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The most common question I get as an agent about homeowners insurance is “why is the dwelling / replacement cost so much higher than the value of the home?”  On average, it cost around 30% more to rebuild a home than it does to build new. How is this possible?

·         Demolition and Debris Removal – New home construction normally begins on an open lot. Rebuilding begins with a partially or totally destroyed structure occupying the lot.  Parts of the structure and foundation may still be standing but unusable, requiring demolition and removal. A lot of work is usually required before construction of the new home is even started.

·         Access to the worksite – During brand new construction the construction area is usually open and has easy access. During reconstruction homes, lawns, fences trees and other landscape often make it more difficult to get the materials and machinery to the worksite.

·         Specialized Labor– Reconstruction is often completed by contractors who specialize in rebuilding. Their specialized labor tends to be more expensive

·         Protecting the undamaged part of the home – Keeping a partially destroyed home from further damage until permanent repair are made.

·         Changes in building code- Costly updates may come with the changes to building codes

·         Tear Down Before Building Up – New construction is built starting at the foundation. Replacement starts by clearing out the debris and saving what can be saved before starting the construction process.  In some cases where the home isn’t completely destroyed, they may need to replace the roof and build from the top-down.

Generally Insurance companies use a cost estimator (estimation) to determine a replacement value. This means that at time of a total loss, you may not have enough coverage to rebuild your home. Chances are you are covered, but why pay for an uncertainty?

Example; if you have a replacement value of $200,000 and after all is said and done, it cost $300,000 to rebuild, the insurance company will only pay $200,000. You are on the hook for extra $100,000.

Most companies offer 20%-50% replacement. Meaning that they will cover 20% over the stated replacement amount.

One of the companies that we represent offer guaranteed replacement, giving you peace of mind that your investment is properly protected. 

Know your coverage. Understand your coverage.

Feel free to call us and ask about your options. We have noticed that most people purchase whatever insurance was convenient at the time in order to close on the home, never actually looking into the coverage itself.

We are more than willing to give you a genuine, free and easy policy review. Our goal is to better inform our friends, family and communities about their insurance by providing better products and customer service. We want to set a standard, eliminating the “take my word for it” way doing business. 

Posted 2:06 PM

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