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Replacement Cost vs. Market Value

By Scottie McNelly

What one question do I answer most often, besides billing question? Why are you making me insure my home for more than it’s worth? I cannot sell my home for that price, or I do not owe that much on my home so I don’t need that much insurance? Or, I can rebuild it myself. Trust me, I hear you. In times where your home value has gone down and the price of everything, including insurance has gone up, the last thing you want is to feel like you are over insured. A home is often times a family’s most valuable asset, their biggest investment. It’s my job to make sure the insurance company knows the facts about your home so that if disaster strikes, there is enough coverage to: Hire a general contractor, obtain required permits and access construction materials and labor costs. I also have to keep in mind that if a catastrophe occurs the prices of materials go up as supply goes down. Each carrier has a guideline for insuring a home through a replacement cost calculator. The carrier requires that the calculation is followed in order to provide replacement coverage. The calculation is based on zip code, location, cost of labor using a professional contractor, type of home and building materials used to build the home. When an insurance company has to rebuild your home the cost is more like paying for a customer job in the sense that it is one job, and bulk discounts do not apply. As a decent insurance agent, it is my job to make sure you have enough coverage if the worst happens. It’s also my job to make sure you know all your options for coverage’s and lead you to the ones you need, such as replacement cost of your home or personal property, personal liability, jewelry coverage, water damage coverage, hurricane, flood or earthquake coverage.

The alternative to not having replacement cost on your home is not always the least expensive policy. This is because the national, name brand carriers with good reputations do not offer a policy without replacement cost. More and more these days, you have to go to a non-standard market to get a policy without replacement cost. Those non-standard carriers are not able to offer as competitive prices as the other carriers. And often times these non-standard carriers have fees and taxes and are not regulated by your state, therefore do not have to follow state laws and rating and underwriting rules. That makes them unstable. They can cancel your policy at anytime, raise premiums at will, and does not make them accountable in the event of a claim.

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