Homeowners Insurance/Replacement Cost

[blueriver]

I'm a little aggravated with my Insurance company and replacement cost.

I do not have a mortgage therefore if I elected I really would not have to purchase insurance ... But I like the security and I live in Tornado Alley.

Last April I got my bill and paid it in full ... yesterday I get a notice that my homeowners policy has a payment due. I send an email for an explanation.

Here is the response:

On 05/17/11 an inspection was done on the home. This is practice on all new business policies. At the time of the inspection it was determined that the dwelling coverages needed to be increased. This is to allow for a more accurate calculation of the estimated replacement cost in the event of a total loss. Replacement cost is not relevant to your mortgage amount, market value, etc. Market value is what a buyer would be willing to pay for your home in today痴 economy. Replacement cost is the amount needed to replace or repair your damaged property with materials of similar kind and quality without deducting for depreciation. Remember that our policies do not cover the land in which your property is located, and so our estimate of replacement cost does not reflect this. Overall the cost of rebuilding has been on the rise averaging 3% per year for the past decade

Soooo here's my thoughts ... where was I when this inspection took place? How did they get in? My entrance's ... one is locked and one has a keypad ??? "Practice on all new Business Policies" ???? I have been insured with them since I bought the peoperty and most certainly am not a "new business policy" ...

Also why can I not pick my amount of coverage? I do not need to satisfy a mortgage? Just satisfy myself and my wife ...They say I have to have $186K replacement cost ... I DON"T THINK SO !!! I am in the Real Estate profession and in todays economy ... well the entire farm would play hull bringing that in SE Oklahoma !! Besides that, their message stated it didn't cover the land just the home ... **** I wish they would cut the check for the home and get it out of here!!!!

Lets assume I want say $75K on the home ... in the event of a loss I would be the only party who would have to rebuild with that amount or put some towards it? Why and how can they dictate to me the amount of coverage I must have? What if I lost it and decided to put in a $50K double wide?

Well I'm fighting with them and was told if I do not pay by Feb. 1st a cancelation notice for non-payment will go out.

 

[Bird]

Good luck. Right now, I figure my tax appraisal at about 4.67% more than the place would sell for (using Zillow.com estimate of value). And the insurance company's appraisal, based on their cost to rebuild as you are saying, is 48.72% more than I figure the place would sell for, or 42.08% more than the tax appraisal. $174k rebuilding cost in my case. In other words, unfortunately, I don't think your situation is unusual and I'll be surprised if you win, but if you do, be sure to let us know how you did it, so I can do it, too.

It would seem logical that you could insure for whatever amount you want to, and in the event of a total loss, receive up to that amount, but that's not been the case, in Texas at least. If you insure for less than 80% of their estimated value, in the event of either total or partial loss, you can't even collect the amount you insured for. You get substantially less.

 

[dmccarty]

Talk to your state's insurance commission about the issue. We have talked to them several times and they have been very helpful. We have not always gotten the answer we wanted but at least we knew the rules/regs/laws.

Your situation is odd. Do you have an agent to talk to or just talking to whom ever picks up the phone at the 800 number?

Can you get better insurance cheaper or at the same cost from another company? We use Farm Bureau and they have been awesome for us. :thumbsup:

Later,
Dan

 

[wjmst]

Find another insurance company. I was with State Farm for about 16 years and never really looked into the insurance. This past summer I started to comparison shop. I was able to get BETTER insurance for about 25% less than what I was paying with State Farm.

State Farm tried to tell me I wasn't comparing apples to apples and asked to see the quotes for them to look over. I sent them the quotes and never heard another word about it, so I switched.

I try to be loyal as possible, especially to companies that treat me well, but don't rip me off, especially for 16 years!

 

[murphy1244]

Find another insurance company. I was with State Farm for about 16 years and never really looked into the insurance. This past summer I started to comparison shop. I was able to get BETTER insurance for about 25% less than what I was paying with State Farm.

State Farm tried to tell me I wasn't comparing apples to apples and asked to see the quotes for them to look over. I sent them the quotes and never heard another word about it, so I switched.

I try to be loyal as possible, especially to companies that treat me well, but don't rip me off, especially for 16 years!

Who did you end up with?? I've been with State Farm since 87 Now time to do some shopping. Tanx

 

[ultrarunner]

I'm by no means well versed in insurance... did pick up a few things being around my Grandfather that sold insurance.

It used to be a crime to blatantly insure in item for much more than fair market value... even fraud because it greatly exaggerated value leads to fraudulently claims.

Many companies now require the structure be fully rebuilt to collect the maximum...

Also... there is a theory that if the insurance carried will cover 75% of the cost to rebuild... then you are in effect 75% insured and this can be used to pay smaller claims... the 10k of damage might be reduced to a $7500 payout.

Also remember that in today's market it often does cost more to rebuild... building codes and the cost of demolition and disposal of the old structure are two big ones.

I have also found insurance to be anything but straightforward...

 

[ericrm2005]

Ill throw in my 2 cents worth here. I am an underwriter for a national ag property and casulaty insurance carrier. We dont do homeowners insurance, but it all works very similarly.

You should be able to choose from replacement cost, actual cash value, or stated amount. It sounds to me like you would like stated amount coverage. Insurance companies generally dont love to do stated amount, but you SHOULD be able to find someone to do that.

If you are covered for replacement cost as of now, it is important that you and your insurance company come up with what you think the house is worth and agree on it. Coinsurance will come into play if and when you have a claim. If you arent insured up to the value that your insurance company determines the property is worth, you will be only paid a portion of the claim. It is kind of complicated, but you will be paid roughly the same percentage of the claim as the percentage you are insured to for the property.

I definately see both your and the insurance companies point on this issue, but I do get that its frustrating.

Hard to explain, but make sure you get things straightened out or it could bite you in the a** if you had a claim.

 

[ericrm2005]

Ohh, one more tid bit of info.

Ask your agent if you can be covered under "functional replacement cost".

We come across this quite a bit. One of our insureds might have a 50k bushel bin, but in all reality only need a 25k bushel grain bin anymore. In this situation we would cover them under Functional Replacement Cost. Under this covererage we understand that if the bin were destroyed he would not need to replace it with a 50k bin, only the 25. He therefore only pays for the amount of coverage he needs for what he determines is a "functional replacement".

Again, I do not know if these options are available for residential property insurance, however I would imagine they are.

Sorry for rambling, haha. Good Luck.

 

[Bird]

Ask your agent if you can be covered under "functional replacement cost".

I never heard of that before, but it certainly sounds reasonable. However, I'd be very surprised if it applied to residential property, and especially if there were a mortgage involved (which of course the OP doesn't have).

Anyway, I'm glad you posted that; something else new to me.

 

[blueriver]

Talk to your state's insurance commission about the issue. We have talked to them several times and they have been very helpful. We have not always gotten the answer we wanted but at least we knew the rules/regs/laws.

Your situation is odd. Do you have an agent to talk to or just talking to whom ever picks up the phone at the 800 number?

Can you get better insurance cheaper or at the same cost from another company? We use Farm Bureau and they have been awesome for us. :thumbsup:

Later,
Dan

I do have an agent and I am seeking quotes.

 

[ericrm2005]

I never heard of that before, but it certainly sounds reasonable. However, I'd be very surprised if it applied to residential property, and especially if there were a mortgage involved (which of course the OP doesn't have).

Anyway, I'm glad you posted that; something else new to me.

Yea it definately woudlnt apply to a home with a mortgage. Thats going to all be replacement cost. Functional replacement cost is available for commercial property insurance as well as farm owner policies. I am not positive about homeowners, but id bet it is available.

 

[blueriver]

Ill throw in my 2 cents worth here. I am an underwriter for a national ag property and casulaty insurance carrier. We dont do homeowners insurance, but it all works very similarly.

You should be able to choose from replacement cost, actual cash value, or stated amount. It sounds to me like you would like stated amount coverage. Insurance companies generally dont love to do stated amount, but you SHOULD be able to find someone to do that.

If you are covered for replacement cost as of now, it is important that you and your insurance company come up with what you think the house is worth and agree on it. Coinsurance will come into play if and when you have a claim. If you arent insured up to the value that your insurance company determines the property is worth, you will be only paid a portion of the claim. It is kind of complicated, but you will be paid roughly the same percentage of the claim as the percentage you are insured to for the property.

I definately see both your and the insurance companies point on this issue, but I do get that its frustrating.

Hard to explain, but make sure you get things straightened out or it could bite you in the a** if you had a claim.

Thanks ... good to get advice from someone in the business. I have found out that I am not required to have the "replacement" and they are getting quotes together for the "actual cash value"

 

[blueriver]

Ohh, one more tid bit of info.

Ask your agent if you can be covered under "functional replacement cost".

We come across this quite a bit. One of our insureds might have a 50k bushel bin, but in all reality only need a 25k bushel grain bin anymore. In this situation we would cover them under Functional Replacement Cost. Under this covererage we understand that if the bin were destroyed he would not need to replace it with a 50k bin, only the 25. He therefore only pays for the amount of coverage he needs for what he determines is a "functional replacement".

Again, I do not know if these options are available for residential property insurance, however I would imagine they are.

Sorry for rambling, haha. Good Luck.

KEEP RAMBLING ... we all may learn something. I am sending an email to the agent right now asking about "Functional Replacement Cost"

 

[ericrm2005]

KEEP RAMBLING ... we all may learn something. I am sending an email to the agent right now asking about "Functional Replacement Cost"

Did some checking here in our systems. Probably about 10 years ago my company did write rural type homeowner insurance policies. I see functional replacement cost as an option in our system. So, in short, when we wrote homeowners we had it as an option. Some carriers might not offer it, some might. No clue on that front, but push the broker on it a bit.

Here is the form number, its an endorsement that gets applied to your homeowners policy. Give the broker the form number if you have to.

HO 05 30 10 00

It might be a hassle, you might have to go around and around with them and explain to them well I no longer need a 2 story 2000 square foot house now i can get by with 1,000 square foot house on and on, but they definately can do it. Ill shut up now haha, but if you have any other questions that I might be able to answer dont hesitate to ask....

 

[ultrarunner]

After the Oakland Hills Fire Storm where 3000+ homes were lost... there was a lot of public scrutiny on the wording of policies... some that lost homes were popular News Reporters, Judges, Lawyers, High Officials...

The biggest issues were Guaranteed Replacement Costs and Code Upgrades.

Some of the lost homes had been built in the 20's and 30's by architects like Maybeck and Julia Morgan and had intricate hand crafted features like exposed hand carved beams, mosaics and ornate hardware.

From what I know... many eventually did get "Guaranteed Replacement" A broker acquaintance was telling me about one 3,000 square foot home insured properly at the time for $125 per foot... the issue came in when it cost $400 a square foot to replace...

Another issue was some homes that were no longer "Conforming"... small lot, inadequate frontage, egress, fire protection... you have to remember that nearly all reference points were lost... some opted to take cash and got much less because the policy required rebuilding and this was not possible and there were so many lawsuits that many were consolidated.

For a while... no new policies were being written in California as a practical matter...

 

[wjmst]

Who did you end up with?? I've been with State Farm since 87 Now time to do some shopping. Tanx

I ended up going with a local company here in Western PA. I look at it this way. Western PA is a pretty "safe" area. Sure we get all types of weather, but rarely anything too crazy. So when I was with State Farm, I figured I was paying more to the company to subsidize all the losses from the hurricane beach houses, all the towns in tornado ally, and all the western mud slide/forest fire homes, etc.

 

[ustmd]

I ended up going with a local company here in Western PA. I look at it this way. Western PA is a pretty "safe" area. Sure we get all types of weather, but rarely anything too crazy. So when I was with State Farm, I figured I was paying more to the company to subsidize all the losses from the hurricane beach houses, all the towns in tornado ally, and all the western mud slide/forest fire homes, etc.

I am glad you found a solution.

I should mention that there is no such thing as a "local" insurance company. You may have a local agent, the company may have a local name, but any company that is writing insurance is usually very big.

As for subsidizing losses from other places, there is some truth to that, but the reserves that an insurance company needs to cover for potential losses is controlled by each state individually based on the policies that are written in that state and need to be funded from policy revenues from that state.

 

[kco]

We took standard replacement coverage based on a normal square footage when we moved here in 2004.

This past October the insurance company called to re-evaluate our coverage, and I welcomed that. They mainly want to see if we've added structures and if the coverage is appropriate.

Since our coverage was based on a standard house I suspected it did not cover true replacement cost. While not a fancy house it is unique (for these days) because it is 90% built and finished with solid pine, cedar, and fir; harvested and milled from the neighbouring valley 30 years ago. This increased the valuation by 28%.

The good news is I had just paid the yearly premium in September. The insurance company immediately provides the increased coverage and waives the premium increase until the next due date.

Of course we'd never want to collect on insurance. The most likely cause for our house burning is a forest fire. Losing the forest would remove the most enjoyable aspect of living here. We are at the stage in life where we would likely rebuild or buy somewhere else in general area.

 

[Tollster]

Work with them and see if you can do installment payments while you look around at other quotes. I have found that many of the larger US companies are not really worth doing business with IMO. Many have clauses that allow them to refuse payments, particularly after Katrina they started ammending their policy's.
I am also one that refuses to have my home and cars insured by the same company, sure the umbrella can work for others, but I have found the intial rate drops, but then nothing gets reduced, even though the car is 10 years old and has 100k on it. I think changing insurance from time to time is always in your best interest, just to keep them honest.
Also be sure to read the coverage very well, and ask questions. Its always best to be overinsured than under, and in this day and age evrything is expensive, just be sure they don't cut your coverage..acts of nature.....flood after the wind damage destroyed the home...etc..

 

[kenmac]

we had tornados in my area on april 27 of last yr. People had their homes insured for replacement cost when they took out the H O policy years ago. No one from the insurance companies ever came back to re adjust for cost increases ie: building materials, cost per sq to re build, etc,. When the tornados wiped out these homes, the home owners didn't have enough insurance coverage to rebuild their homes & were stuck for the cost over what insurance paid.I recently went with another insurance company for my H O & vehicles. I asked if I could just insure my home (with no mortage) for xxx$ and in the event the house was destroyed by fire, tornado , etc, just collect a check for that amount. (like a life insurance policy) They told me that all they sell now is replacment coverage. I called several other companies & they told me the same thing. ''All we sell is replacment coverage''

Good luck