On Wed, 08 Sep 2004 11:28:02 -0500, John Willis
wrote:

| On Wed, 08 Sep 2004 14:59:35 GMT, "Claudia"
| scribbled this interesting note:
|
| Let me step in here on the "replacement" policy value. Replacement means
| that if your house burns down and it is 35 years old and codes have changed,
| it will bring your house to code.
|
| How many homes have your personally built with your own hands? How
| many homes have you personally repaired and taken apart and put back
| together? Changes in foundation specifications and other code
| requirements are not that big of a consideration when thinking of cost
| of building. Sure, these items will drive up costs some, but not in
| any truly drastic way, especially when you realize that most of us
| don't live on tectonic plate fault lines or on volcanoes in flood
| plains or in the path of every hurricane that comes along.
|
| Replacement value means exactly that. The cost to replace your home
| with a new home, and yes, up to current code, that was pretty much
| just like your old one, on the same lot.
|
| Then there are people like me who can built a house from the ground
| up. My cost to replace my house would be far less than yours because
| I'd be doing most all the work myself, and yes, it would be up to
| code, and more importantly to me it would be built to my more exacting
| requirements which, if you had a house built just like it would
| probably cost you almost double what I'd spent. Why should I have to
| carry the same replacement value on my house as my neighbor who may
| have the exact same house in the same exact condition since my cost
| would most likely be less than his?
|
|
| --
| John Willis
| (Remove the Primes before e-mailing me)

John, you seem to be the exception, not the rule. You can't really
give very good advice on how to insure a home if you would do most of
the reconstruction work yourself.

By the way, replacement policies I've owned take into account the
differences between the market value of the home, the value of the
land, and the cost of rebuilding the structure (and the cost of
replacing the contents, don't forget that).

The problem comes in when the so-called "replacement" policy actually
stipulates the maximum cost of rebuilding -- in other words,
essentially sets a cap on it.

While this is not a new wrinkle, a lot of policies here in the US that
were originally written with no "cap" are now being renewed with a cap
built into the new policy, generally without any clear notification of
this change. I'm told that most policies in the USA now have this
limitation. This protects the insurance company -- if the amount is
higher than your policy states, they won't pay the extra amount. If
the amount is lower, they still collect the fee for the higher
insurance value.

The problem for homeowners and even for agents is deciding what is a
reasonable dollar amount for this rebuilding value and making sure the
policy states at least this value. Then as the cost of rebuilding goes
up, the policy has to keep up with the increases. My policy has a
built-in percentage added each year to keep up with inflation and
building cost increases. The land is not insured. I've noticed that
the percentage is generous enough that it now slightly exceeds what I
think is the reconstruction cost. And of course, I pay for this with a
larger premium.

I could reduce the amount of the coverage, of course, and lower the
premium somewhat. But do I, a mere homeowner, really know what it
would cost to rebuild if my house was burned to the ground? Doubtful!
So like most of us poor saps, I am forced to keep the amount somewhat
larger than I think I really need -- or else get some sort of
re-appraisal every year, which I doubt anyone would do. And how would
you know if you can trust the construction estimate if you got one? If
you have ever dealt with construction, you know that the cost always
exceeds the estimate.