Question: “How come my insurance premiums keep going up, while the value of my home is going down?”
Answer: “Real estate and insurance teams don’t play on level turf!”
This is a question we hear almost every day. With regard to the answer, the recent economy places insurance agents and real estate agents in totally different ballparks, sometimes on opposite sides of town.
When assessing a home’s value, a realtor will research the sales activity of a similar home, in a similar area, in a similar time frame. Real estate activity is currently down, and home values have followed.
When assessing a home’s value for insurance purposes, an agent calculates the cost of rebuilding your home under the worst case scenario, a total loss. We cannot underestimate the importance of insuring your home to value. The effects of a major catastrophe are difficult enough, without worrying about unanticipated, out of pocket expense. Moreover, insurance policy wording specifies that homes be insured to value to substantiate a claim. If a homeowner knowingly underinsures a home, a claim could be denied.
How do we figure reconstruction costs? The leading authority regarding construction data is Marshall & Swift, a company of MacDonald, Dettwiler and Associates Ltd. Marshall & Swift boasts more than 75 years of market research, appraisal excellence, and cost trend analysis for the construction industry. Insurance companies have relied on this important data for decades.
A Marshall and Swift Replacement Cost Estimation includes corner to corner evaluation of the total cost of reconstructing your home. It includes numerous variables including:
- Square footage
- Year built
- Number of baths and kitchens
- Style of home
- Type of garage
- Features such as central air and fireplaces
The replacement cost estimation does not include your driveway, split rail fence, garden trellis, custom mailbox, or brick patio complete with firepit.
It is important to note that your building coverage amount increases a little each year to keep pace with inflation. Consequently, it may increase your annual premium. However, built in inflation guard protectors may be skewed over time, causing the replacement cost to be higher or lower than true replacement costs. If it’s been awhile since we’ve done one for you, feel free to give us a call at (847) 295-3030 and one of our agents will be happy to calculate a current replacement cost.
Homes over $500,000 may require a professional appraisal. Companies may be willing to provide this service if one has not been done in several years. Just beware that if the replacement cost comes in higher than your current coverage amount, you will be required to increase it and will incur a higher premium.
While insurance agents and realtors realize disparity in our individual markets, consumers in both worlds can recognize that they are currently very different markets. In the interim, don’t over or under insure your home. Call us for an accurate replacement cost, so that the true winner of the game is you.
Authored by Toni Hoy, CISR
