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???
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.
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...
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
So how to assure convergence between reality and insurance adjustors?
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.
On Tue, 11 Nov 2003 12:49:05 GMT, BinaryBillTheSailor@Sea++.com wrote:
The confusion seems to be replacement VALUE (market value) and
replacement COST (cost to rebuild). Some companies will not just write
a check for the replacement cost. They require that you actually
Exactly. If you choose not to rebuild, you will most likely receive Actual
Cash Value: Cost to rebuild house today - depreciation = money you get less
deductible. For example:
House built in 1953 burns down. Owner chooses not to rebuild. Cost of
rebuild is $130,000(which is the amount the home was insured for) - 50 years
of depreciation. Owner may expect roughly a little more than half for the
dwelling. He can also expect to pay to have the home torn down and hauled
away himself, plus paying all the fees, inspections, tests and whatnot to
make sure the property is safe to rebuild on, etc. Items that the insurance
company would have picked up had the owner wanted the home rebuilt - to a
This is just in rough-speaking terms, your insurance policy may vary...
When 2 back to back tornados tore thru here about 6 years ago, about 95% or
more of the houses in the city and surrounding areas were re-roofed, and a
lot had siding damage, etc....
Most of us got say 75% of the estimated cost for the repair, and if that was
what you wanted, you took the money and that was that. Claim done, keep the
money, do whatever. If you wanted to actually fix your house, you used the
75% advance (or whatever the percentage the ins. co. paid, it varied by
company) to get the contractor started. Then you got the final payment upon
completion of the work, and presentation of the final bill the insurance
pays the balance of the claim.
So if you want to replace, they pay the full cost. If you want to take the
money and run, they depreciate.
You worry too much. First, replacement cost isn't the price you paid.
It's the price of replacing the house. Your land simply won't burn,
no matter how far you are from a hydrant.
Second, replacement cost is a formula based on square footage and
construction costs. You can easily find the average cost per square
foot for the type of construction you have, and insure for that. If
you're just estimating, try $150 per square foot and see how close you
are to what a new house, less land, would be.
And last, call your agent. They're the only ones who can assess your
specific needs and recommend the appropriate insurance. If you don't
trust them, find another agent.
Oh, and go buy a fire extinguisher.
Not all insurance agents are crooks. Talk to an agent of your concerns
and he'll come up with proper policy. I think you worry WAY too much.
You can have current market value replacement policy with inflation
rider. Isn't it enough for you? For the contents, you can make itemized
list with video document. We're talking about building and contents,
don't care about land the house sits on. Land never perishes.
I have a house insurance, cabin insurance which is out in the boon dogs,
business insurance. If I were like you, I'd never have a good night of
Jeff Cochran wrote:
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.
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.
Your insurance agent should be able to be of some help. They should be
familiar with building costs in your area, and such, and can help you
determine the correct coverage. You can review your existing coverage with
any competent agent anytime, to be sure your coverage level is adequate. In
my area, for new construction, there is about a 4 to 1 ratio on land value
In other words, if a lot is selling for $100K, the target price is to build
a house in there for a total cost of about $400K. Those are very
approximate. If you are really worried, have an appraisal done to see what
the current cost of completely rebuilding a similar structure on the same
lot would run, and see if your policy would cover that.
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 !!!!
But the issue is precicely full value. How to prove it without selling my
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.
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.
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.
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