What would happen in the event of a fire, tornado or otherwise total loss?
While home prices dropped in a freefall during the crash, construction costs did not. In fact, across the country, construction costs went way up. We recommend 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, like the Atlantic hurricane “Superstorm” Sandy in 2012, earthquakes and wildfires in the West and tornadoes and hurricanes in the Midwest and South, 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.
Independent appraisal firms and most insurance carriers have formulas to determine the correct replacement cost of any home, which depends on many variables, such as square footage, the number of bedrooms, bathrooms, kitchen features, basement, fireplace and the like.
A contractor can also give you a picture of your home’s total replacement value by providing an estimate. This will evaluate only the structure and finishes; land is already calculated in to 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 from disasters.