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What is Your Home Worth? Insurance to Value

As an Insurance Advisor I have to ask a lot of questions during TBI’s Total Review of Insurance™ to get all the information required to properly insure a client.  When discussing homeowners insurance with clients, and especially first-time homebuyers, the majority of the people I talk to have the same the question when we discuss coverage:

“Why in the world is the amount of coverage on my dwelling/building so high?” 

This question is usually followed by comments like: “I couldn’t sell my house for this,” or “I didn’t pay even close to that for this house.”   The thing to know in this case is that we are not insuring a house for fair market value, or what two people can agree to buy or sell a house for, but rather we are insuring it for its replacement cost. 

To determine replacement cost of a home, we ask questions like:

• How many square feet is the home?
• Are there any decks on the home? 
  AND
• Is there a garage?

All of these questions are used to determine the current cost to rebuild your home with today’s prices for materials and contractors.  Insurance companies insure the house for what it would take to rebuild the home from scratch, as well as incorporate the costs for removing the debris from the house if a disaster were to take place.  It is very important to get accurate answers to the questions during our Total Review of Insurance™ process to make sure your home is insured for the current value needed to replace it with like quality or kind. 

Many times, while completing a review for a client, I will find the home is actually underinsured, and will bring it up to its current replacement cost.  Many people rely on the guaranteed replacement cost often included in a homeowners’ insurance policy, but this endorsement will only take effect if a current Insurance to Value (ITV) has been completed on the home.  Many people also focus on looking for the “cheapest” price when insurance shopping, but this is a mistake.  It is important to consider the replacement cost of your home so there are no surprises later.  For example, when writing up your policy, many insurance companies will search for your home using Google Maps to see if the house you’ve described in the paperwork matches what they see on Google Maps.  If there are discrepancies, they will raise the replacement cost of your home so it is properly insured, and in turn will raise your premium.  The “cheapest,” best deal you thought you had is no longer the “cheapest” and best.

Get the details right the first time and have your Insurance Advisor look at the replacement cost of your home at least every 3-5 years to ensure its value is accurate and up-to-date so your guaranteed replacement cost coverage will kick in in the unfortunate event of a claim.     

Ray Barnwell is an Insurance Advisor – Personal Sales at Thunder Bay Insurance.