Understanding Replacement Cost calculations will help assure that your home is properly insured.

One of the issues surrounding the recent wildfire losses in California is that of underinsured homes.  It is important that the dwelling coverage amount on your homeowners insurance policy is sufficient to rebuild your home to pre-loss conditions in the event of a total or partial loss.  This also makes the claims process much easier and quicker.  The calculation method that we use to determine the replacement of a home is based on Reconstruction costs, not Market Value or the cost of New Construction.  In other words, amount of homeowners insurance doesn't always equal your mortgage balance. 

The Reconstruction cost of a home is the cost to rebuild today with similar materials and craftsmanship used during its original construction.  Building experts say that reconstruction can cost up to 30% more to rebuild a house than to build it new.*  Builders hired for reconstruction require a higher skill set since they are required to work around existing structures, landscaping and power lines.  They also need to be able to match up new materials to existing materials.  We use reconstruction cost because it most closely appoximates the cost to rebuild your home to pre-loss condition.

Eventhough reconstruction costs can be up to 30% more than new construction cost, this doesn't necessarily mean that the dwelling coverage on your homeowners policy will be equal to your loan balance or the market value of your home.  Remember that the Market Value of your home takes into consideration many factors including location, lot size & placement, and current market trends relative to your area.  This means that what your home is "worth" according to the market isn't always what it would cost to rebuild in the event of a loss.

It is important that you keep your agent updated with respect to any home additions and/or upgrades that may significantly affect the replacement cost of your home.  Unfortunately many insureds make home improvements without notifying their agents and later on finding themselves underinsured.

"When a person buys insurance he is mostly concerned with the cost of that insurance.  When that person experiences a claim he is mostly concerned with the coverage he has."

*Researched by Marshall & Swift/Boeckh