chartreuse

As I mentioned in the other thread, the discussion prompted me to find what appears to be a much better deal (same-ish price but way more cover than the state minimums, that we have now) on our auto insurance.

But, our homeowners insurance will go up if we lose the multi-line discount. So that got me shopping for alternatives for that, too.

I just got off the phone with esurance. They "calculate" the replacement cost of our house at three times its value.

Now, given that the value of the house is pretty close to the balance on the mortgage, I told him "That's insane! I'm not going to spend three times what this place is worth on rebuilding it. If it's destroyed, I'll pay off the mortgage, sell the lot and go live somewhere else. Maybe add on a few grand for someone to haul off the rubble."

Is this a common scam? Or am I missing something?

Kaffy Mintcake

How old is your house? Does it have features (or materials) that would be more costly if original/equivalent materials were needed to rebuild?

chartreuse

Nope. It's 50 or 60 years old, typical for the area (made out of cheese).

Seriously, it's just a house, with sod all equity in it. We're likely to move out of state within the next to years, so if anything happened (which is unlikely) we'd like as not just rent until we moved, rather than hang around for it to be rebuilt.

sir_eccles

The "replacement cost" is unrelated to the "purchase price". They use a complicated formula to estimate how much it would cost today to rebuild from scratch a house of such a such sq ft with so many bedrooms and bathrooms. As with a lot of things the parts may be cheap, it's the labor costs to fit them that add up. Certain southern states which used to rely on shall we say a cheap labor force are now forced to use a higher cost labor force.

chartreuse

Bollocks. It's just another way of them making you massively over-insure with no likelihood of claiming anywhere near the amount.

scrubbedexpat099

How many sq ft?

meauxna

I guess I'm bollocks too.. I was going to give the same answer, but now you can't have it!

It's the cost to rebuild X #SF. Which reminds me....

chartreuse

The same number of sq ft as it has listed on the policy with my current insurer. Which doesn't mandate an artificially inflated minimum allowable coverage.

Ah, but the difference is:
(a) you weren't patronising and,
(b) you didn't feel the need to shoehorn in a reference to slavery and/or illegal immigration.

So, no bollocks for you!

CelticRover

Correct answer!

Michael

It may be a scam. An insurance company usually doesn't pay more (unless you have a special provision in your policy) than the present value of your house. If it burned to the ground, they will usually only offer the same as comparables in your area. If you argue with them, they may then offer to purchase your property from at a comparable price. So unless your policy has a provision that states they will replace you house up to the insurance policy value, I would be very skepticle (at one time they didn't like to put that in the policy because some people tend to burn their older house down on purpose especially if it was built in the 1940s or 1950s).

If it really does cost 3x the amount to rebuild, there could be a problem though if you don't insure it at 3x the amount. The fine print may indicate that you will only be reimbursed at a certain percentage when rebuilding if you do not fully insure the rebuilding cost of the home. For example, if you have a kitchen fire, they may only reimburse you for 1/3rd the repairs because you are considered under insured by 2/3rds.

You see this happening quite often with contents insurance. If someone breaks in and robs some of your contents and you file a claim for $20,000, an insurance adjustor may come over to your house and appraise the remaining contents and if your claim plus the current contents exceeds the amount of your insurance, you will likely get only a percentage of your claim. If you have a new replacement clause in your policy, he will appraise the remaining contents at new replacement cost.

If you over insure your contents and everything was stolen, they will require you to itemize all the stolen items and you will only get that amount.

Picnic

And in some areas, such as those with homeowners associations, rebuilding/restoration after hurricane/fire/whatever damage is mandatory. You simply wouldn't get the choice to leave the lot empty/home in a derelict condition etc. Its one of the advantages/disadvantages of homeowners' associations.....

ian-mstm

It's important to note that the purchase price often includes the cost of the land you're buying... but even if the house burned to the ground and everything was lost, the land is still there and you still own it. Therefore, you don't need to buy it again... and the replacement cost remains independent of the purchase price.

Ian

meauxna

That.

chartreuse

You may be right. I've been playing about on one site that lets you control the replacement cost and changing it makes very little difference to the premium. So that insurer, at least, doesn't seem to anticipate ever paying the amount you insure it for.

Yes. The policy that I want (market value in the case of write off, actual cost for repairs or replacement of property) doesn't seem to exist. Funny, that.

What's odd is, when I use the state insurance website, for a general query, it gives a wide range of premiums. But when I do specific queries, with the insurers, they all end up being within a few $ of what I'm paying now. It smells fishy - perhaps I should get hold of the CLUE report for this house.

Yep. But they don't make it easy to exclude the land value!

meauxna

What do your property tax records say? Mine includes the land value, and the improvement (house) value, so it's really easy to see what the county thinks my building is currently 'worth'.
It's a starting point anyway.