Have your friends or neighbors ever complained that their insurer did not offer them a large enough settlement to rebuild their home after a windstorm, fire, or another covered hazard? As an established homeowners insurance agency in Elkhorn, WI., we work proactively to make certain that our clients will remain completely satisfied with their home policy, no matter what happens. Hopefully, you won’t ever need to make a major claim. Just in case the worst happens, you’ll be happy that you took the time to proactively figure out how much coverage you need to rebuild and repair your house.
Do You Know Your Home’s Replacement Value?
Naturally, the amount that your homeowner’s insurance policy will pay depends upon the maximum coverage that you selected for in the first place. Over time, rebuilding costs and home values may increase or decrease, so if you haven’t adjusted this replacement value for several years, you should take some time to reconsider it. Underinsurance is a more common problem that most homeowners think it is.
For example:
- According to one study by a building cost analysis firm, about 60 percent of U.S. homes are underinsured by at least 17 percent. In that case, homeowners would have to cover $34,000 for a home replacement of $200,000.
- This out-of-pocket expense could mean draining savings accounts or incurring extra debt.
Besides considering the true rebuilding costs of your home, you should also consider the kind of dwelling coverage that you have:
- Actual cash value: Actual cash value, or ACV, insurance will deduct depreciation from your maximum replacement value. If your roof, plumbing, and other fixtures are a few years old, you’re going to have to pay the difference when you rebuild.
- Replacement costs: In contrast, replacement value policies don’t subtract any depreciation, but they will only pay up to the amount stated in your policy. This is a typical option for many homeowners, and your mortgage company might require it.
For even more assurance that you won’t end up short, you might also choose a guaranteed replacement value policy. These allow for higher expenses that may be caused by inflation or additional costs. In some cases, guaranteed replacement value coverage may come bundled within base policies, but if it’s not, you can also add an extra endorsement to give you this extra security.
Calculating Your Home’s True Replacement Cost
You can do some of your own calculations to estimate your home’s replacement value. A Google search or call to a local construction company should help you find the average rebuilding costs per square foot. For a rough estimate of home building costs in Wisconsin, you might use $150 per square foot.
Also, remember that typical rebuilding projects may also include demolition and hauling away damaged parts, so you probably won’t have adequate coverage if you only consider building costs. Rebuilding after damage may cost more than building from scratch on a clear lot.
You should also know that your agent will have access to updated software that’s been customized to account for all of the typical costs associated with home rebuilding after covered hazards. These agents can also learn more about your goals and expectations to suggest the best type of dwelling coverage for your unique needs.
