How can I be sure my home is valued correctly on my insurance policy?
With the present market conditions adversely affecting the sales price of homes throughout the country, many people are unsure how best to value a house for insurance. Here are a few facts to consider:
- A home insurance policy is designed to rebuild your home in the event of disaster, not to simply give you a check for what you can get on the market or to pay off your mortgage.
- Because of the glut of houses that are on the market going unsold in most locales, the market price for a home is very often much less than that to rebuild it.
- An insurance company needs to make sure that they are accounting for demolition and debris removal, as well as a “worst case” pricing scenario to rebuild your home.
- If there has been a large disaster in an area, contractors will generally raise their prices to take advantage of extra demand for their services.
- Most home insurance policies replace your home with materials of “like kind and quality.”
- Nearly all home insurance policies have a “booby trap” within them that states that if you are insured for less than 20% of the rebuild cost the company may take depreciation when calculating what they will pay you on ANY claim. Thus if you are insured for $300,000 and your house costs $400,000 to rebuild, a company can take depreciation and not pay adequately to fix all of the damage.
- A few very high-end policies designed for high value homes will allow you to obtain a check to “cash-out” on a claim.
- In NJ there was a large20 to 30% decrease in replacement cost values around the time of the 2008 bank crisis. Since then, the price of labor, materials, demolition, etc, has increased each year.
Your agent has tools available to properly value your house based upon the type of construction, the year built and the area in which you live.