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The home in question is 80 years old, in serviceable condition and very large with multiple fireplaces, wood paneling, indoor fountains, 7 bedrooms, 3 car garage, and guest apartment. The land (1.5 acres) is worth at least $350K, and the entire property (house and land) is worth roughly $550K market value.
I realize that "replacement value" is higher than market value, but in the event of a catastrophic fire, you would not rebuild, but you would sell the land to someone who wants to build a new mega house and move to a smaller place. You can't rebuild to specifications an 80 years ago.
One insurance company insists on insuring to $1.6 million, and the other say $900,000 is sufficient. I am trying to make a determination of sensibility of this claim. The home is owned outright without any mortgage. My question is:
(1) Does anyone else have replacement insurance at THREE times their market value?
(2) Does an insurance company ever pay out anywhere near the replacement value? It's not like a car, where they determine it's value and simply purchase the car from you if damage is too bad.
(3) We are getting premium payments calculated at a ratios of two to one. I would have expected a much narrower range from a mature industry. Is this common, or should we be wary of the company with the lower payments?
The home in question is 80 years old...with multiple fireplaces, wood paneling, indoor fountains,
7 bedrooms, 3 car garage, and guest apartment. The land (1.5 acres) is worth at least $350K,
and the entire property (house and land) is worth roughly $550K market value.
You don't insure land (or land value).
Moving on... the issue is only about the +/- $200,000 worth of "house".
(if your land value claim/estimate is correct)
Quote:
One insurance company insists on insuring to $1.6 million, and the other say $900,000 is sufficient.
I am trying to make a determination of sensibility of this claim.
Replacement is about the particulars of construction - methods, materials and features...
and NO it doesn't require any correlation to "market value" of the property.
That said, the numbers you are being quoted are bizarre.
Find an independent insurance adjustor and appraiser...
and then leave the sales people alone to their offices.
The insured value should only be for the home. and not the land. They calculate based on estimated cost to rebuild the same home today...based on sq footage and level of finish and bedrooms/bathrooms/materials. If it has fancy important woodwork and top of the line hand crafted plasterwork and artistic murals and fountains, then the calculation to rebuild is going to be higher because those items would be redone at today's prices.
Most HO insurance calculations cover contents (furniture, clothing, electronics, appliances, accessories, etc) at a standard valueof 50% of the buildig cost and this usually cannot be lowered even if your furnishings are sparse.
If the home rebuild cost is $600k, then they insure your contents for $300k even if you only have contents worth $50k if everything was repurchased brand new today.
I think there are HO different policies where you can get the home at either 'repacement cost' (newly built today)....or 'stated value'. Maybe you should consider a stated value policy. This is where you insure for let's say $350k for the home. That's what insurance will pay you for a total loss. You can set the price and they pay no more than that.
As far as coverage for contents, you can get full replacement cost (today's new price) or you can get current market rate(today's used value0) for your contents. I forgot the terminology for used value. Maybe it's actual value versus full replacement cost.
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You didn't mention the square footage, but with 7 bedrooms I'd guess at least 4,000. With average finishes that would cost about $800,000 to build at the current rates here, so with the addition of furniture and appliances I would consider the $900,000 amount as appropriate. Construction costs have risen greatly since the recovery started, with many more projects starting up again. The ratio of replacement cost to values is very much worse than yours on manufactured homes, where a double-wide built in the 1970s could be considered to have a value of $0 yet replacement cost is well over $100,000.
You don't insure land (or land value).
Moving on... the issue is only about the +/- $200,000 worth of "house".
(if your land value claim/estimate is correct)
Replacement is about the particulars of construction - methods, materials and features...
and NO it doesn't require any correlation to "market value" of the property.
That said, the numbers you are being quoted are bizarre.
Yes, I believe that the market value of just the house is $200K . A 0.68 acres lot two doors away sold for $153K in Dec 2007. So I think this lot at 1.67 acres would be worth at least $350K (maybe more if subdivided). The market value of the the entire property is $550K.
At 4366 sq ft the replacement value of $895K works out to $205 per square foot.
To rebuild the house as it exists today, is essentially impossible. The construction techniques don't exist. The house has over 20 steel I-beams, etc.
In the event that a massive fire levels the house, would they just give us $895K and let us sell the land (and pay for our own demolition)?
Last edited by PacoMartin; 09-07-2013 at 09:30 AM..
In the event that a massive fire levels the house...
A highly unlikely event. But a serious fire would do a lot of damage that the insurer would be obliged
to remedy. The cost to clear the mess and *then* to replace the balance is even higher.
Quote:
...would they just give us $895K and ...?
You could try to negotiate anything. Deep in the policy there's a protocol describing the options
and what rights the insurer has to do/accept that. But I doubt it would ever be for the full amount.
Don't know where you are, but when I worked for an insurance agent in NY, we would lower the value of a house at an insured's request, if they signed that they were advised against it and what it meant for them. This was for one of the major carriers that only has captive agents - YMMV is you're trying to deal with a different company (like a direct sales company) as they may not have this capability.
I'm not sure why Mr. Rational is advising you to hire an adjustor - they have nothing to do with insuring a home. They come in AFTER you have a loss.
And no - they aren't just going to give you $900K to walk away.
I'd suggest going with a large company that can send someone out to your house to see what they are insuring, and talk to them about your specific situation. THey should do this anyway, but many don't.
And no - they aren't just going to give you $900K to walk away.
I'd suggest going with a large company that can send someone out to your house to see what they are insuring, and talk to them about your specific situation. THey should do this anyway, but many don't.
For some reason, the current company raised the replacement value from $1 million to $1.5 million over the past 3 years. The rate has jumped up by 40%.
Homesite has agreed to take over the insurance at $900K or $205 per square foot. The fee will be reduced back to roughly what it was with Motorists Mutual a few years ago.
If anyone has any specific information on Homesite, I would appreciate it.
I have dealt with a handful of different insurance situations. While it is easy to vilify the motives of insurance firms the FACT is that these firms are generally HIGHLY regulated and the staff they have is VERY MUCH biased toward complying with all the shifts that the industry has seen over the years -- where once upon a time the "sales side" executives were able to call the shots and devote major resources to battling other insurers for lower rates to attract clients the recent past that has seen MANY true catastrophes strain the ability of the investment planners / re-insurance specialists / acturaries to run the business profitably.
Bottom line if the insurer is suggesting that you NEED $205/sq ft of coverage I would START by assuming that they have valid reasons for suggesting this (not the least of which is beyond total loss things like fireplaces and fountains and 3 car garages and multiple kitchens / guest apartment) such as the FACT that larger homes TYPICALLY have more opportunity to make claims of all kinds! You have more roof area to be damaged in a windstorm, more plumbing issues, heck even more potential for a guest or worker to hurt themself than in a more modest home!
That said, it is STILL A GOOD IDEA to consult with SEVERAL independent insurance brokers that will shop for the various kinds of covereage that may legally be offered to you -- especially given the fact that you are NOT using this property to secure a debt you MAY be elgiible to get coverage that folks with a mortgage are not going to be offered. The fact is that if you, as presumably a wealthy individual, may choose to deal with a leaky fountain in a very different way than somebody who has a big mortgage and if the same sort leak occurs right when they are close to defaulting on that fat mortgage the liability is very much diffferent...
"Let me tell you about the very rich. They are different from you and me. They possess and enjoy early, and it does something to them, makes them soft where where we are hard, and cynical where we are trustful..." -- F. Scott Fitzgerald
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