Fire Insurance Nightmare

[Chia Pet]

I've been watching real estate around me with absolute astonishment. After being evicted from our apartment last December because the landlord sold the house, we bought a home for $51k and insured it for $75. We did alot of work on it to make it nice. But regardless of that, real estate prices have gone crazy and we couldn't replace our home with less than $100-125k now, less than a year later.

The other night I had a nightmare that my house burnt down and, even after hopefully convincing the insurance company we deserve $75k, we had $75k and were hopelessly unable to buy a home.

The good news is I woke up and the house is fine and near a fire hydrant and fire house. The bad news is that really is my insurance situation. The purchase price is the insurance company's weapon against a higher claim (the purchase price was abnormally low even then). But replacement even with a $25k increase would definitely be impossible now.

Is there a way out of this nightmare???

[wayne]

talk to your agent it should not be a problem insuring it for the correct cost also many policies cover replacement cost up to 125% of value to cover for inflation if you have to get an appraisal done then do it!

if not change companies.

Wayne

[DaveG]

Yeah- Make sure your policy has enough coverage to replace your house in the event it burns down or is otherwise totally destroyed by an insured event. Keep in mind that part of the value of your house is in the land, which typically doesn't burn down with the house. How much of your home's value is the land? The difference between the land value and the total value is the value of the structure. Make sure you have replacement cost on at least that much, and you should have no problems in the unlikely event your house is totalled in a fire. Make sure the coverage on your policy is indexed for inflation, too. Dave

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[Daniel L. Belton]

I agree 100%. Most companies will insure for replacement value, plus a certain percentage to cover contents. If you need more content insurance, then you have to get extra riders on your policy to cover it. If your insurance doesn't cover replacement value, then you need to talk to your insurance agent to change it. If they won't change it, then it's time to look for a new insurance company...

[someone]

Insurance people are all crooks !!!! Insurance people are the scum of the earth, and are even worse than most lawyers and politicians. Insurance companies are all filthy rich, from ripping off their customers. Not a one of them has ever worked a day in their lives. They just sit on their fat asses and collect your money.

Remember that the next time you pay for insurance. After all, you are paying that crook to sit at a desk, talk on the phone, and play with pens and pencils, while the rest of us have REAL jobs. And they have the nerve to call selling insurance a job !!! YEAH RIGHT !!!!

[jim]

Yes, insure it for full value, that way you covered if the dream comes true.....

[Chia Pet]

Ok, the thing that worries me is this. I insure for replacement value. The insurance company says " replacement value is the cost to buy a similar property - market value - the price you paid, perhaps with an inflation adjustment. Certainly not the price of those other more expensive properties which, based on what you paid, your property surely isn't."

You can buy $1 million insurance on a $100k property. If it burns, you just get $100k.

So how to assure convergence between reality and insurance adjustors?

[Chia Pet]

Exactly my fear. I can pay for more, but how can I actually get what I need. That is my nightmare!

[Chia Pet]

But the issue is precicely full value. How to prove it without selling my home?

Consider the prior owner had the tax assessment so high that after I bought it the taxes were cut in half even though the average property value (and tax) went up 15% in the city after reassessment.

Actual price cut my taxes from the fictitious assessment of the city. Actual trumps some fictional assessment.

So, I have this huge adjustment in my taxes whuich is money from heaven, based on actual selling price. But, then, what about insurance??? There is my nightmare. Actual is very potent.

[Dan Hartung]

Gosh, what a nightmare it is to have your house double in value while you just sit there! The horror, the horror.

Deal with your "nightmare" by considering a reappraisal and mortgage re-fi. (It may be a mite too soon to realize value, but start discussions with your banker anyway.) You'll soon find that the bank is delighted to consider you own a goodly greater portion of the home, because they're only holding the bag for, what, $40K or so of a $100K home. You now can get a lower rate and home equity financing.

Such a nightmare! Glad I'm not you.

That call to your banker might prove enlightening. The mortgage escrow may have built-in insurance, to cover the bank's investment. Between the bank and you you may be technically overinsured. Just find out, this shouldn't be a blank field in your mind.

A downside is that the mortgage may require you to have adequate insurance, depending, and if it's inadequate they'll require you to up it. Just find out.

Sell now, and buy a brick house with the proceeds.

[Chia Pet]

But, but......

Yeah, luck, except I don't see it as an investment. I bought my house to live in. Hell, my brother 5 months ago shunned my neighborhood because he'd "never get his money back." (LOL!). I live in "Tech Valley", but I love living here. I always wanted to live here. I moved here to stay, not to sell and move. It's my home. So, like Silicon Valley, it goes nuts. Yeah, poor me since I just want to live here and have a safe home value insured and I want my taxes to stay reasonable. I don't want to sell and move next door to you! No, really, I just want to live here. That's why I'm afraid.

[Ron Hardin]

You don't have to replace the real estate; so that part of the cost doesn't need additional insurance.

If your house itself actually has risen in replacement cost, insurance companies are happy to insure it for more; the more they insure, the happier they are.

They just don't want to insure it for more than it's worth, because it encounters a moral hazard, namely people making money by setting fire to their house; which raises the odds against them enough for them to notice on the bottom line. They want to be sure you can sell it for more than you're insuring it for, so you sell rather than burning.

[George E. Cawthon]

Sure, just get a replacement policy. It's the insurance company's problem of figuring out what the value is and setting the price of insurance. If the house burns down, they still have to replace it even if they valued the replacement cost too low.

But, you bought a house and a year later it is worth twice what you paid for it and you are whining? I'd be dancing if I could do that. It took at least 10 years for my house to double in value.

[C G]

Yes, pay for an appraisal, which includes a price for rebuilding. Send this to the insurance company and have them increase the insured value of the house.

[Shepherd]

Maybe a doctor could help!

Shepherd

[BinaryBillTheSailor]

Actually, you can't.

Everything you said above is incorrect. You can insure the house for replacement cost. That means if it burns down, they build you a similar house on the same piece of dirt. Not replacement "value" to buy a different house on a different piece of dirt - THE COST TO REPLACE BY REBUILDING. Home insurance is not the same as car insurance. You need to do a little homework. My insurance not only covers the actual replacement cost, but additionally provides the same amount for "loss of use" protection. That pays my rent and other expenses during the time my house is unavailable to live in.

BB

[Phisherman]

Have your local fire department inspect your house. They will do this for free and provide good suggestions. Installing a sprinkler system is better than having fire insurance, plus it could save your life. Test your smoke detectors (and replace them if they are old) and have a fire extinguisher in the garage, kitchen, and basement.

[Edwin Pawlowski]

Have you talked to your insurance agent? There is a "full replacement" coverage that may be suited to your needs.

[Fred Leiter]

We have had the opposite experience, we bought our home for $66k four years ago and did some repairs/improvements (small stuff) and each year our insurance coverage/appraisal has gone up,were insured for "replacement" value which now is up over $130k plus an additional $18k for an "outbuilding" we have yet to locate! Between the house, loss of use and contents, if we had a fire we would be looking at a check for over $275k!

I would talk to your insurance agent asap..

[klmok]

What is the average worth of a house lot as a percentage of the whole property including the house? Since money is very tight its one of those hard choices I will have to make. My 1200 sq ft house is on

8000 sq ft lot in a modest neighborhoods and I think the property si worth $140K. The thinking is that the money not spent in insurance can pay for rebuilding on the same lot. I am in a very low fire risk neighborhoods and being the only house in a corner lot with a single neighbors some distance away, I have even lower risk.