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My current insurance covers $ 480,000 for the dwelling (bot house for $ 1 mil but i’ts probably worth 700K now). It’s 1500 sq feet. I got a really affordable quote for $ 240K coverage, but is that too low? The salesman said anything more is probably over-insured. The home is in a nice area, has upgraded plumbing, electrical, newer roof but the structure itself is extremely old.
ohhhh ok. I wonder how to figure out how much it would cost to rebuild the house….maybe i should just go with the lower amount, not likely the house will burn down i guess. Why waste more in insurance.
Wow, excellent answers, so glad I asked! It’s so tempting to pay much less for the lower coverage, but what would be the point if God forbid something happened to the home and i don’t get enough to repair/rebuild. They’re all quoting me based on $ 160/sq foot to rebuild when the house has remodeled kitchen, copper plumbing, upgraded electrical, hardwood floors etc etc AND it’s in an expensive city and there’s so much inflation these days…

3 Thoughts on How much dwelling coverage is sufficient for a home owner’s insurance.?
  1. Reply
    July 23, 2011 at 6:55 am

    The amount of coverage has nothing to do with how much the house would sell for.

    You want to have a Coverage A amount that is enough to rebuild the house exactly as it is. The Coverage A amount is based on the cost of construction not the market value of the house.

    If the house burned to the ground, you need to have enough insurance to build back your house exactly the way it was.

    Coverage B, C and D are all a % of Coverage A.

    EDIT: none of the claims I have handed for a fire loss expected the house to burn down. None of them had a warning it was coming. None of them planned for it. More likely than not – the house will not suffer a total loss….but on the chance it does happen, you really don’t want to be under insured.

    Your agent will have a computer program that can square foot the approximate cost to rebuild the house based on it’s finishes. You can also have a general contractor give you a rough estimate.

    Everyone thinks insurance premium is a waste of money…..right up until the time you have to file a claim.

  2. Reply
    Tom Z
    July 23, 2011 at 7:00 am

    $ 240,000 works out to about $ 160.00 per square foot to replace the structure. From a distance it is hard to tell you if $ 160.00 is adequate. Based on the fact that the house at one time went for $ 1,000,000 it tells me that the home has upscale finish, upscale features and perhaps unique construction.

    I would say you would be doing yourself a disfavor by insuring your home for such a low amount. Keep in mind in a worse case scenario where you had a serious fire some of that amount of insurance might be used up in demolishing the remaining structure so you would start out with less cash to rebuild.

    Work with you agent on this. Have him or her go over the calculations they used to arrive at the replacement cost. I have a feeling $ 480,000 is much closer to the true replacement than $ 240,000.

    If you are like most of us your home is your major investment don’t risk not being able to replace the home because you saved a few bucks. Instead of reducing the insured amount ask your agent to quote the savings of a higher deductible.

  3. Reply
    July 23, 2011 at 7:11 am

    If your policy is a “replacement cost” policy, you need to insure the house for the COST TO REBUILD it, not “market value”. What you paid for it, includes the value of the land. What you’d sell it for, ALSO includes the value of the land. Market value is irrelevant.

    If you insure your house for LESS than the cost to rebuild, even your PARTIAL claims will get discounted. Replacement policies have a “coinsurance penalty” built into it.

    That means, if your house is insured for HALF of the cost to rebuild it (check with local builders, but usually it’s going to run around $ 250 per square foot), and you have a $ 50,000 kitchen fire, the insurance company pays HALF the damages. Depreciated, until you get the work done.

    You’re not really trying to insure your house for less, what you’re REALLY trying to do, is pay less for house insurance. “Do it yourself” cost cutting measures are really going to come back and bite you in the rear. I’d strongly suggest raising your deductible to $ 5,000 or even $ 10,000, and that’s where you’ll see a premium savings. Discuss this with your agent, to see what OTHER options are out there, before you make a mistake you’ll regret at claims time.

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