how much it will cost to rebuild that house should it be destroyed. These two numbers rarely match. Often in a down real estate market the sales price of a house can be less than the cost to rebuild that house should it burn. Houses in Rosamond, CA can be purchased for significantly lower amounts than the cost to rebuild them. Likewise, the inverse can be true as well. The replacement cost of a house can be significantly lower than the cost to purchase a house in a given area (Sherman Oaks, Encino, Beverly Hills, etc.).
What should you get from this article? First, insuring to value is important to be sure that your house has enough coverage should it suffer a total loss. Second, determining the building replacement cost of a house is not an exact science. Third, Market Value and Replacement Cost Value of a home are not the same thing. Finally, it is probably better to have too much coverage rather than not enough coverage should you suffer a total loss.
If you have any questions, call our agency in Agoura Hills and ask for Garrett.
This article(s) represents the views and opinions of Garrett Parkinson and not the Insurance Companies that he represents or illustrates in his articles.