Check how much home-owners insurance you are buying.

[Jim Nickerson]

I had occasion today to talk with my insurance company (USAA) regarding the upcoming renewal on my homeowners policy.

My policy I suppose has always had an automatic coverage escalation clause intended to keep the value of insurance current with, over the 30+ years I've had the policy, inflation as regarded the cost to rebuild the house in case of total loss. Most years the amount of insurance I bought on whatever house I lived in went up.

Today, it was by chance in discussing something else about my coverage that the lady at USAA made me aware that the current replacement cost to rebuild my house was $173,000. The recent policy I had received that covered the renewal information showed the Dwelling Protection to be $233,000, which is the level the cost to rebuild had risen to back at this time last year 12/09, and from $213,000 in 12/08.

So the cost of rebuilding my home has deflated from the $233,000 in 2010 to $173,000 for the one year insurance period commencing on 12/2/10. Though the premium for this coming year would have increased by about 10% had I continued to insure the house for $233,000.

The point of this post is to suggest to those who own homes that perhaps the cost of reconstructing them has diminished and thus owners may be paying for more homeowners insurance than is needed. I revised my coverage to $175K, thus reducing my previum for the coming year by $120.

[raja]

Re: Check how much home-owners insurance you are buying.

Thanks for the tip . . . .

[we_are_toast]

Re: Check how much home-owners insurance you are buying.

I'm not at all sure the cost of materials and construction labor has dropped at anywhere near the rate the cost of existing housing or vacant land has fallen.

I'd be very cautious about dropping your insurance coverage based on what existing housing around you is selling for. There are plenty of communities now where you can buy a house for a lot less than you can build the same house.

[Jay]

Re: Check how much home-owners insurance you are buying.

I'm not at all sure the cost of materials and construction labor has dropped at anywhere near the rate the cost of existing housing or vacant land has fallen.

I'd be very cautious about dropping your insurance coverage based on what existing housing around you is selling for. There are plenty of communities now where you can buy a house for a lot less than you can build the same house.

I tend to agree. But I know very little about how homeowners is paid out. Do you have to buy a new home on the existing site or can you just take the cash and buy a previously existing place somewhere else?

[Jim Nickerson]

Re: Check how much home-owners insurance you are buying.

I'm not at all sure the cost of materials and construction labor has dropped at anywhere near the rate the cost of existing housing or vacant land has fallen.

I'd be very cautious about dropping your insurance coverage based on what existing housing around you is selling for. There are plenty of communities now where you can buy a house for a lot less than you can build the same house.

The drop in the reconstruction cost of my house from $233K in 2009, to $173K beginning now are numbers derived from USAA, an insurance company with which I have done business for 44 years (and about the only company with which I've done business that did not at some point piss me off--it is an excellent ins. co. IMO).

If it was the company's estimate that it would take $200K today to rebuild my house, the company would not insure my house for a lesser amount. I could over insure my house, and had I chosen I could have continued to insure it for $233K; however, if the house were destroyed and it were rebuilt for $173K, the company would not give me the difference. If with $175K insurance, the house is destroyed, and it costs $185 for USAA to rebuild it, then USAA will suffer a loss on the house.

Again the point of the original posting was to suggest to readers that it is possible that their homes could be over insured. I was not seeking guidance from any of the knowledgeable itulipers about insuring my home.

[Jay]

Re: Check how much home-owners insurance you are buying.

The drop in the reconstruction cost of my house from $233K in 2009, to $173K beginning now are numbers derived from USAA, an insurance company with which I have done business for 44 years (and about the only company with which I've done business that did not at some point piss me off--it is an excellent ins. co. IMO).

If it was the company's estimate that it would take $200K today to rebuild my house, the company would not insure my house for a lesser amount. I could over insure my house, and had I chosen I could have continued to insure it for $233K; however, if the house were destroyed and it were rebuilt for $173K, the company would not give me the difference. If with $175K insurance, the house is destroyed, and it costs $185 for USAA to rebuild it, then USAA will suffer a loss on the house.

Again the point of the original posting was to suggest to readers that it is possible that their homes could be over insured. I was not seeking guidance from any of the knowledgeable itulipers about insuring my home.

Jim when an insurance company rebuilds a destroyed home, do they go off the blueprints? How do they know what finishes you had? I ask in all seriousness.

[Jim Nickerson]

Re: Check how much home-owners insurance you are buying.

Jim when an insurance company rebuilds a destroyed home, do they go off the blueprints? How do they know what finishes you had? I ask in all seriousness.

That is a good question, and as one who has never had a total loss on a home, I can only answer based on what I have come to believe over the years from having had a few minor losses on my homeowner's policy.

For renter's or homeowner's insurance I believe you should periodically photograph your belongings or video tape them--easy to do these days with digital photo stuff.

Regarding the finishes, photos will show it, and in my own case, some years back I submitted a drawing of house's floor plan and a description of the wall and floor coverings. One could tell very close to how many square feet of tile we have, how many sq.ft. of carpet. The lady at USAA conveyed to me that it was much more information than she knew existed on most homes insured by USAA.

I can imagine that if one had a total loss and no copy of floorplan, no pictures, no nothing that one would have a lot of headaches in trying to collect what actually might be due from an insurance co.

[Jay]

Re: Check how much home-owners insurance you are buying.

That is a good question, and as one who has never had a total loss on a home, I can only answer based on what I have come to believe over the years from having had a few minor losses on my homeowner's policy.

For renter's or homeowner's insurance I believe you should periodically photograph your belongings or video tape them--easy to do these days with digital photo stuff.

Regarding the finishes, photos will show it, and in my own case, some years back I submitted a drawing of house's floor plan and a description of the wall and floor coverings. One could tell very close to how many square feet of tile we have, how many sq.ft. of carpet. The lady at USAA conveyed to me that it was much more information than she knew existed on most homes insured by USAA.

I can imagine that if one had a total loss and no copy of floorplan, no pictures, no nothing that one would have a lot of headaches in trying to collect what actually might be due from an insurance co.

Interesting thanks.

[Jim Nickerson]

Re: Check how much home-owners insurance you are buying.

"Builders say construction costs are down 15 to 25 percent."

"That translates into an average cost of $100,000 to $140,000 for just the "sticks and bricks" (without land) for a modest, 2,000-square-foot house."

"That same house cost $140,000 to $190,000 to build during the peak of the housing boom just four years ago."

The above comments support what I wrote was my experience in opening this thread. The comments here are taken from http://www.calculatedriskblog.com/20...fter-bust.html

[ThePythonicCow]

Re: Check how much home-owners insurance you are buying.

"Builders say construction costs are down 15 to 25 percent."

How can that be? I was not aware of any reductions in the cost of labor or materials needed to build a house. What shrank?

[we_are_toast]

Re: Check how much home-owners insurance you are buying.

How can that be? I was not aware of any reductions in the cost of labor or materials needed to build a house. What shrank?

Maybe it's a local phenomena? I've been looking into building a new place and materials are up since 2006, and labor seems to be about the same. But Maybe they're down from the peak of 2008? Just my personal observation for where I am.

[zoog]

Re: Check how much home-owners insurance you are buying.

How can that be? I was not aware of any reductions in the cost of labor or materials needed to build a house. What shrank?

From the link within the link

"A typical laborer used to make between $150 and $180 a day," observed McKernan. "Now (he or she is) making $60. Yeah, it's sad."

[raja]

Re: Check how much home-owners insurance you are buying.

Jim when an insurance company rebuilds a destroyed home, do they go off the blueprints? How do they know what finishes you had? I ask in all seriousness.

My insurance company just cuts a check, they don't care how it's spent. I can blow the money in Vegas if I want.
I can insure the house for as little or as much as I want, as long as I don't go over what they think the house costs to rebuild.

There is a certain limit to how many "personal" items I'm covered for . . . clothes, computers, dishes, etc.
The value of any damage claims in this area needs to be verified, so I just went around the house, took photos of the open closets, tools, etc., then put them on a CD which I keep in my car (figuring that wouldn't be destroyed in a fire at the same time as the house).

My insurance company figures in cost of the foundation and septic system in with the "rebuild" costs. It's unlikely that I'd have to rebuild the septic system, or even the cement block foundation (although I understand that sometimes that can get damaged), so I always under-insure.
I use a $1000 deductible.

This has been my experience with all previous insurance companies.