Why You Need a Home Rebuild Cost Analysis
Be sure to take a closer look at your home insurance plan to ensure it offers the right level of coverage for your home right now. If it doesn’t, you could face financial loss later when you need file a claim.
Studies show that nearly 60% of homes in the US — that’s two out of every three — are underinsured by at least 18%.1 This means that if there is a total loss, such as a fire, the homeowner may find they are responsible for a significant portion of the rebuilding cost. Working with an insurance advisor to navigate your home valuation considerations will help eliminate confusion and help ensure an appropriate settlement in the event of a loss.
When the time comes to consider which type of home insurance to buy or how much coverage you need, think twice about just renewing the coverage you currently have. In many situations, your coverage can become ineffective or provide insufficient coverage to meet your needs if a significant issue occurs on the property.
I Can't Afford to Re-build My Home and Other Structures?
Recently our agency was asked to provide a property insurance quote. Our proposed customer didn’t realize that the property was woefully underinsured. To make matters worse, this owner previously bought a policy from a non admitted insurer because they weren't aware that they could apply to the California Fair Plan and get much more affordable insurance. We examined the previous policy and were very surprised. Our agency carefully considered the costs to replace the many additional structures on the property. Research was necessary and it caused a few delays, but we did find the proper value and costs to rebuild that property which happened to be in a higher risk fire zone.
We recommend you use an FHA simple calculator to start and then compare the coverage offered to the specific needs you have. If you have over the average amount of other structures on the property, add the cost to replace those structures to the basic value. This FHA (Federal Housing Authority) calculator can give you a better analysis of the property’s current value. You need to know the last sale price of the property and the date you propose to buy it and of course the State where the property is located. From this amount start adding the cost to replace any excess structures or additions. The calculator is HERE
When buying or insuring a high value or customized home or ranch consider a home rebuild analysis by a Certified Residential Appraiser. At this link from the National Association of Realtors, you can find the exact specialist appraiser you need Click here to find a specialist: Certified Property Appraisers
This will help you get an accurate idea of what it would cost to rebuild your home at today's construction costs. Update your home insurance policy to reflect the true cost so that if an event occurs in which your home is at risk of damage, you will have the coverage available to minimize those losses. Update your home insurance policy at least once every year or so to reflect changes in construction costs.
How Can I Know I Have Enough Coverage?
Determining if there is enough homeowners’ coverage in place to protect against a significant loss can be time consuming. If your home is impacted by fire or destroyed in a storm, for example, then the amount of damage present might create the need to not only replace what you've lost, but also to rebuild your property. That is why a home rebuild cost analysis is necessary.
The cost analysis is for rebuilding your home, not just covering its value. Rebuilding your home includes coverage for the construction process. With a home rebuild cost analysis, it becomes easy to learn what the true cost of rebuilding your home will be. Unfortunately, most people do not have enough coverage to completely rebuild their homes with no out-of-pocket expenses to them. However, with a home rebuild cost analysis, you can better calculate what that amount of money would be.
It’s also important to consider the replacement value of your home versus the actual cash value. Depreciation can have a significant impact on your actual cash value claim. For example, if your siding needs to be replaced at 15 years old, but it has a 20-year lifespan, you will be expected to cover most of the roof’s cost. Replacement value, on the other hand will cover rebuilding costs, regardless of depreciation. It’s important to take all costs into consideration.
What Role Does Replacement Cost Coverage Play in My Policy?
Replacement cost is the cost to reconstruct your home as it is now, and most homeowners’ policies offer replacement cost coverage. However, if you don’t insure to the full value of your home, you could be responsible for a significant portion of the rebuilding in the event of a loss. Also, some insurers may provide only functional replacement cost, which may not cover the cost to rebuild your home with materials of like kind and quality.
Most policies require that you insure your home to at least 80% of the amount of rebuilding cost to get a replacement cost settlement. If you are insured for less than that at the time of loss, you may receive an actual cash value settlement — which factors in depreciation related to the property’s age and condition —requiring you to pay a proportionate share of the loss. When buying an older home, the age of the roof is a factor that companies take into consideration when deciding to offer replacement cost coverages. The older the roof, the fewer options for replacement cost coverage.
When you insure your home to 100% of its replacement cost value, some insurance companies will offer the benefit of extended replacement cost. This provision will pay beyond your policy limit should the amount at the time of loss not be adequate If you have financed the purchase of your home, your lender will likely require that you insure your home for at least the amount of your mortgage. It’s important to talk to have a trusted insurance advisor to review your coverage yearly to add any changes to the structure which would add value to the property. A yearly review is one of the best methods to make sure your home is covered adequately after a loss
If you are a California resisdent, CALL US, Mark Trumm Insurance, Inc., at (530) 534-4600 to find coverage for your property or contact us HERE