Thursday, January 10, 2013

Should You Really Argue About The Insured Value of Your Home?

I'm going to rant a little here. I have a few great folks I'm working with both in the past and a little more recent that say that the insured value of their home is way too high. "It's not worth that", "I don't have that much stuff!" and "My friends a builder and he says it should only cost....." are all cries I've heard before and am still hearing today.

The problem is that in insurance we are looking at it from a different point of view. Sure, you can get less coverage and I know you don't want to pay anything for insurance. But that nice cheap policy that figured your rebuild cost on your 2,000 sq.ft. home at $198,000 is really great right now. When your house burns down and the carrier says "OK, your deductible is $1,000 and oh, by the way, your co-insurance penalty is $122,000. Will you be paying by check, cash or credit card?", remember, you got an amazing deal on your insurance. Well done you.

While I know insurance is costly, it's also something you want to look at closely. In California the state felt that too many folks where under insured. Hey, we really like to regulate peoples lives in this state, so insurance carriers, agents and fellow citizens, here's a new list of regulations about how you need to figure rebuild cost for property and while you're taking into account these 30 items in your rebuild analyses  we're not going to give you a standard way to do it. Enjoy.

Many carriers collect data from Marshal & Swift, RCT Valluation Services, , 360 Value, and other services that collect data on rebuild costs around the country and in some cases around the globe. That data is then brought into the carriers systems and lined up with their underwriting calculations and policy.

We also have to rebuild to current building codes and standards with modern building materials. Many homes I write policies for do not have fire sprinklers in them. California started requiring them and some counties and cities in the state did so before the state made it law. Therefore, when we rebuild your 1980, 3 bedroom home we have to put sprinklers in it. Add that into the calculations along with all the other building code changes that have happened since 1980.

There are many other factors that go into your homes insurance value. One thing on the list is the impact of a large disaster on building costs. (i.e. cost of materials, labor, transportation, etc.) How do you calculate for that I wonder?

The bottom line is this: The cost your insurer comes up with to rebuild your home is going to vary some what from carrier to carrier, and it may seem high compared to real estate market value or tax assessors value, but in the end we have to take into account state regulations and if you house burns down would you rather have more insurance or not enough?