How Much Howeowner’s Insurance?
How Much Dwelling Insurance Is Enough?
“Insurance to Value” is the insurance industry phrase for the amount of insurance that would be needed to build an exact replacement of a home that has been destroyed in a covered loss. This is also known as replacement cost, not estimated market value or actual selling cost.
Market Value, or actual selling cost, is about what you could expect to sell or purchase a home for. Depending upon market conditions, this may be above or below the replacement cost. In the 1980’s, when it was a sellers market, the selling price was well above the replacement cost but the cost to build the home was still the same.
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Some important factors to keep in mind are:
1) Rebuilding costs are usually higher than new construction costs. New construction begins at the foundation and builds upward. Repairing a house that is not totally destroyed often means removing the roof and rebuilding from the top down which is a more time consuming and labor intensive procedure.
2) Unusual materials or features can be expensive to duplicate. Older homes and homes that have been extensively remodeled often have customized features and/or include materials not commonly found in homes being built today. These features and materials can be very expensive, if not impossible, to find.
3) Demolition and Debris removal can add 4%-7% to rebuilding costs. New home construction normally begins on open ground, perhaps with some brush removal, grading and other site preparation. Rebuilding begins with a partially or totally destroyed structure occupying the building site. Parts of the structure may still be standing but unusable, requiring demolition and removal. The site may to be extensively cleaned-after an intense fire for example-the soil may be contaminated or the foundation may have been damage beyond repair. A lot of work is usually required before the first cement can be poured and th first nail hammered in.
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4) Construction costs rise after natural disasters. In the wake of a disaster affecting a wide area-wildfires, hail, hurricanes-the costs of building materials and contractor fee’s early always rise sharply in response to the sudden demand. Even without deliberate profiteering this would normally be true because when local supplies have been exhausted materials have to be brought in on an emergency basis, often from mills, factories and suppliers at a great distance. Whenever homes must be rebuilt or repaired at the same time the cost will be higher than normal.
5) Inflation is often greater for building materials than for the general economy. It is rare that all sectors of the economy respond to the pressures of inflation at the same rate. Construction materials, especially wood products, frequently increase in cost faster than other commodities and significantly faster than the general rate of inflation.
6) Undamaged parts of the home and contents must be protected. Once the fire is out, or the hailstorm has abated, all parts of the property not destroyed must be protected from further damage or looting. This can involve covering a damaged roof, missing window glass and holes in the walls with plastic sheeting and as soon as possible surviving personal items must be removed and placed in storage for safe keeping.
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7) You must carry a certain percentage of the replacement cost coverage on the dwelling or you will be penalized in the event of a loss. Carrying this percentage does not mean your home is properly insured. We recommend, carrying 100% of the full replacement cost of the home.
8) In regards to how much liability coverage you should have a minimum of $300,000 is often recommended. More and more people are also carrying an inexpensive Umbrella Insurance policy to protect against large losses.
Visit our Texas Mobile Home Insurance page for information on mobile homes or manufactured homes coverage’s in Texas.
We help individuals and families with their home owner, renter insurance needs in the North Texas area including the cities Fort Worth, Arlington, Grapevine, Southlake, Keller, Hurst, Euless, Bedford, Azle, Lake Worth, Saginaw, Dallas, Coppell, Argyle, Roanoke and Mansfield. We offer many discounts on Homeowners Insurance.