Reconstruction Cost Skyrocketing

[mschwennes]

What is the name of your state (only U.S. law)? CA

Bought my first and only home in 2004. I have had the same house insurance company from the beginning. My house insurance (then) had a reconstruction cost of $250,000. In 2008 (just looking through my old insurance receipts) it went up to $444,000. Now, it is being listed by my insurance company at $560,000. I just ran a house replacement estimate with an online company and it says the reconstruction cost for my home is currently $320,000. This last figure is reasonable, based on my 2004 reconstruction cost of $250,000. Can someone please tell me:

1) why my insurance company is rating my home's current reconstruction cost at such a greater number ($560,000)?
2) Am I paying more for my premium than is necessary because of the inflated estimate?

Please, I would appreciate your input.
Thank you for your time.

 

[adjusterjack]

1) why my insurance company is rating my home's current reconstruction cost at such a greater number ($560,000)?

I am a retired insurance pro and my last job was property claim rep so I had access to construction cost estimators. In the years since I have used online home replacement cost estimators and found them to be all over the map.

Insurance companies use different software from company to company so there isn't much uniformity.

If you have Inflation Guard coverage, or any other kind of coverage that guarantees you replacement cost without penalty for being underinsured it's likely that your company increases the amount of the dwelling coverage every year without addressing the actual cost to rebuild your home.

Much of the software includes the foundation and site preparation in the total even though those items aren't usually replaced even with a total loss.

2) Am I paying more for my premium than is necessary because of the inflated estimate?

Absolutely.

The higher the insured value, the higher the premium.

If you feel that $320,000 is enough to rebuild your house in the event of a total loss then insist that your insurance company endorse your Coverage A down to $320,000.

If the underwriters balk, find yourself another insurance company.

However, make sure that $320,000 is adequate.

Construction costs when I retired 10 years ago were about $2 per square foot. I don't think that's changed much in the last ten years. The gummint says that there hasn't been much inflation since then.

If your house is about 1600 square feet then $320,000 should be adequate. But if your house is larger than that or you live in a better than average quality home, you might want to revisit some of those online estimators and get a cost range from a couple of them.

Try building-cost.net. It's free and I've used it for several years now and found it to be reasonably accurate.

If you like, you can post your $320,000 evaluation and I'll give you some comments.

 

[mschwennes]

Thanks for the information. I've tried to post the estimate I got from building-cost.net, twice now. It's not getting posted, for some reason.