How much home insurance do we need?
July 28, 2014 10:38 AM Subscribe
We're looking to switch providers, and the quotes are based on very different replacement-value amounts. What do we actually need?
We bought a house last year for $PP (purchase price). At that time I went with the employer-discount-associated Company 1 for home insurance, who insured it for $PP of replacement value. For Reasons, I'm looking to leave Company 1.
Company 2 is quoting our replacement cost as 150% of $PP, and the quote comes out to $850/yr, while Company 1 was insuring us for $PP at $430/yr.
I know that replacement cost is "the cost it would take to rebuild your home". I'm not a contractor, but I also understand that whatever the cost would be, it's highly variable. I do think Company 2's 150% value is too much, as bigger newly built homes close by are selling for much less. The quote for Company 2 came from their generator, which took square footage, 'builder grade' bathrooms, attached garage, etc. into account and spat out the 150% of $PP number, saying we should be insured for that much.
So, are we currently underinsured? How would I know, short of finding, and wasting the time of, 3 contractors?
We bought a house last year for $PP (purchase price). At that time I went with the employer-discount-associated Company 1 for home insurance, who insured it for $PP of replacement value. For Reasons, I'm looking to leave Company 1.
Company 2 is quoting our replacement cost as 150% of $PP, and the quote comes out to $850/yr, while Company 1 was insuring us for $PP at $430/yr.
I know that replacement cost is "the cost it would take to rebuild your home". I'm not a contractor, but I also understand that whatever the cost would be, it's highly variable. I do think Company 2's 150% value is too much, as bigger newly built homes close by are selling for much less. The quote for Company 2 came from their generator, which took square footage, 'builder grade' bathrooms, attached garage, etc. into account and spat out the 150% of $PP number, saying we should be insured for that much.
So, are we currently underinsured? How would I know, short of finding, and wasting the time of, 3 contractors?
A few years ago I got a copy of the RS Means Residential Square Foot Costs book. Coupled with a CPI or inflation calculator and the geographic adjustment factors, it has been very useful.
I've mostly used it for estimating costs for DIY building permits, but it gives you a set of tables at granularity from "x square foot residence" to "y dollars per electrical socket". I can highly recommend it or something similar to every involved homeowner; even though it's for new construction it's great to push back on contractors to ask "why do you think that's a reasonable estimate", to double-check insurance quotes, to negotiate with the county tax appraisers, and...
Yeah, grab a copy.
posted by straw at 10:56 AM on July 28, 2014 [1 favorite]
I've mostly used it for estimating costs for DIY building permits, but it gives you a set of tables at granularity from "x square foot residence" to "y dollars per electrical socket". I can highly recommend it or something similar to every involved homeowner; even though it's for new construction it's great to push back on contractors to ask "why do you think that's a reasonable estimate", to double-check insurance quotes, to negotiate with the county tax appraisers, and...
Yeah, grab a copy.
posted by straw at 10:56 AM on July 28, 2014 [1 favorite]
Rules of thumb for housing construction cost (this are all purchased price numbers):
For a new home, in a new subdivision: 140-160 a square foot for entry/low market 'tract' homes (builder grade)
Just building cost: 80 a square foot
the difference is in the land cost and all the infrastructure cost-the street, sidewalk, water meter, sewer, park down the street, systems development charges, and so on.
If you are rebuilding the structure on the existing lot these infrastructure costs do not apply.
posted by bartonlong at 11:11 AM on July 28, 2014
For a new home, in a new subdivision: 140-160 a square foot for entry/low market 'tract' homes (builder grade)
Just building cost: 80 a square foot
the difference is in the land cost and all the infrastructure cost-the street, sidewalk, water meter, sewer, park down the street, systems development charges, and so on.
If you are rebuilding the structure on the existing lot these infrastructure costs do not apply.
posted by bartonlong at 11:11 AM on July 28, 2014
Yeah, it seems to me like even $PP would be too much for rebuilding, since you're not rebuying the land and bringing the utilities in, you're just rebuilding the structure. $80/sf seems a little low in the real world, though I do understand that this is the metric that's generally used in figuring rebuild costs. Real world seems to me to be more like $100-125/sf for basic builder-grade stuff. (Costs are lower when builders do developments rather than a single dwelling, since they can buy all the wood, all the pipe, etc. at once and get larger discounts. If they're just doing a single house and not getting those volume discounts for parts and labor, the same house that was $80/sf originally could be more like $125/sf for the same stuff.)
Someone mentioned replacement value of objects in the home. At least on my policy, this is a separate line. I have four lines in my personal property coverage: dwelling, other structures, personal property, and living expenses (and then another section for liability).
I recently went through an audit of my home coverage, because I felt like the replacement value was too low, and my insurance agent went through a bunch of questions with me, which included things like what kinds of walls, flooring, siding, and fixtures I had, to do a real good estimate of what the replacement cost would be. After we went through that process, I was much happier and more confident that I had the coverage I need. Maybe ask your insurance agent what they can do to make sure your coverage is really what you need.
posted by rabbitrabbit at 11:47 AM on July 28, 2014 [2 favorites]
Someone mentioned replacement value of objects in the home. At least on my policy, this is a separate line. I have four lines in my personal property coverage: dwelling, other structures, personal property, and living expenses (and then another section for liability).
I recently went through an audit of my home coverage, because I felt like the replacement value was too low, and my insurance agent went through a bunch of questions with me, which included things like what kinds of walls, flooring, siding, and fixtures I had, to do a real good estimate of what the replacement cost would be. After we went through that process, I was much happier and more confident that I had the coverage I need. Maybe ask your insurance agent what they can do to make sure your coverage is really what you need.
posted by rabbitrabbit at 11:47 AM on July 28, 2014 [2 favorites]
> I do think Company 2's 150% value is too much, as bigger newly built homes close by are selling for much less.
This is not the proper measure for replacement value. One factor to consider is how much it would cost to get a contractor to rebuild a part of the home if only a part is damaged. Complete losses happen, but partial losses are much more common.
posted by yclipse at 4:13 PM on July 28, 2014
This is not the proper measure for replacement value. One factor to consider is how much it would cost to get a contractor to rebuild a part of the home if only a part is damaged. Complete losses happen, but partial losses are much more common.
posted by yclipse at 4:13 PM on July 28, 2014
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It may be worth talking with an actual agent (or broker). They'll ask questions like what's in your house (clothes, jewelry, other valuables, antiques, etc etc) because the value of those things play into the amount of coverage. There are some worksheets I've seen online for that as well.
Company wise, USAA is a company that gets high praise here (I don't qualify), then there's the rest that you see advertised everywhere. Pick a few, interview etc. To compare, you'll probably want to keep coverage and deductibles the same, or close to the same across companies. I'm pretty sure our insurer gave us 3 or 4 different prices for various combinations.
Plus, talking to a broker may help get you lower rates if you have all insurance (house, auto) in one place (multi-line discounts etc).
Our twice a year statement lists what they think the replacement cost is, based on market conditions etc. So your $PP is really not relevant, but how much you trust the insurance company to accurately judge what it would cost to re-build your house is.
posted by k5.user at 10:52 AM on July 28, 2014