Understanding Residential Reconstruction Cost

Most Insurance companies today perform an home inspection after a new homeowner policy is issued. I am consistently asked Why is the insurance coverage amount greater than the current market value? Below is some insight into WHY....

Although we are always mindful of housing values, construction activity and other related trends, insurance companies adjust their coverage limits based on the costs to rebuild after a loss. Experience has shown that rebuilding figures often are significantly higher than the costs associated with building a new home.

Rebuilding versus new construction. Newly built homes usually do not include features added after occupancy, such as interior decorating, window treatments, expensive electronic systems and home theaters. The promise is to rebuild a policyholder's home to the same specifications of the original at the time of the loss. Doing so can lead to higher costs due to high-end custom features and the use of materials that are difficult to replace.

Unreported renovations. Homeowners spent $276 billion on home renovations in 2008; 30% of that amount ($83 billion) is attributed to high-net-worth households. Two-thirds of these home improvements, from expensive electronic systems to ornate window treatments are not reported to insurance companies but would be covered under a replacement cost contract.

Building in bulk. Developers buy a large parcel of land, subdivide it into building lots and turn a profit on both the land and the home. A contractor rebuilding a single home must make all his profits from a single source. Additionally, when building several homes, materials are bought in bulk at substantial savings.

Increases in labor and material costs. Labor rates in the construction industry increased by 4.5% in 2008, while materials used in residential construction increased by 4.9%. Costs increase even more when rush orders and additional labor are necessary to rebuild a home in a short time frame.

Resale value versus replacement cost. The average resale value for homes in the U.S. dropped about 11% in 2008. However, the cost to replace a damaged home went up. According to Xactware, a supplier of software used to process 80% of U.S. property claims (used by the six largest insurance carriers), the cost to repair a property after a loss increased 5.8% in 2008.

Sources:1 Joint Center for Housing Studies, Harvard University, 2009 2 U.S. Bureau of Labor Statistics3 4Q 2008 House Price Index, Federal Housing Finance Agency, February 20094 2008 Property Report, Xactware, February 2009

Underinsured Homes

Under Insured Homes DID YOU KNOW....

If you have not reviewed your homeowners policy in the last 5 years you are most likely under insured. Construction costs and construction materials have increased along with the real estate market.
The amount to rebuild your home today is significantly higher then it was 5 years ago. The worst time to find this out is "at the time of a claim." Contact your insurance agent and request a "replacement cost estimate", this will provide you what the correct amount is to insure your home. There is also information available on the web. Don't wait until its too late!

Floods in Pennsylvania

Did you know that Pennsylvania has one of the highest rates of floods?

It indeed does, despite the fact that PA is not a coastal state. More flooding occurs in PA then most any other state. The bad news is most Pennsylvanians don't consider purchasing flood insurance because its not on the coast. The good news flood insurance in Pennsylvania is inexpensive for most homeowners. Next time your homeowners renewal is due, ask your agent what flood insurance would cost to insure your home. A property listed in an "X" zone will cost you $388 annually for $250,000 dwelling coverage and $100,000 contents.

Remember, your homeowners insurance policy does not cover floods.

Homeowners Insurance

The marketplace for homeowners insurance is changing swiftly, no longer is it the norm to insure your multi-million dollar home with your standard homeowners insurance policy.
Several insurance companies offer specific contracts for the multi-million dollar home. These insurance contracts offer coverage and terms that were frowned upon in the industry such as "Guaranteed Replacement" and unlimited coverage.
Insurance companies have provided unprecedented benefits for the high-net worth individual purchasing these multi-million dollar homes. You may be familiar with the California wildfires that destroyed dozens of homes, one particular insurance company saved 12 homes by dispatching its own fire company to place fire retardant on its insureds homes to prevent damage. The insurance companies are putting together hurricane preparedness units to avoid paying millions in damages. The benefit to the insured is obvious, the home is not severely damaged, Irreplaceable items are saved. The benefit to the insurer is millions of dollars saved not paying claims.
The personal lines insurance industry is taking a page from the commercial sector and providing loss prevention and risk management as opposed to sitting back and waiting for a catastrophe. The new realm of insurer's no longer provides the standard cookie-cutter homeowners policy.
What's your home worth? Have you looked at what your homeowner policy covers.
Homeowner insurance is overlooked until you have a claim and then its too late. Review your insurance annually. Follow this link to Trident Insurance Agency and we'll review it with you. Don't wait