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Insurance to Value and Market Rate vs Rebuild Amount

By October 31, 2012April 16th, 2019No Comments

Safeco is one our insurance carriers that has a great website filled with useful information. We took some information from them and wanted to highlight several questions that we get asked at least once a week regarding home replacement cost. 

What is insurance to value? 

Insurance to value is the relationship between the amount of coverage selected (typically listed as “Coverage A” or “Dwelling Coverage” on your policy declarations page) and the amount required to rebuild your home. Insuring your home for anything less than 100% insurance to value could mean you wouldn’t have enough coverage to replace your home in the event of a total loss. 

Why is the cost to rebuild different from the market value? 

A home’s market value reflects current economic conditions, taxes, school districts, the value of the land and location, and other factors unrelated to construction cost. The cost to rebuild your home is based only on the cost of materials and labor in your area. It is important that you insure your home based on its reconstruction cost, NOT its current market value 

Why is reconstruction more expensive than new construction?

New-home builders typically build many homes at once, and solicit bids from various sub-contractors to receive the best pricing. Their business model is based on economies of scale. For example, they may purchase 20 bathtubs at once, securing a lower unit cost. These economies of scale don’t exist when building a single home. 

How can I make sure I have the correct amount of insurance?

Work with your agent to provide detailed information at time of purchase to be sure that you receive a thorough and accurate quote. 

Ask us about additional coverage options that may be available. 

Review your insurance to value calculation on a regular basis with your agent. 

Tell your agent about any changes or improvements that you make to your home