House Insurance - Should I increase my replacement costs?

August 28, 2016 7:41 PM

I got my next house insurance bill (due in October.) My Dwelling and Other Structures (house + detached garage) are listed at a Limit of Liability which is 5% less than the house/garage cost four years ago and at least 20% less than it would cost to replace them now (since house building hasn't gotten cheaper and my house has increased 10-15% in value according to real estate comps.) Should I increase the Dwelling and Other Structures coverages to cover what it would really take to rebuild my house?
posted by ITravelMontana to Home & Garden (4 answers total)

Replacement cost is rebuilding cost - not how much your house would cost today. That means it excludes the cost of land, and that cost shouldn't have increased in the past 4 years (at least not appreciably), and depending on your area could be quite a lot less than the home purchase cost.
posted by brainmouse at 7:51 PM on August 28, 2016

Has your house increased in value 10-15% or the property your house is on? In Los Angeles, it's almost always the value of the land and not the dwelling built on it, which depreciates quite rapidly. Perhaps in Montana it's different depending on the value of the land for other purposes.

In any case, I would always carry coverage for actual replacement cost. But then again, we live in Los Angeles, and who knows when a semi from the nearby freeway or a wildfire or something else (not an earthquake, can't afford that coverage) could total our dwelling.
posted by infinitewindow at 7:51 PM on August 28, 2016

Most insurance companies try to estimate what it would really cost to rebuild your house based on some assumptions about your house using square footage, number of bed/bath and general quality as well as local construction costs. It is in their interest to make sure you don't underinsure (both because they make more money and also because customers are very unhappy if they need the coverage and don't have enough).

Call your insurance agent and ask them whether they did a calculation of how much it costs to replace your house or if they are just relying on your estimate. Also ask if they cover overages - some plans will cover x% over the value of insurance if needed to complete reconstruction. Also check to see if it covers building code upgrades - that can be an unpleasant extra cost if you have an older building.

Once you have this information, you will be a better position to see if you want to change the policy coverage.
posted by metahawk at 8:23 PM on August 28, 2016 [1 favorite]

and at least 20% less than it would cost to replace them now

That seems totally normal. You're not rebuilding your land.
posted by DarlingBri at 5:24 AM on August 29, 2016