most insurance companies offered homeowners a full replacement cost guarantee which
basically agreed to pay the entire cost of rebuilding a destroyed home even if the cost
exceeded the face value of the policy. Unfortunately for consumers, the times are
Insurance companies now claim that the
replacement guarantee encouraged people to intentionally or unintentionally under-insure
their homes or at least, fail to increase their coverage in the event of a major
renovation or addition. They are also discovering that the cost of rebuilding a home
located in a major subdivision can be far higher than what the original builder incurred
because of the greater economy of scale enjoyed in the original project.
Most of the larger insurers are now capping their replacement cost payouts at
120 to 125% of the face value of the policy. Even if your agent is at fault for
underestimating the replacement cost of your property, you could be the one who loses in
the event of a catastrophe.
There is some concern, of course that agents will now be more likely
to overestimate your property value in order to protect themselves from potential
liability. Only time will tell on this matter.
If you have a concern that your home may be over or under valued on
your homeowners policy, we would suggest calling your agent for an in-home review or
talking with local contractors who have built homes in your area recently. Some
contractors will even examine your home and give you an estimate on rebuilding for a
No one enjoys thinking about the devastating effects of a fire in
their home, but the insurance companies are making the imponderable something you should
indeed ponder very soon.