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In Part 1 of this article we met Sam, who is concerned about whether his homeowners insurance policy will completely cover replacing his home. In order to help him decide his coverage amount we will start collecting data to determine both the most appropriate replacement value and coverage.

1) For the replacement valuations, we reviewed the replacement cost estimates from the carriers he (and we) contacted, including some Insuretech companies where all the evaluation is done online. The e2Value estimate was still the higher valuation. However, like the burger example in part 1, just because there is an outlier compared to the rest of the crowd, before pulling it out of the mix check if we can explain why it is different than the rest.

Other ways to check replacement value are to speak to local contractors, or review similar new construction listings online—actual construction data.  We’ve all heard about construction costs rising, due to increased costs of lumber, steel, labor, diesel to transport materials, etc., so it was not a surprise to see new home listings much higher than the original replacement costs of $485,000 and $385,000. Some were even higher than $700,000.  New home listings will include value for the land, typically 20% of the sales price but can vary based on location and size of the lot, or you can pull up some land listings to compare as well. 

Once we reviewed the new construction examples and removed the land costs we were much closer to the e2Value estimate.  Sam was leaning towards the higher number to ensure he was protected in the event he lost his home. 

2)  We then turned to coverages, including available replacement cost extensions, rebuilding to code limits, earthquake and flood options. We filled in this chart as part of our comparison of replacement costs.

Replacement cost extensions can provide added coverage above the Coverage A limit. This can give you a cushion in case the total loss is higher than your coverage amount. The extensions can range from zero to adding 25% or more to your coverage amount.

Clients with older homes will want to see a provision for rebuilding to code. Building codes change over time, i.e. solar power is now a code requirement for rebuilding in California. Without the rebuilding to code coverage, you may not be covered for some of these changes.

Policy comparisons, endorsements, options for earthquake and flood should be part of the coverage comparisons and the Coverage A limit determination.

At the end of this process, all the data and the resulting costs clustered at one end of the spectrum. It all pointed to a replacement cost above $700,000.

In the event of a total loss with the original two quotes, Sam would be impacted by a replacement cost that did not cover replacing his home, lower compensation for personal property, and a lower amount allowed for coverage B structures.

In the event of a total loss with the current policy, Sam would be a very unhappy customer. The agent’s and the carrier’s cost for a policy based on an underinsured home would be an unsatisfied customer, negative referral network, decreased customer retention, inadequate premium, lower agent commission, possibly an increased cost of E&O coverage, and a dispute rather than a satisfactory loss settlement.

Accurate replacement costs are a win-win for everyone involved in the process—homeowner, agent, underwriter, claims staff, and the carrier.

Whether you are looking for valuations for high-value homes, Mainstreet® homes, condos, co-ops, commercial properties, manufactured homes, log cabins, or farms and ranches, our patented estimator can quickly calculate the cost of replacing a residential, commercial or farm structure and provide you with a fast, cost-effective and accurate replacement cost valuation.  Contact us for more information about our estimator tools.

Does Sam Have Enough Coverage? Part 1