I often speak about the need for coverage re-evaluation when consulting new and existing clients. Everyone is so caught up in the price game that coverage often times takes a back seat. In short, here is a great example of the difference between Market Value and Replacement Cost valuations.

One of the biggest questions consumers have regarding homeowner's insurance revolves around the amount of insurance to place on their dwelling (home). When purchasing a house, the mortgage company requires the homeowner to obtain insurance prior to closing. Most consumers assume the amount of dwelling coverage will be equal to the amount they paid for their house. This is incorrect in some cases.

There are different methods to determine the value of a house. Market value is the price paid for your house. Replacement cost is the price or cost it will take to rebuild your house in the same spot, same size and same quality of construction, at today's costs. Insurance companies use the replacement cost valuation. These can be two completely different numbers.

For example, a home purchased in a depressed city neighborhood, may have a market value of $120,000. The exact house, located in a nice suburb, may have a market price of $285,000; however, the cost to rebuild the house after a loss would be the same in either location. The insurance company is looking to insure the home for the full replacement value, not the current market value. Remember, they are going to pay to build you a new home, not buy one for you down the street.

For insurance purposes, you should insure your home or business building to 100% of it's replacement cost. This will ensure the ability to rebuild the entire property, the way it is now, in the event of a total loss. One thing to remember, you're not insuring the land so leave this out of the replacement cost evaluation of the dwelling.

Consult with your insurance agent and explain your home in detail regarding: square footage, number of bedrooms, bathrooms, kitchen, basement, fireplace etc. Insurance companies use a formula to generate the correct replacement cost. The coverage amount and the premium might be a bit higher, however you'll be properly insured. After a claim occurs is not the time to find out your insurance is not adequate. Having 100% replacement cost on the dwelling takes away this possibility.

Replacement cost re-evaluation should occur minimally every five years.

If you are looking for a second opinion regarding the replacement cost of your home or business, feel free to contact us at http://www.lcinsurancegroup.com

 Looking forward to hearing from you.

Chuck Lurie

L C Insurance Group, LLC