This is the coverage that insures your house, and structures attached to your house, such as a garage or porch, from certain causes of damage, such as fire, subject to your policy deductible.
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When you contact an insurance company for an homeowners insurance quote, the insurance company representative will ask you questions, like the size and features of your home, to determine how much coverage you need to rebuild your home.
Even though the insurance company has sophisticated software to calculate building costs in your area, determining the cost to rebuild your home is not easy to do by having a conversation with you.
If, for example, you tell the insurance company your 1st floor is 1000 Sq. ft., but the actual square footage is 1100 Sq. Ft., the insurance company’s estimate of the cost to rebuild your home will be less than the cost to actually rebuild it. Missing features like custom cabinets, a half bathroom, or a built-in hot tub, can leave you under-insured.
For higher-value, custom-designed, or historic homes, it is more difficult for the insurance company to calculate an accurate cost to rebuild it.
Many insurance companies conduct a drive-by inspection of your property, once you are a customer, to make sure you have enough insurance to rebuild your house, and they will increase your coverage — and your premium — if you need more coverage.
To avoid a surprise price increase due to needing more coverage, make sure you discuss your home thoroughly when you get homeowners insurance quotes. Each insurance company quoting you should determine you need about the same dollar amount of insurance to rebuild your home. The dollar amount of coverage on your home has the biggest impact on the price of your homeowners insurance.
If one insurance company quotes you a price of $350 per year for $150,000 coverage on your house, and another insurance company quotes you $400 per year for $250,000 coverage on your house, the first company is not a better deal, and is probably more expensive if they quoted you the same amount of coverage as the second company.
If you have a high value home with custom features and made with expensive building materials, you may want to choose an insurance company willing to do a thorough interior inspection for you, to make sure you are adequately insured.
After severe storms & fires, many homes are determined to not have enough coverage when they try to rebuild after a claim, so you want to do everything you can to make sure you have the proper amount of insurance. You can figure your own cost to rebuild your home at building-cost.net and compare it with your agent’s estimate.
Remember, the cost to rebuild your home is not the market value of your home. You can buy a house for $400,000 in a fashionable suburb, but if you were to move the exact same house across town to a neighborhood in decline, with high crime and a poor school system, the same house could cost $150,000 to purchase, but the cost to build the house — say $250,000 — would not be changed.
Sometimes, the market value, or your mortgage amount, will be a lot more than the cost to rebuild your home. Lenders often want your homeowners insurance to cover the loan amount — but a bank cannot make you insure your house for more than the cost to rebuild it. Don’t over-insure your home due to pressure from your bank.
If you are buying or refinancing a home, when your house is appraised by a real estate appraiser, the appraiser also determines the cost to rebuild, and lists it on the appraisal. You can use this estimate of the cost to rebuild to make sure you have enough coverage, too.
If it has been several years since you have had your insurance company re-evaluate how much insurance you need to rebuild your home, or if you have done any remodeling or additions, you need to contact your insurance company to check your home’s reconstruction cost, and make sure you have enough insurance.
1. Many insurance companies provide additional coverage, usually called Extended Replacement Cost — often 20% or more of the amount for which your home is insured — in case it is needed to rebuild your home.
This additional coverage varies depending on the insurance company, so you want to consider the most generous additional coverage, as well as the cost of the policy.
To have this additional coverage, the coverage on your house will increase each year at renewal to keep pace with the inflation rate for labor and building materials in your area.
Also, you will need to notify your insurance company before you do any remodeling or additions to your home, so your insurance company can adjust your coverage.
2. In addition to having enough coverage to rebuild, please see my blog post of a frequently overlooked coverage, called Ordinance & Law Coverage, which can keep you from paying tens of thousands of dollars out of your own pocket if you have a claim.
3. Compare quotes with the same deductible, and take the highest
deductible you can afford to save money. Make sure you get all the
discounts for which you qualify.
4. When the insurance company does the drive-by inspection to verify the cost to rebuild your home, the insurance company is also checking to make sure your home, other structures on the premises, and property meet the insurance company’s eligibility standards. The insurance company makes sure your home is occupied, there are no vicious animals on the premises, and no conditions which will increase the chance of a claim, such as substantial moss on your roof, major remodeling/renovation, porches without railings, peeling paint, etc.
Once you start your homeowners insurance policy, the insurance company has 60 days to notify you, if the insurance company is going to cancel your policy, because your home does not meet their required standards.
Make sure you maintain your home properly. Even a small amount of moss can greatly shorten the life of your roof, and roof leaks due to seepage are not covered by homeowners insurance — which can cost you $1000s.
Review the application for homeowners insurance for accuracy before you sign it and pay for it. If you have a Pit Bull, and notice the application says you have no dogs, tell your agent. Point out anything inaccurate on the application and ask questions if you do not understand something on the application.
If you receive a cancel notice because of inspection results, make sure
the reason is accurate, and work with the insurance company to resolve
the issues. The cancel date will be at a future date, and you should be
able to get the issues resolved and your policy reinstated in time to
avoid a lapse in coverage.
Most problems are easily fixed, and other insurance companies are going to have the same concerns if you wish to change insurance companies. It is important to maintain your home in a timely fashion to avoid costly expenses and problems with your homeowners insurance.
Even if you have homeowners insurance now, many insurance companies periodically conduct a drive-by inspection of the homes they insure, and if your home is not properly maintained, your insurance company may cancel your homeowners insurance at your policy renewal date.
What causes of damage are covered?
Most homeowners insurance policies cover your house on an “open peril” basis, which means damage to your home is covered, unless it is specifically excluded in your homeowners insurance policy.
Common exclusions are for earthquake and flood. However, some
homeowners insurance policies are “named peril” and less causes of loss
are covered. Please contact your agent to find out what causes of loss
are covered or excluded, and what limitations apply, or read your policy.
I know insurance policies are not fascinating reading, but you need to review your homeowners insurance contract and pay special attention to what is covered, what exclusions apply, and any limitations on coverage.
You can call your agent if you do not have a copy of your policy contract and all endorsements (endorsements modify the wording in the insurance contract–for example, your homeowners insurance contract excludes earthquake damage, but your insurance company may offer an endorsement to cover earthquake for additional premium), have your insurance company or agent mail it to you, and keep it with your important documents.
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