Full Replacment Value Homeowners Insurance

**irmanator** · 08-25-2010, 06:03 PM

Ok this made me wonder if this is required. My new insurance told me it was. My old insurance just insured me for the cost to pay off the loan. When I bought this, my first house, I was under the impression that it was simillar to car insurance in that if your house is totalled your loan got paid off and you would move on in life. The new insurance I got told me that I am REQUIRED to rebuild. That I CANT pay off the loan and move somewhere else.

I am in NY if that helps.

**PMMM** · 08-25-2010, 08:19 PM

That is an interesting concept imanator.
I never thought of that.

That if the house burns down will you just pay off and then I can take the money and sell the property. I need to ask the question. I'm thinking it's the same here that the house would have to be replaced rather than taking the money and running. I'm going to ask the question. I'm still unclear about the need to pay the premium for "full replacement" of contents and house. Especially in this time of home depreciation.

I'll have to ask some more questions of my insurance company.

Thanks

**irmanator** · 08-25-2010, 09:35 PM

Well let me know what you find out. I am not nessasarily lookin to take the money and run so to speak. If I have insurance for full replacement value i have no problem rebuilding. But I am not so attached to the house or location that I wouldn't be tempted to save by only insuring pay off value. Pay off would be 40k plus contents but they said I have to insure my 40k house for 120k because that is what it would cost to rebuild it. I am not sure I could because it is grandfathered in and I don't think we could get zoning approval to build a new house in this spot. The reason is the houses are about 8 ft apart and new zoning says each has to be 6 ft from the property line which would be 12 ft apart.

**PMMM** · 08-26-2010, 06:02 AM

I will. Sounds like a real conundrum.

**jIM_Ohio** · 08-26-2010, 07:03 AM

You have two issues

1) you need to repay the loan you have
2) you need to rebuild the house

My first comment is ask your insurance agent.
My second comment is know your market
My third comment is ask your insurance agent.

Here is my "story".

We bought in Dec of 2005 and I have had same insurance agent for years. He is a known member of the community and a good guy (even if he is a salesman).

The house we bought was new construction, so the value of the policy, whether replacement cost, or value of the house is the same on date construction finished.

In 2006? we bought new cars and had some discussions with agent. Because we do cars and house with same insurance carrier, he will always shop both and find lowest overall cost. When he did this, he told me he had to change the value of my house (regardless of 2007 sales trends) because he needed to confirm we could rebuild this house if it were destroyed. He said anytime a new policy is created on an existing house he is "required" to use replacement costs (not house value) and this is very dependant on materials costs- so if cost of materials goes up, its possible a 300k house is insured for $450k because of material costs, even though the house itself is only appraising at $250k.

He says every 2 years or so, the insurance companies change their formula, so his comment was make sure its replacement cost, but make sure replacement cost can also rebuild the house. For example if cost of materials is lower than the repayment number, you still want to insure for the greater of those two numbers.

Insurance is designed to protect you, so make sure you can rebuild house and pay off loan. This also changes if the value of your property is worth more than your house. I have a friend which has a 300k house on 30 acres. The 30 acres is worth a few million (builders try to get him to sell from time to time), but the house is only worth 300k (he lives about 5 minutes from my house; if his house was in my neighborhood, it would sell for about 300k). However in his location, someone could buy his house for 10 mil, knock down the house, and property might now be worth $10,500,000 (worth more without the house).

Check with your insurance agent.

**jpg7n16** · 08-26-2010, 07:32 AM

I don't have homeowners, but the right amount is: the full value of the property only.

100% of total value of residence minus value of the land

You don't need insurance on the land. Dirt can't be destroyed by a house fire.

**wincrasher** · 08-26-2010, 10:06 AM

Be cautious about how much insurance you are buying.

You don't insure the value of your land. Only the buildings.

**jIM_Ohio** · 08-26-2010, 10:19 AM

Originally posted by jpg7n16 View Post

I don't have homeowners, but the right amount is: the full value of the property only.

100% of total value of residence minus value of the land

You don't need insurance on the land. Dirt can't be destroyed by a house fire.

Just beware

if you are underwater
an insure the value of the property only

you might be 100k-200k short to pay off your loan

you need to know your market
if you have 50% equity your risks are different than if you have 20% (or less equity).

you may need to buy gap coverage

**maat55** · 08-26-2010, 01:59 PM

Some of these policies allow you a percentage above the value you are insuring. I went ahead and insured for around 30% more than value with an additional if necessary.

The cost was not that much more. I would rather be covered than surprised later.

**snafu** · 08-26-2010, 09:14 PM

As to content: I didn't realize we had 'replacement' value for content as part of house insurance policy. We had a break-in many years ago and what was inconvenient to steal, they trashed. It was a hassle to prove all electronics and a lot of work to replace all those items but I appreciated the sales agent who included special details.

BTW, it's a good idea to transfer photos of your stuff to a CD stored off site. It's important to have a system for receipts for items costing more than $100. perhaps in your Insurance file or where ever you keep the policies.

**PMMM** · 08-27-2010, 08:30 PM

Very good idea. I have taken photos of everything in my house including s/n of anything of any great value. My insurance agent's office is close by so he has a copy and I also keep a copy of it in my safe. I try to update it as least annually. I have never had a claim but my insurance agent suggested it. I thought it a good idea and complied. Hopefully I will never need it.

PMMM

**tripods68** · 08-28-2010, 09:45 AM

I've done all photos for my house, inside and any of great value. I'm insured 150% replacement value on my dwelling with inflation protection. I told my insurance company my house is worth about 210K (owe 265K) in this market that means i'm fully insured up to 310K if it all goes out in smoke. Likewise, we hope we never have to use it....

**snafu** · 08-28-2010, 01:47 PM

I fail to see the benefit of insuring over 100%. The insurance company is not going to hand you $310K if disaster strikes. Unless you have non traditional policy, you will be required to have 3 quotes for each construction replacement step. In some instances, the insurer pays the contractor, trades and suppliers. The rooms will be covered in the same configuration as original. Some items will be upgraded due to code but you will have to negotiate with insurer who is trying to do as cheap a replacement as possible. Energy efficient windows, heating, insulation etc. is fight,, fight, fight. Ask all those folks in Kristina's path who are still fighting to get re-built!

**curtis.lesa** · 08-30-2010, 02:04 AM

Most people don't need a deductible of $250 or $500. If they had to, they could cover the first $1,000 of a loss. You'd be surprised how much that will reduce your premium.

Full Replacment Value Homeowners Insurance