Replacement Cost Guarantee or Extended Replacement Cost Homeowners Insurance

I have mentioned before, unlike auto insurance, there can be a huge difference in the home insurance coverage offered by insurance companies. One major difference is whether an insurance company offers a guarantee to rebuild your home, no matter what the cost to rebuild it.

For example, you buy homeowners insurance, and the insurance company determines you need $200,000 to rebuild your home. 6 months later, your house burns to the ground. The actual cost to rebuild your home is $280,000. Depending on the insurance company you chose, and the coverage options they offer, you may get only $200,000 for your claim, or $240,000, if you have an extended replacement cost option, or the full $280,00 it takes to rebuild, if you have a replacement cost guarantee.

If you have the replacement cost guarantee, you will get whatever it costs to rebuild — even if it costs $500,000 — to have your house rebuilt to the same size and quality of the house before it was damaged.

So, if you have 1,200 square foot, 2 bed room, tract home, the insurance company will rebuild you a 1,200 square foot, 2 bedroom tract home, no matter what the cost, but they won’t pay more to upgrade your kitchen, give you a third bedroom, or more square footage.

I’m blogging today to explain homeowners insurance replacement cost options to rebuild your home, why they are so important, and how to find insurance companies with the best home insurance coverage options for you.A major loss to your home is traumatic enough, but to be short $80,000 to rebuild your home, when you may have been able to  purchase homeowners insurance which would have covered the entire cost,  leads people to feel ripped off by their insurance company.

Remember, when you shop for homeowners insurance, you want to purchase the replacement cost guarantee option whenever possible. But you also want to consider the customer service & complaint record of the insurance company, too. It doesn’t help to have better insurance coverage options if the insurance company fights you over paying them.

First, you may wonder, if an insurance company determines the cost of rebuilding your home, when you apply for home insurance, with many insurance companies inspecting your home, to make sure the insurance company’s estimate of the cost to rebuild your home is accurate, why would it cost more to rebuild your home, than the dollar amount for which your home is insured?

For example, if the insurance company determines you need $178,850 to rebuild your home, and they insure your home for $190,000 to be sure you have enough coverage, why would $190,000 not be enough coverage?

Insurance companies have sophisticated software to help them determine the reconstruction cost of your home, which is the amount for which they insure your home.

This can confuse customers expecting to insure for the market value of their home. It is not in the interest of the customer to insure to the market value, which has nothing to do with the cost to repair a damaged home.

In a down economy & weak real estate market, you might get a great deal and pay $150,000 for an older home. Older homes (Pre-1950) cost more to rebuild. If your home burns to the ground, it may cost $250,000 to rebuild. Or, a modest home in a popular neighborhood with a great school system, might have a $250,000 market value, but it may cost only $150,000 to rebuild a similar home.

So, instead of using the market value, insurance companies use information about your house — square footage, building materials, architectural features, style of home, built-in features, etc., and determine the cost to rebuild your home.

Even with computer software, this is very hard to do accurately. Missing one feature can come up with an inaccurate replacement cost off by tens of thousands of dollars. Many agents don’t ask all the questions, or customers don’t know how to answer the questions accurately. Older, unique or custom, or high value homes are less likely to have their true replacement cost determined by insurance company software.

It’s not a matter of being thorough: I worked for an insurance company that used to take about 20-30 minutes of the customer’s time asking them a lot of questions about their home, which the insurance company eventually shortened, because it was not leading to more accurate replacement costs for homes.

Most agents these days research your home on the Internet, use the insurance company software to develop a replacement cost, then hedge it with a rough measure to rebuild, like $100 a square foot, and don’t ask you a lot of questions about the specifics of the construction of your home.

Using a certain dollar amount per square foot is a bad way to go, too, because it is usually based on new construction building costs, which have lower costs due to economies of scale, and do not include expenses involved when you are reconstructing or repairing a home.

As much as insurance companies do their best to insure your home for its true replacement cost, I have no confidence in the accuracy of the replacement cost determined by insurance companies.

A common problem, when large losses occur to homes, is they are under-insured, and the homeowners do not have enough insurance to rebuild their homes.

One reason contributing to people not having enough insurance coverage for their homes is higher repair costs due to catastrophes.

If your home was damaged by a catastrophic event, like a hurricane or wild fire, many houses were also damaged at the same time. The demand & price for labor & construction materials soars, driving up the cost to rebuild.

Even if your home was not part of a catastrophe, if you have a house fire around the same time as other people are rebuilding from a bad tornado season, your home reconstruction costs will be affected, too.

Many insurance companies automatically increase your home insurance coverage, to keep pace with the inflation costs of building in your area, which you see as an increase in coverage each year at renewal. But you can’t depend your actual rebuilding costs will reflect the inflation index, and it does not account for short term price spikes due to a recent change in demand.

In the 1980s & early to mid 1990s, insurance companies had a lot of faith in their ability to estimate the correct cost to rebuild homes.

Almost all insurance companies gave you guaranteed replacement cost, for the price of one dollar a year, as an incentive for customers to insure their homes to the replacement cost estimated by the insurance company.

The guaranteed replacement cost coverage has the insurance company agreeing to pay whatever it costs to rebuild a similar home, as long as the customer insures to 100% of the reconstruction estimate, and notifies the insurance company of any remodeling, additions, improvements, or changes to the building. If the insurance company estimates the replacement cost at $200,000, but it turns out it costs $300,000 to rebuild your home, the insurance company will pay $300,000.

But the insurance companies thought it would be rare if they had to pay more than their estimate of the cost to rebuild, and the amount for which the home was insured. The insurance companies thought wrong.

Severe hurricanes and wild fires in the 1990s cost the insurance industry A LOT of money, because of the guaranteed replacement cost option, and under insured homes.

Many insurance companies replaced their guaranteed replacement cost option with an extended replacement cost option, which caps the amount they will pay above your policy limit. The typical limit is an additional 20% or 25% of the amount of insurance on the house.

For example, if your home is insured for $200,000, an extended replacement cost option will pay up to another $40,000, if needed to rebuild your home.

The need for insurance companies to go from offering a replacement cost guarantee, to a more limited extended replacement cost option, should tell you the extended replacement cost option may not be enough to rebuild your home if you have a claim.

You can do your best to make sure you buy enough insurance to rebuild, but you can’t afford to have a lot of damage to your home, and find out you don’t have enough insurance.

If you can find an insurance company with a reasonable complaint record & good customer service, offering a replacement cost guarantee, you should consider it.

Shop with all the leading home & auto insurance companies to find the best prices, but ask each insurance company about the availability of the replacement cost guarantee, and consider it, with other factors, before you choose your home & auto insurance companies.

Before researching this blog post, I thought getting a replacement cost guarantee for your home insurance these days was not likely, unless you insure with an insurance company specializing in high value homes, like Chubb, Fireman’s Fund, Chartis, & Encompass insurance.

However, the replacement cost guarantee MAY be available with these insurance companies:

Auto Club of Southern California

Auto Owners Insurance

American Family Insurance

Country Insurance (Country companies)

Erie Insurance

Metlife Auto & Home Insurance

You may need to own a newer home to qualify, and availability may vary by state, and it is possible I could be wrong about these insurance companies still offering replacement cost guarantee, so buyer beware.

The key to guaranteed replacement cost is it will pay an UNLIMITED amount, if needed to rebuild, so make sure an insurance company is not trying to convince you extended replacement cost is the same as GUARANTEED replacement cost.

Independent insurance agents represent multiple insurance companies, and are most likely to know the difference in coverage among insurance companies, and which insurance companies may offer replacement cost guarantee in your area. It is always good to consult with several agents, to make sure the information you get is accurate.

First of viagra prescriptions online all, you need to know it will only work when you are aroused. ED is a problem that can be experienced by all children but it normally happens when the force of the blood pumping through your arteries is too cipla cialis india http://abacojet.com/category/uncategorized/ strong. There may be slight technical differences between the two words but in truth they are often used interchangeably viagra generika without clear distinction. It also contains the same ingredient sildenafil citrate. discount cialis 20mg