Aug 20

Why do I need that much coverage for my Home Insurance?

Home Insurance

One of the most common questions we receive these days in regards to Home Insurance is, “Why do I need that much coverage for my house?”  It’s a great question to ask, so we thought it might be worthwhile to explain how the coverage amount is determined and why that amount may appear out of line with the amount a homeowner may feel they need.

As we’ve seen over the past several years, market values of homes can fluctuate greatly.  Thankfully, the amount of coverage is not based on a property’s volatile market value, but it is based on the Replacement Cost.  In fact, the market value of the home has little (almost no) impact on the amount of dwelling coverage that should be included with the policy.

So, how is the Replacement Cost developed?  The Replacement Cost is developed by gathering specifics about a particular house and then inputting those into a Replacement Cost Estimator.  The Replacement Cost Estimator calculates the approximate rebuild cost, and this amount is then used to set the Dwelling coverage limit on the policy.  The kind of information used includes:

  • Living Area square footage
  • Number of bathrooms
  • Types of upgrades (countertops, floors, ceilings, trim, etc.)
  • Garages
  • Porches
  • Roof material and complexity
  • Other items about a home that could impact the cost to build/rebuild the home

In theory, the Replacement Cost Estimates would be very similar from company to company, but in reality, each Estimating platform may vary to some degree.  Home Insurance companies generally pick a specific estimating platform for consistency, and that system becomes the primary basis for any quotes with that company.

When we provide a Home Insurance quote, we take time to develop a realistic cost to rebuild the home, which may vary from the amount the homeowner may have initially expected or desired.  We are happy to provide the details of the estimate to see if we missed anything, as we don’t want anyone to have too much or too little coverage for their home.  We’re also happy to walk through the process and assumptions with you to help you be comfortable with the other coverage you have.

If you have any questions about this topic, or if you have any other general questions, please don’t hesitate to call or e-mail us at anytime…