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Homeowners Policy
Today’s economy has consumers in the Gilbert AZ area taking a close look at their insurance coverage, particularly the replacement cost coverage otherwise known as Part A of your homeowners insurance policy. If you are like many people, you have received the county assessor’s evaluation notice and were horrified by the drop in the assessed value of your home and property.
Does this mean that you should you should reduce the coverage on your homeowners insurance? What is the difference between the market value of your home and the cost to actually replace?
The market value of your home should never be a basis for determining the home insurance values on your homeowners insurance, although it would be nice to save the money in premiums. The market value of your home is influenced by many factors including proximity to schools and the actual value of the land.
Replacement cost on the other hand can be much higher than the market value. Consider how much less it costs to build a brand new home as opposed to rebuilding. In most cases, with a new home, a brand new community is in development and a General Contractor purchases the materials to build on a greater scale which reduces the price for materials. The builder begins with a freshly graded piece of ground and pours a new foundation. To rebuild a total loss, the original home must be torn down and trucked out. There is an existing community in place so extra care must be taken in regards to existing power grids, water mains, and landscaping. Since the materials are not bought in bulk, these costs can be much higher, as well as the higher costs of transportation caused by elevated fuel costs.
As you can see, you must be careful when it comes to adjusting the replacement cost of your home downward. Unless you want 50% of your home rebuilt, it is wise to perform a replacement cost estimate to determine your replacement value. Keep in mind that the market value of your home could improve and often time surpass the replacement value. In this case the value of the land has improved but will not necessarily cause the replacement cost to increase.
Keep your head on straight and don’t be uninsured!
Comments
How would one best figure out the Replacment cost ? Any online tools to help in this area ?
Good question. You can speak to your current agent and have them run a current replacement cost estimate on your home. Include any upgrades and additions to your home that might have increased the square footage. Also check at accucoverage.com where you can do your own estimate for $7.95.
My replacement value is more than 3 times what the market value is. I live in Kansas. It is not worth it to me to pay for replacement value since it is so high and I would not want to rebuild anyway. All the agents around here seem to insist on replacement value coverage. Is there any way to get around that?
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