What would happen in the event of a fire, tornado or otherwise total loss?
While home prices were in freefall during the crash in 2008-’09, construction costs were not. In fact, across the country, construction costs soared. We recommend that homeowners look at two values when insuring their home: the market value and the total replacement cost.
With the sheer number of weather-related disasters, from the Atlantic Hurricane Sandy in 2012 to earthquakes and wildfires in the West, homeowners are finding themselves looking at rebuilding their homes entirely.
The best course of action is to purchase a policy at 100 percent of total replacement cost, regardless of the market value of the home. The purpose of your insurance is to provide you with a replacement for your own home, not to buy you a comparable model in the same neighborhood.
Location makes a huge difference. The same size home with roughly the same features can be double the cost in a new development, or a neighborhood with highly rated schools, than it is in a declining city. However, in the eyes of replacement costs, both homes are of equal value.
We have formulas to determine the correct replacement cost of any home, and the cost will depend on many variables, such as square footage, number of bedrooms, number of bathrooms, kitchen features, the presence of a basement or fireplace, and the like.
A contractor also can give you an idea of your home’s total replacement value by providing an estimate. This will evaluate only the structure and finishes; land is already calculated into market value and is not considered.
The premium on such a policy may be higher, but you will have the peace of mind knowing your home is completely protected financially from disasters.