TRULIA'S BLOG \ MONEY MATTERS
Homeowners’ Insurance: 7 Things to Consider Before Signing
By American Family Insurance | August 26, 2015
Your home is one of the most expensive
investments you’ll ever make, and
it’s important to make sure it’s protected.
For most of us, our home is the center of our world. It’s where
family and friends meet and where we bring our dreams to life. It’s also one of
the most expensive investments you’ll ever make — and so it’s important to
make sure it’s protected.
A homeowners’ insurance policy helps
cover damage from fire, lightning, windstorms, hail, explosions, smoke, vandalism,
and many types of theft. And if you’re forced out of your property because of
covered damage, your homeowners’ coverage may also help pay for additional
living expenses such as a hotel while the repairs are being made.
But before you secure homeowners’ insurance, make
sure you know what you need to do to keep your policy up to date.
What is replacement cost?
Replacement cost is an estimate of how much it would cost to
rebuild your home the way it was before a total loss. It’s extremely important
that the dwelling coverage figure listed in your policy will cover the costs of
rebuilding your home.
Many homeowners incorrectly assume that if a home is insured for
its estimated market value, assessed value, or cost to construct new, they’ll
have adequate coverage if their home is destroyed.
However, replacement cost is not the same as market value.
When you buy your home, you may initially insure it
accurately, but what if you then forget to notify your insurance agent after making significant improvements such as remodeling or
replaced appliances, furnace, etc.? These items will often affect a home’s
replacement cost.
The bottom line: Make sure your insurance policy will provide
the necessary coverage to protect your dreams.
Why is it so expensive to rebuild?
Here are seven factors that can make rebuilding a damaged home
more costly than you might expect.
1. Site access
Rebuilding a damaged or destroyed home amid existing structures
often means limited access for large equipment due to trees, fences, sheds …
the list goes on. If access is difficult, costlier labor may be needed.
2. Site preparation
A badly damaged structure may need to be — sigh —
demolished. At the very least, debris from the damage needs to be collected and
removed before rebuilding can begin. Either way, professionals will need to
prepare the site, and that costs money.
3. Economies of scale
Contractors who build many homes during a short period gain
significant volume discounts from material suppliers and skilled workers. When
they’re rebuilding or repairing an existing home, these economies of scale
might swing out of your favor, resulting in higher rebuild costs.
4. Custom features and materials
Older homes in particular may have custom
features and materials that are expensive, if not impossible, to duplicate or
acquire today.
5. Inflation rate
The cost of building materials often increases at a higher rate
than other products and significantly faster than the general rate of
inflation. What it might have cost to rebuild your home even just a few years
ago could be vastly different in the current market.
6. Supply and demand
If several homes close by are damaged or destroyed by a natural
disaster, local construction costs may rise in response to the increase in
demand.
7. Property protection
Any remaining property and personal belongings on the site must
be safeguarded against further damage or vandalism. This may require placing
some personal property in temporary storage.
Of course, every situation is unique. These recommendations
were developed using generally accepted safety standards. If you have
questions, your biggest resource is your insurance agent. They can help review
your coverage, make sure your policy is up to date, and offer committed support
to ensure your home is always fully protected.
