We are purchasing our second home while we maintain the first one as a rental property. The home we are purchasing is 5,000 and was built in 1974. A simple search of real estate listings in our city shows that a new home in a nicer neighborhood (much larger, actually) can be purchased for 229,000 or less.
So far, all the home insurance companies are giving me quotes with a replacement value for my home ranging from 229k-249k. How is it possible that replacement costs for my older home could higher than purchasing a brand new home with more square footage in a better neighborhood? Is there a method of disputing these findings?
San Francisco Home Insurance Related Sites
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- I lost my eMac in a house fire. What will my insurance company give me in replacement of that?
- Can an house insurance company drop you if you are having a dispute with a neighbor?
{ 4 comments… read them below or add one }
"Replacement cost" is not based upon what you can buy a DIFFERENT home for. It is based upon anticipated cost of replacing the home you own (along with its contents) at today’s costs. Understand that the new homes you cite come with NO personal possessions, such as furniture, etc. The value of the annual premium is based upon the potential for payout in a FULL loss, such as if the home burns to nothing but ashes.
Talk to your agent. My understanding is that replacement costs are based on constructions costs, not the purchase of a comparable property.
To dispute this I would do the following:
Contact one or two contractors [or even 3] and give them the specs on the house in question in terms of square footage, add-ons, updates etc. Even have them come over and look at the place. The contractors should be able to give you a reasonable figure telling you how much it would cost to rebuild your home as it stands now regardless of what new homes in other locations are fetching these days.
Just a note regarding "replacement" value. Replacement coverage of your contents is a separate issue from the replacement costs of the home itself. You can have replacement coverage insurance on the home itself but not on the contents if you so choose.
I had the same issue with my insurer. In addition, they raised the deductible where I would technically be responsible for almost everything except full destruction of the property by fire. The odds that your home will be a total loss are minimal unless your neighborhood is subject to arson and vandalism. To make a long story short I dropped insurance on my property and set up a separate account where I put the money and self insure the home. I have thousands saved and likely I won’t need to do costly repairs. Make inquiries about fire insurance only, perhaps you could work out an arrangement.